New Study Finds Financial Literacy Is Improving in America

In the last decade, financial literacy — a previously unheard of term — has exploded into the national conversation. Financial literacy equips people with the knowledge and skills needed to manage money and live financially healthy lives. And several key players — from nonprofits to government agencies — are dedicated to promoting and teaching personal finance. 

But what are the results of these efforts? A new study suggests Americans’ financial literacy is improving.

According to the 2020 Personal Finance Index, which is an annual measure of financial knowledge, Americans’ financial literacy levels have increased steadily since 2017. The study is part of a long-term investigation by the TIAA Institute, a think tank that researches financial security, into U.S. adults’ financial literacy knowledge. 

Here are four key takeaways from the 2020 Personal Finance Index survey that show just how far we've come — and how much further we need to go.

No. 1: Americans score high on personal finance questions

According to TIAA’s research, financial literacy is on the rise. 

U.S. adults, on average, correctly answered 52% of personal finance questions from the survey. Further, 20% of respondents demonstrated the highest level of financial literacy, correctly answering more than 75% of personal finance questions. Thirty percent of those who were surveyed correctly answered 51-75% of the index questions. Topics included:

• Earning
• Consuming
• Saving 
• Investing
• Borrowing
• Insuring
• Comprehending risk
• Go-to information sources

The study breaks down these measurements into differences among genders, generations, socioeconomic levels, and employment status. Here are a few notable takeaways from the study.

• There is a 7% difference between men and women.
• There is an 11% difference between ages 45 and older (58%) and those under the age of 45 (47%).
• There is a 27% gap between household incomes of $100,000 and above and those below $25,000.
• There is a lower level of personal finance knowledge for those who are unemployed or disabled versus those who are employed or retired.

No. 2: Knowledge is highest about borrowing and debt management

Financial literacy knowledge is highest in the areas of borrowing and debt management, according to the study. And 64% of these types of questions were answered correctly on average. 

Other areas where respondents scored above average include saving, earning, and consuming. Each of these subjects scored more than the 52% benchmark average of correctly answered questions.

And from 2017 to 2020, knowledge about seven of the eight subject areas increased — whether marginally or significantly.

No. 3: Financial literacy levels have increased steadily since 2017

In 2017, the inaugural survey found that respondents answered, on average, only 49% of questions correctly. Each year since, the percentage of questions answered correctly has increased by 1%.

The percentage of correct answers by year:

• 2017: 49%
• 2018: 50%
• 2019: 51%
• 2020: 52%

From 2017 to 2020 the percentage of correctly answered questions rose from 49% to 52%. According to the study, this 3% increase is statistically significant. How? The findings suggest a steady increase in financial literacy levels over time.

Further, the percentage of respondents correctly answering more than 75% of the index questions increased from 16% in 2017 to 20% in 2020, resulting in a 4% increase.

No. 4: People with greater financial literacy worry less

There is a strong link between financial literacy knowledge and time spent worrying about money management issues, according to the study.

Further, the study found that workers with low financial literacy levels spend an average of six hours at work each week dealing with financial issues. Workers with high levels of financial literacy spend far less time worrying about their finances — only one hour a week. 

In recent years, employer-sponsored financial wellness programs have increased. Leadership teams are learning that it’s detrimental to ignore employees’ financial well-being. As a result, many businesses host hands-on and virtual workshops to help employees reach financial stability and gain peace of mind. 

As the study suggests, the driving force behind these wellness programs is to ultimately decrease employee financial stress. This includes the resulting work time lost dealing with money management issues.

No. 5: Knowledge is lowest about comprehending risk

But it’s not all good news. Comprehending risk is the lowest area of financial knowledge, with 37% of these questions answered correctly.

According to the index, this subject area is where financial literacy has been lowest from 2017 to 2020. In fact, comprehending risk decreased by 2% this year. It was the only area without a positive gain.

Comprehending risk means understanding uncertain financial outcomes. This metric tests how well Americans understand that an expected financial outcome depends on the full range of possible outcomes, financial implications that affect the outcome, and the likelihood of it occurring.

No. 6: Financial literacy is lowest among Gen Z

According to the study, the financial literacy gap is notably lower among Gen Z compared to other generations — Gen X, Gen Y, and baby boomers. Gen Z correctly answered 41% of questions on average. This is much lower than the 52% score across generations. 

Further, Gen Z scored the lowest in each subject area. The generational divide is greatest in the area of insuring — knowing about different types of coverage and how insurance works. Overall, the metrics suggest that Gen Z has the least amount of financial knowledge across the eight subjects.

Bottom line

The state of financial literacy in the United States is promising. According to the latest TIAA Institute-GFLEC Personal Finance Index, financial literacy levels have steadily improved since 2017.