Polled Adults Score 37% on Retirement Know-How, per Study

Financial knowledge has trended downward in the U.S. over the past nine years, according to a new study by TIAA Institute and the Global Financial Literacy Excellence Center. In January, 3,602 U.S. adults took the TIAA Institute-GFLEC Personal Finance Index, a 28-question test on financial skills. The average respondent only got 47% correct.

In 10 annual P-Fin Index surveys since 2017, this year’s results were the lowest average yet, but the highest average—in 2020—was just 52%. The proportion of low scorers grew steadily, with one-quarter of this year’s respondents getting no more than 25% of the test correct, up from 20% of respondents in 2017.

Of the six test questions concerning retirement, the average respondent got 2.2 questions right—37%. The highest-scoring question dealt with lifetime income (52%), and the lowest-scoring questions concerned Medicare (27%) and the likelihood of needing long-term care (28%). The other questions dealt with life expectancy (33% correct), Social Security (41%) and employment-based retirement savings (43%).

TIAA and GFLEC found higher scorers reported more retirement readiness. Only 44% of those who got zero or one retirement question right reported feeling very or somewhat confident they would have enough retirement savings. Of respondents with four to six correct answers, 70% reported similar confidence.

The highest scorers were more likely to save for retirement on a regular basis (83%) than the lowest scorers (49%) and calculate potential needs for retirement savings (60%, compared with 26%).

On financial wellness, the lowest scorers were four times more likely than the highest scorers to lack nonretirement savings to cover one month’s living expenses. The lowest scorers were also more than three times likelier to spend at least 10 hours per week dealing with finance-related problems.

“[When] people don’t have longevity literacy or retirement fluency, we already know that they’re saving less, but what are the bigger implications?” says Andrea Sticha, research director at Stanford University’s Initiative for Financial Decision-Making, deputy academic director of GFLEC, and a co-author of the report. “Are they way more stressed and then die earlier because of that stress? These are the bigger-picture questions that we are trying to address slowly.”

Demographic Differences

Older generations generally scored better on the test than younger generations, indicating that financial know-how can come with experience. Baby Boomer respondents scored an average of 54%, compared with 49% for Generation X, 46% for Millennials and 38% for Generation Z. The oldest cohort—Silent Generation respondents—trailed behind Boomers at 47%.

On the six retirement questions, Boomers scored highest (44%), followed by Gen X (39%), Silent Generation (38%), Millennials (35%) and Gen Z (29%). Boomers got the highest scores on five of the questions, but for likelihood of long-term care, Millennials had the most correct responses, with 31%.

Since 2017, women’s average test scores have consistently been lower than men’s—44%, compared with 50%, this year. Women also scored slightly lower this year on retirement questions—36%, compared with 38% for men.

The one retirement-related question which more women answered correctly concerned longevity—respondents were given a multiple choice for expected lifespans for 65-year-old men and women. The correct responses—84 years for men and 87 for women—were selected by 36% of women and 30% of men. Sticha says the better performance could be due to women having greater awareness of longevity through higher life expectancy and caregiving.

Asked how TIAA-GFLEC scores may be in a decade’s time, Sticha was hopeful that they may improve as more students take required personal finance courses. Sticha also recommended that financial education be offered at workplaces and at community spaces, such as libraries. While the next decade is likely to see a rise in the use of financial tools powered by artificial intelligence, Sticha says people will still need to know the basics of personal finance.

“I’m not going to pull out my [AI] financial adviser when I stand in line at Starbucks and think whether that coffee fits into my budget,” Sticha says. “I need to have some sort of understanding of my personal finances … and I want to be in charge of it. I don’t want somebody else to run it for me, all these important decisions.”