Mind & Society | July 2020
Abstract: This article uses data from the 2020 TIAA Institute-GFLEC Personal Finance (P-Fin) Index to show that many American families were financially fragile well before the COVID-19 pandemic hit the U.S. economy. Financial fragility is particularly severe among specific demographic groups, such as African-Americans and those with low income. The article also shows that financial fragility is strongly linked to financial literacy and that many Americans are ill-equipped to deal with the financial decisions needed to navigate through a financial crisis. Suggestions are provided to deal with personal finance decisions in times of emergency.
In January 2020, the unemployment rate in the United States was as low as 3.6 percent, and the stock market was reaching record highs. Mild concerns about cases of an unknown virus notwithstanding, the economy was firing on all cylinders. It was amidst this backdrop that the Global Financial Literacy Excellence Center (GFLEC) and the TIAA Institute conducted the 2020 Personal Finance (P-Fin) Index, an annual survey to assess knowledge and understanding which enable sound financial decision making and effective management of personal finances. A long term project that started in 2017, the P-Fin Index measures financial literacy with 28 questions covering eight functional areas, from earning, consuming, saving, investing, and borrowing/managing debt, to insuring, comprehending risk, and go-to information sources. The survey also collects demographic data, as well as indicators of financial wellness, providing insights into the state of Americans’ personal finances. The results of the survey offer several suggestions to assess the potential effects of the current economic crisis. In the next section, we describe those findings and how they can be used to help families become more financially resilient.
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