It’s higher among men than women, but all around awful

“Most Americans lack personal finance knowledge necessary to make appropriate financial decisions in the normal course of life.”

Harsh, direct and (unfortunately) true.

The TIAA Institute and the Global Financial Literacy Excellence Center found that adults answered, on average, 50 percent of survey questions correctly.

Financial literacy is the lowest in the area of comprehending risk, according to TIAA, with only 35 percent of questions on risk answered correctly.

“Given that risk and uncertainty are inherent in most financial decision-making, low knowledge levels on this topic carry implications for Americans’ overall financial well-being,” it notes.

Compared to the 2017 findings, personal finance knowledge remains strong on the topics of borrowing and debt management, with 60 percent of those questions answered correctly.

For many individuals, knowledge and understanding of debt-related topics may emerge from confronting accumulated debt across the life cycle, often from a young age because of student loans.

“Less than one in five U.S. adults demonstrated a relatively high level of personal finance knowledge by answering more than 75 percent of the survey questions correctly,” Annamaria Lusardi, academic director of GFLEC, said in a statement. “Low levels of financial literacy, among not only the young but also people close to retirement, show we need to step up the effort to promote financial knowledge across the entire population.”

The survey found financial literacy is significantly higher among men than women; with a share of 21 percent of men answering 75 percent of the questions correctly, compared to 12 percent among women.

Not surprisingly, individuals who have participated in a financial education class or program answered more questions correctly on average than those who have not received financial education. This positive correlation shows the importance of financial education in schools and the workplace.

The survey asked 28 questions, covering eight areas of functional knowledge:

  • Earning – determinants of wages and take-home pay
  • Consuming – budgets and managing spending
  • Saving – factors that maximize accumulations
  • Investing – investment types; risk and return
  • Borrowing/managing debt – relationship between loan features and repayments
  • Insuring – types of coverage and how insurance works
  • Comprehending risk – understanding uncertain financial outcomes
  • Go-to information sources – recognizing appropriate sources and advice