Are you financially literate? A 2025 study by the TIAA Institute found that the average American adult answered only 49% of questions correctly on a test of financial knowledge. This aligns with a long-standing trend in the U.S. and other developed nations: roughly half of adults are considered financially illiterate.
Financial literacy refers to the knowledge and skills needed to manage money effectively. People with strong financial literacy tend to make better decisions about budgeting, saving, investing, credit, debt, and long-term financial planning. They also experience less financial stress and are more likely to reach their financial goals. Those with lower financial literacy, on the other hand, are more likely to struggle with debt, live paycheck to paycheck, and fall behind on retirement savings.
Test Your Financial Literacy
How do you score when it comes to financial literacy? The “Big Five” financial literacy test is a widely used, standardized set of questions developed by Annamaria Lusardi and Olivia Mitchell. Drs. Lusardi and Mitchell are considered among the preeminent researchers in the field of financial literacy. The “Big Five” test is designed to explore knowledge of complex financial topics including mortgage and bond pricing to assess numeracy, inflation, risk, and interest rate knowledge. A variation of the “Big Five” test now features seven questions. This test is used in surveys such as the U.S. National Financial Capability Study to assess financial decision-making skills related to borrowing, saving, and investing.
Try it yourself:
Suppose you have $100 in a savings account, and the interest rate was 2% per year. After 5 years, how much would you have?
A. More than $102
B. Exactly $102
C. Less than $102
D. Don’t know
Imagine the interest rate on your savings account is 1% per year and inflation is 2% per year. After 1 year, would the money in the account buy more than it does today, exactly the same, or less than today?
A. More
B. Same
C. Less
D. Don’t know
If interest rates rise, what will typically happen to bond prices?
A. Rise
B. Fall
C. Stay the same
D. No relationship
E. Don’t know
True or false: A 15-year mortgage typically requires higher monthly payments than a 30-year mortgage, but the total interest over the life of the loan will be less.
A. True
B. False
C. Don’t know
True or false: Buying a single company’s stock usually provides a safer return than a stock mutual fund.
A. True
B. False
C. Don’t know
Suppose you owe $1,000 on a loan and the interest rate you are charged is 20% per year compounded annually. If you didn’t pay anything off, at this interest rate, how many years would it take for the amount you owe to double?
A. Less than two years
B. Two to four years
C. Five to nine years
D. 10 or more years
E. Don’t know
Which of the following indicates the highest probability of getting a particular disease?
A. There’s a one in 20 chance of getting the disease.
B. 2% of the population will get the disease.
C. 25 out of every 1,000 people will get the disease.
D. Don’t know
Answers:
A. More than $102
C. Less
B. Fall
A. True
B. False
B. Two to four years
A. There’s a one in 20 chance of getting the disease
How Do You Rate?
If you answered four or more questions correctly, you scored above the national average of 3.3 correct answers. Five or more correct answers places you in the top 27% and answering all seven correctly puts you among the top 4%.
If your score was lower than you hoped, there’s no need for embarrassment. Even highly educated professionals struggle with these concepts. A Harvard Business Review article found that
U.S. managers—including corporate executives—scored an average of just 38% on basic financial literacy questions.
It’s also worth noting that financial literacy tests have limitations. With only a handful of questions, they can’t capture the full range of financial knowledge or measure actual financial behavior. Still, financial literacy tests offer a useful snapshot of how well we understand foundational concepts.
Financial Literacy and Demographics
Financial literacy results vary widely by demographic category (TIAA Institute, 2025). Specifically:
Men answered 53% of the questions correctly while women answered 43% correctly.
A wide financial literacy gap exists by race, as Asian Americans and White Americans answered 55% and 54% correctly, respectively while Black Americans and Hispanic Americans answered 37% and 38% correctly, respectively.
Financial literacy is higher among older Americans as those in the Silent Generation and Boomer Generation correctly answered 54% of questions versus 46% for Gen Y and 42% for Gen Z.
Several other socio-demographic factors are linked to financial literacy, including education, financial education, and household income. Those with a college degree answer an average of 65% of the financial literacy questions correctly while those with only a high school degree answer 38% correctly. Not surprisingly, those who received financial education score an average of 60% versus 46% with no financial education. Household income is also a strong predictor of financial literacy as those with annual household incomes of $100,000 or more score an average of 60% correctly while those with incomes of $25,000 to $50,000 score 38%.
Why Financial Literacy Rates Matter
On an individual level, there is a dramatic difference in financial well-being between those with a high level of financial literacy and those who score poorly. The 2025 TIAA Institute Study finds that those with low financial literacy scores are:
- 6 times more likely to struggle making ends meet.
- 3 times more likely to be debt constrained.
- 5 times more likely to have emergency savings at least equal to one month’s living expenses.
- 4 times more likely to spend at least ten hours a week thinking and dealing with issues and challenges related to personal finances.
From the forgoing, low financial literacy leads to both suboptimal financial behavior and increased emotional stress.
On a societal level, wealth inequality in America has widened significantly over the past five decades. In 2023, the wealthiest 10% in the U.S. held approximately 69% of total household wealth, up from 60% in 1989. While several factors are possible causes of this growing gap, financial literacy is a likely contributor. It is suggested that 30-40% of retirement wealth inequality is accounted for by disparities in financial knowledge (Lusardi, Michaud, Mitchell, 2018).
Next Up
In part 2 of our financial literacy discussion, we’ll explore the interplay between financial literacy and financial confidence, how our level of financial literacy changes as we age, how we can improve our financial literacy level, and the importance of giving the gift of financial literacy to our children—and grandchildren