Around half of Americans operate day-to-day with a limited understanding of finances. That’s according to the annual Personal Finance (P-Fin) Index study jointly performed by the Teachers Insurance and Annuity Associate of America (TIAA Institute) and the Global Financial Literacy Excellence Center (GLFEC) at the George Washington University School of Business. Their findings show that an individual’s ability to make sound financial decisions and manage personal finances has not measurably improved in the six years they’ve performed the study.

Of the 28 questions posed to those surveyed, the average correct response rate is 50%. That rate has fluctuated between 49% and 52% over the six studies. However, 23% of the respondents were unable to answer more than seven correctly, indicating a high level of financial illiteracy among many Americans. 

Disparity in demographics

The P-Fin Index reflects four race and ethnic groups and five generation groups. Among the four ethnic groups, African Americans and Hispanic Americans could only answer around 35% of the questions correctly. White Americans and Asian Americans were significantly higher at approximately 55%. The data underscores the need for financial literacy education among particular demographics. 

Results also show that younger adults are undereducated about functional finances as Gen Y and Gen Z respondents were less able to respond accurately at 45% correct.

TIAA Institute senior economist Paul Yakoboski said, “While this year’s Personal Finance Index is concerning, it must be noted that systemic factors and issues keep the economic playing field uneven for far too many Americans. As we work to improve financial literacy for all, we know that there are also demographic differences that can help or hinder those looking to achieve financial wellness, such as age, overall education levels and income distributions.”

An opportunity to educate on finances

For TIAA and GFLEC, the data is concerning. Annamaria Lusardi, University Professor at GW and GFLEC’s Academic Director, said, “The consistently low financial literacy levels among U.S. adults and, particularly, among the most vulnerable demographic subgroups is troubling. These findings are a call to action! With financial literacy month underway, I want to invite everyone to join us in the effort to improve financial literacy and financial wellbeing for all.”

Auto dealers have a unique position to help educate shoppers on financial matters, like auto loans, the second most common loan type, following only personal loans. Auto dealers are likely to see the same statistics reflected when they receive credit applications or ask financial profile questions of the car shoppers they encounter. 

When a salesperson or F&I manager encounters someone who appears undereducated on financial matters – essentially financially illiterate – they have an opening to offer resources to ensure shoppers understand the terms of a financing agreement so they can successfully repay their loan without compromising their financial future. 

Dealership staff can help with financial literacy by assisting shoppers with preparing a basic budget to determine comfortable payment terms. They can also help them fully understand the duration of their loan agreements. 

For auto dealers who want to facilitate and encourage community education, try holding a financial literacy workshop, particularly in neighborhoods and cities with low-income or young residents. 

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