If I told you there is an eight-question quiz that tested your financial knowledge, how do you think you would score? According to a recent study from the TIAA Institute and the Global Financial Literacy Excellence Center (GFLEC), only 5% of Americans answered all eight questions correctly. Even more surprising, the average score was just 3.7 out of 8, and nearly 60% of adults answered four or fewer questions correctly. Financial literacy has meaningfully declined over the past decade, even though we have more financial information available than ever before.

The TIAA Institute and the GFLEC have developed a measurable way to quantify financial literacy through their Personal Finance Index (P-Fin Index). The full index uses 28 questions in 8 different categories: earning, consuming, saving, investing, borrowing and managing debt, insuring, comprehending risk, and go-to information sources. These are subjects that most adults encounter every year. The P-Fin 8 selects one question from each subject area as a reference point for the full index. It is a benchmarking tool for comparing one’s financial literacy to the general population.

Take the test here to find your score.

Why Financial Literacy Matters

Financial literacy isn’t about memorizing complex definitions or using a financial calculator to solve for the time value of money. It’s simply about making better decisions every day when it comes to your hard-earned money.

Financial literacy is power! Understanding how interest works helps you steer clear of costly debt. Seeing how inflation erodes your purchasing power changes how aggressively you save for retirement. Recognizing the power of diversification keeps one bad investment from derailing your entire life savings. The study found a strong relationship between financial knowledge and financial well-being. People with higher financial literacy generally make better financial decisions, experience less financial stress, and are more confident about their future. That’s encouraging news because financial literacy isn’t something you’re born with, it’s something you can learn.

Why is Financial Literacy Declining

The fact that financial literacy has been declining over past 10 years was the most shocking part of the study for me. We live in a world with an abundance of information. There are thousands of podcasts, YouTube videos, TikToks, blogs, books and TV programs dedicated to helping people learn more about personal finance, yet financial literacy continues to fall.

Part of the problem is information overload. Social media is often full of “financial experts” giving conflicting advice. One source may say that all debt is bad and you should do everything you can to get out of it, and others may say you should leverage yourself with as much debt as possible. It is easy to be overwhelmed. In addition, I believe high schools and universities could do a better job at teaching personal finance.

Personal finance is also becoming more complex. Changing retirement plan rules, investment options, tax laws, college saving methods, student loans, estate and inheritance rules and more continue to evolve The good news is that you don’t have to know everything, you just have to keep learning.

Four Ways to Improve Your Financial Literacy

1. Ask your advisor questions: If your advisor uses a term you don’t recognize or explains a concept that isn’t clear to you, ask. We want you to understand the recommendations being made.

2. Listen to personal finance podcasts: Focus on finding hosts who focus on evidence-based investing and long-term financial planning rather than chasing the latest market headlines. A couple of my favorites are The Money Guy Show, Ben Felix, and The Rational Reminder, all can be found on YouTube, among other platforms.

3. Read books on personal finance: Many of the best financial lessons can be found in books. Even reading one personal finance book a year can make a difference. A few books I would recommend are The Psychology of Money by Morgan Housel, The Millionaire Next Door by Thomas Stanley, The Little Book of Common Sense Investing by John Bogle, and Millionaire Mission by Brian Preston.  

4. Take a personal finance course: Many colleges, employers, and non-profit organizations offer personal finance classes. There are also courses online through Coursera and Khan Academy related to personal finances. The important thing is finding a reliable resource that encourages consistent learning and responsible decision making.

Keep Learning!

One quiz doesn’t define your financial future. Whether you scored an 8 out of 8 or you only answered a couple correctly, the takeaway is the same – it’s never too late to learn. Financial literacy is a skill that can improve over time.

Every question you ask, every book you read, every podcast you listen to, and every conversation you have with your advisor helps build confidence in your financial decisions. At AFG, our goal isn’t just to manage your investments, it is to help you understand the “why” behind your financial plan so you can feel confident in your future. Please let us know if you have any questions.

Jake Spradlin, CFP®

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