The financial well-being of African-Americans lags that of the U.S. population as a whole, according to a new report from the Global Financial Literacy Excellence Center (GFLEC) and the TIAA Institute.
“Financial Literacy and Wellness among African-Americans: New Insights from the Personal Finance (P-Fin) Index” reports that African-Americans answered 38% of the questions correctly compared with 55% among whites, indicating a significant financial literacy gap. Only 28% answered over one-half of index questions correctly, compared to 62% for whites. Just 5% of African-Americans answered over 75% of the questions correctly.
There is a strong link between financial literacy and financial wellness among African-Americans, the report says. Those who are more financially literate are more likely to plan and save for retirement, to have non-retirement savings and to better manage their debt; they are also less likely to be financially fragile.
“African-Americans make up 13% of the U.S. population and constitute a critical segment of our economy. Yet financial literacy gaps exist across this demographic group regardless of gender, age, income level, or degree of education,” said Stephanie Bell-Rose, Head of the TIAA Institute.
Given the strong link between financial literacy and financial well-being, increased financial knowledge can lead to improved financial capability and behaviors, according to Annamaria Lusardi, Academic Director of GFLEC and Denit Trust Endowed Chair of Economics and Accountancy at GWSB.
“Increasing efforts to promote research-based financial education in school and the workplace is one key solution for promoting financial well-being among African-Americans,” Lusardi said.
A more refined understanding of financial literacy among African-Americans—their level of overall financial knowledge, areas of strength and weakness, and variations among subgroups—can inform initiatives to improve financial well-being. While not a cure-all, increased financial literacy can lead to improved financial capability and practices that benefit even those with relatively low incomes.
The TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) “provides a comprehensive barometer of U.S. adults’ readiness to make sound financial decisions. It is unique in its capacity to examine financial literacy across eight common financial activities: earning, consuming, saving, investing, borrowing, insuring, understanding risk and gathering information.”