Americans' understanding of basic financial concepts has fallen
to a 10-year low, raising concerns that households are becoming less
prepared to manage debt, savings and retirement decisions, according to a
new study from investment giant TIAA and Stanford University's Global
Financial Literacy Excellence Center.
In 2025, U.S. adults
correctly answered only 47% of the 28 questions used to assess financial
literacy, down from a high of 52% in 2020 and the lowest score in the
decade since the survey began. The decline was driven by a growing share
of Americans with very low financial literacy, which has jumped to 25%
this year from 20% a decade ago, the study found.
The findings are
troubling because low financial literacy is linked with worse outcomes,
such as carrying higher levels of debt, Surya Kolluri, the head of TIAA
Institute, told CBS News. The survey didn't examine why scores
declined, but he said possible factors include misleading financial
information on social media, weaker overall literacy and the financial strains many households already face.
"Those with lower levels of financial literacy are four times more likely to have trouble making ends meet," Kolluri said.
Women
and younger adults scored lower than other groups. Women answered 44%
of the questions correctly, compared with 50% for men. Gen Z adults,
ages 18 to 29, had the lowest score of any generation, at 38%, while
baby boomers had the highest, at 54%.
The generation gap is partly
due to Gen Z's age, as many aren't likely to be well-versed in the
retirement topics addressed in the survey. But Kolluri also suspects it
could be due to financial pressures on young people, such as high
student debt and a sense that buying a home may be out of reach.
Financial burden
Economists and experts also point to
a broader problem: Should the burden of knowledge be placed on
consumers, or should the complex financial system be overhauled to make
it easier for people to understand what they're buying or signing for?
Blaming consumers for failing to understand increasingly complicated
products may miss the real problem, they argue.
As two economists, Harvard University's John Campbell and Imperial College London's Tarun Ramadorai, wrote in a 2025 book, the U.S. retirement system "appears too complex for many people to understand."
Still,
although financial services have become markedly more complex, many of
the basic concepts remain the same, said LendingTree chief consumer
finance analyst Matt Schulz.
"Sure, plenty has changed in the last
decade or more in the financial services space, but the fundamentals of
financial knowledge really haven't," he said. "The fact that people are
faring worse and worse on these kinds of tests is troubling, for sure."
Schulz
thinks the decline could be due to the surge of financial information
on social media, much of it inaccurate. Consumers without a grasp of the
basics may struggle to distinguish good advice from bad.
"Knowing what financial content to follow and trust has never been
harder," he said. "There's an enormous amount of really smart and
insightful personal finance information out there, but there's also a
sea of garbage, and if you don't know the difference, it can cost you."
Financial
industry critics also contend that companies including banks, credit
card issuers, insurance companies and other firms often deliberately complicate
their products, burying key details in the fine print or lengthy
disclosure statements. Many personal finance decisions, such as buying a
home or planning for retirement, also involve sums of money well beyond
what people are used to dealing with.
Can you answer the questions correctly?
TIAA released eight questions from its financial literacy test. See if you can answer them correctly.
1. Mark's salary has increased over the past two years. What would be a plausible reason for this?
A. The number of workers with Mark's skills increased where he lives and works
B. New technology reduced the demand for workers with Mark's skills
C. Mark completed several training courses at a local college
D. Don't know
2. A household budget cannot be used for which of the following?
A. To track household financial assets
B. To plan for necessary household expenses
C. To plan household discretionary spending
D. Don't know
3.
Akiko has $1,000 in savings that earns a 2% rate of return over the
course of the year. The inflation rate during the year is 3%. Which
statement is true?
A. She can afford to buy fewer things at the end of the year
B. She can afford to buy more things at the end of the year
C. It's not clear whether she can afford to buy more things or fewer things at the end of
the year
D. Don't know
4. Which statement about investing is correct?
A.
Investing in the stock of a single company is typically safer than
investing in a mutual fund that holds shares of many companies in
multiple industries
B. Investing in a mutual fund that holds shares
of many companies in multiple industries is typically safer than
investing in the stock of a single company
C. Investing in the stock
of a single company and investing in a mutual fund that holds shares of
many companies in multiple industries are typically equally safe
D. Don't know
5. José owes $1,000 on a loan that has an interest rate of
20% per year compounded annually. If he makes no payments on the loan,
at this interest rate, how many years will it take for the amount he
owes to double?
A. Less than 5 years
B. 5 to 10 years
C. More than 10 years
D. Don't know
6.
Katherine is a single 25-year-old worker who is in good health. What
type of insurance coverage is she most likely to need in the near term?
A. Life insurance
B. Disability insurance
C. Long-term care insurance
D. Don't know
7.
Lottery A pays a prize of $200, and the chance of winning is 5%.
Lottery B pays a prize of $90,000, and the chance of winning is 0.01%.
Expected winnings are greater in which lottery?
A. Lottery A
B. Lottery B
C. They are equal
D. Don't know
8. Which of the following appears to be inappropriate investment advice for the respective individual?
A. A stock index fund to a 30-year-old worker saving for retirement
B. A bond fund to a 60-year-old worker for some of her retirement savings
C. A stock fund that invests in small start-up businesses to a 75-year-old retiree
D. Don't know
Answers, with the percentage of Americans who answered the question correctly:
- C: Completing training courses increases Mark's skills and earning potential: 56%
- A: A budget plans spending and expenses; it is not designed to track financial assets: 49%
- A: Because inflation (3%) exceeds Akiko's return (2%), her purchasing power decreases: 48%
- B: A diversified mutual fund is typically safer than a single stock: 54%
- A: At 20% compounded interest, the debt doubles in less than 5 years: 40%
- B: A young worker is most likely to need disability insurance to protect her income if she cannot work: 27%
- A: Lottery A's expected value is $10 (5% × $200); Lottery B's is $9 (0.01% × $90,000): 46%
- C: High-risk growth stocks are generally inappropriate for a 75-year-old retiree: 46%
