In this day and age, managing personal finances is increasingly complex. Middle-class Americans must make high-stakes decisions about student loans, retirement planning, and more -- often with little support or guidance from knowledgeable experts who have their best interests at heart. And for Americans with non-prime credit scores, challenges like income volatility, lack of access to credit, and a higher likelihood of living paycheck-to-paycheck complicate matters even more.


Despite well-intentioned initiatives like Financial Literacy Month, the results of multiple surveys and assessments of Americans’ financial health suggest that financial education remains inadequate and financial literacy initiatives aren’t delivering -- particularly for the individuals and families who need the most help.


Taking the pulse of American financial literacy


When it comes to measuring financial literacy, various groups have conducted studies to try and evaluate Americans’ grasp of basic financial principles. In 2011, a study published by the National Bureau of Economic Research asked a nationally representative sample of Americans a set of three questions about interest rates, inflation, and portfolio diversification. Across all age groups, fewer than a third (30 percent) got all three questions right. When the Federal Reserve Board asked those same questions in its 2016 Survey of Consumer Finances, the results were more encouraging: 43 percent of respondents answered all of the questions correctly. But these findings still indicate that less than half the U.S. population understands the fundamental concepts behind saving and investing -- the underpinnings of effective personal money management in our modern financial system.


For a more frequent, more in-depth assessment of financial literacy, there’s The P-Fin Index: an annual survey developed by the TIAA Institute and the Global Financial Literacy Excellence Center (GFLEC). The P-Fin Index evaluates responses to 28 questions across eight functional areas: earning, consuming, saving, investing, borrowing/managing debt, insuring, comprehending risk, and go-to information sources. The percentage of P-Fin Index questions answered correctly increased from 49 percent in 2017 to 50 percent in 2018 to 51 percent in 2019. GFLEC concludes that these changes are too small to represent a meaningful increase in financial literacy (not to mention that if those results were academic test scores, the average grade for Americans would be a solid F).


Education is only part of the answer


The P-Fin Index also suggests that financial literacy is strongly linked to financial education: its results reveal a 16-percentage-point differential in questions answered correctly between individuals who have participated in a financial education class or program and those who have not received financial education.


While awareness of Americans’ financial literacy deficit seems to be growing (remember how much news coverage resulted from this statistic about how many Americans weren’t prepared to cover an unexpected $400 expense?), how much actionable progress has been made toward improving the situation is unclear. According to the Council for Economic Education, only 17 U.S. states have implemented academic standards that require students in K-12 schools to take a personal finance course; 22 require an economics course. And while experts and educators debate about the best way to deliver financial education and how effective it really is, many Americans continue to struggle.


The Financial Health Pulse, a new survey from USC and the nonprofit Center for Financial Services Innovation (CFSI) found that only 28 percent of American households are “financially healthy,” meaning they are in control of their spending, are saving money, don’t have too much debt and are planning for the unforeseen. Other findings of their inaugural survey include:


  • 36 percent of Americans are unable to pay all of their bills on time.
  • 47 percent of Americans say their spending equals or exceeds their income.
  • 27 percent of Americans say they do not have prime credit scores.


The Financial Health Pulse also indicates that people with more education are more likely to be financially healthy than those with less. But is education alone the solution to Americans’ money problems?


In an op-ed for American Banker, CFSI President and CEO Jennifer Tescher says it’s not:


“What financially vulnerable people need is access to high-quality products and experiences built to help them succeed by people who truly understand their financial situations and foibles...They need to be able to trust that financial institutions have their best interests in mind and are working with policymakers to eliminate systemic barriers that prevent them from achieving financial health.”


Complex problems demand complex solutions, and there’s certainly no “silver bullet” cure that will fix Americans’ financial problems overnight. But if we really want to make a difference in people’s lives, we should not only be working harder to make financial education a core element of our academic standards, but also prioritizing policies that provide financial support and guidance to those who need it most.