A new report from the Global Finance Literacy Excellence Center in the School of Business at George Washington University and the TIAA Institute found a large racial gap between White and Black adults in the United States in financial literacy. The term financial literacy is defined as knowledge and understanding that enable sound financial decision-making and effective management of personal finances.
The survey measured eight key areas of personal finance knowledge: earning, consuming, saving, investing, borrowing and managing debt, insuring, comprehending risk and uncertainty, and go-to information sources. The results found that African-American adults answered 38 percent of the questions correctly, compared to 55 percent of White adults. Only 28 percent of African American adults answered over one-half of the questions correctly. For White adults, the figure was 62 percent.
African Americans scored highest in the areas of borrowing and debt management and lowest in the areas of insuring, risk management, and investing.
According to the authors, “there is a strong link between financial literacy and financial wellness among African-Americans. 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.”
The gap in financial knowledge between African Americans and Whites can be partially attributed to underlying demographic differences between the two groups. However, the differences cannot account for the entire gap as financial literacy is still lower for African Americans compared to Whites in each demographic subgroup reported in this study.
The full report, Financial Literacy and Wellness Among African-Americans, may be downloaded by clicking here.