woman with calculator Thosewith greater financial literacy were more likely to track theirspending; save and plan for retirement; have nonretirement savings.(Photo: Shutterstock)

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Ignorance is not bliss—not when it comes to financial wellness, anyway.

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According to the third annual Personal Finance Index released by the TIAAInstitute and the Global Financial Literacy Excellence Center atthe George Washington University School of Business, Americansdon't have the knowledge of personal finance that can enable themto make sound financial decisions.

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The P-Fin Index drew the line between financial ignorance on keypoints and how that plays out into a lack of financial wellness, with respondents able tocorrectly answer only an average of 51 percent of questions abouteight basic functional areas of personal finance.

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The eight areas—a total of 28 questions—applied to thesesegments of financial knowledge: earning (determinants of wages andtake-home pay); consuming (budgets and managing spending); saving(factors that maximize accumulations); investing (investment types,risk and return); borrowing/managing debt (the relationship betweenloan features and repayments); insuring (types of coverage and howinsurance works); comprehending risk (understanding uncertainfinancial outcomes); and go-to information sources (recognizingappropriate sources and advice).

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The news was not good. While the report found that financialliteracy varies across demographic groups based on sex, age,household income, employment status and education, and personalfinance knowledge is highest when it comes to borrowing andmanaging debt, and lowest in comprehending risk, the percentage ofP-Fin Index questions answered correctly rose from 49 percent in2017 to 50 percent in 2018 to 51 percent in 2019.

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And the really sad part? The report found that “[i]ncreases infinancial literacy between 2017 and 2019 were concentrated mostlyamong those with relatively high levels of financial literacyalready.”

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In other words, those who already knew the most were the oneslearning more.

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In addition, survey respondents were only able to correctlyanswer an average of 38 percent of questions surroundingunderstanding risk — the area in which comprehension appears to belowest. Twenty percent of respondents could only get between 0–7questions right, while 27 percent only managed right answers for8–14 questions out of the 28.

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The study showed a clear link between greater financial literacyand financial wellness, with those possessing greater financialliteracy more likely to track their spending; save and plan forretirement; have nonretirement savings; and less likely to befinancially fragile.

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They're also more likely to make loan payments on time, and lesslikely to be constrained by debt.

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In sum, a little more knowledge would not be a dangerousthing—but instead could lead to better financial wellness.

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READ MORE:

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Gulf in retirement preparedness mirrors gulf inbehaviors

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Race, ethnicity play huge role in retirementpreparedness

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Marlene Satter

Marlene Y. Satter has worked in and written about the financial industry for decades.