Knowledge about Investing and 

Risk: Evidence from the P-Fin 

Index

Annamaria Lusardi

Stanford University

December 6, 2023
The importance of 

data and 

measurement
Measuring financial literacy: The ABCs of personal finance 

The Big 3

1. “Suppose you had $100 in a savings account and the interest rate was 

2% per year. After 5 years, how much do you think you would have in 

the account if you left the money to grow?”

2. “Imagine that the interest rate on your savings account was 1% per 

year and inflation was 2% per year. After 1 year, with the money in this 

account, would you be able to buy...”

3. “Do you think the following statement is true or false? Buying a single 

company stock usually provides a safer return than a stock mutual 

fund.”

❑ More than $102 

❑ Exactly $102

❑ Less than $102 

❑ Don’t know

❑ Refuse to answer

❑ More than today 

❑ Exactly the same as today

❑ Less than today

❑ Don’t know

❑ Refuse to answer

❑ True

❑ False

❑ Don’t know

❑ Refuse to answer

✔

✔

✔

These are the questions I designed jointly with Olivia Mitchell, known as the “Big Three.” 

One question is about risk diversification:
• The TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) is an annual measure of

knowledge and understanding which enable sound financial decision-making and effective

management of personal finances.

From the Big Three to measuring personal finance knowledge

• The P-Fin Index relates to common financial situations 

that individuals encounter, including investing and risk 

and risk management

• In addition to personal finance knowledge, it provides 

information on financial well-being indicators.

• Data has been collected since 2016 on a yearly basis on a 

representative sample of Americans (age 18+). 
The index is based on responses to 28 questions, with three or four questions for

each of the eight functional areas.

What is unique: 8 functional areas of personal finance

The P-Fin Index’s 28 questions cover eight functional areas:

1. Earning

2. Saving

3. Consuming

4. Investing

5. Borrowing

6. Insuring

7. Comprehending risk

8. Go-to information sources
A friend recommends that you invest in a particular technology company. The

expected return is 25% in the first year. Which of the following statements is

true?

• The investment is likely to be very risky 

• The investment is likely no riskier than investing in 

multiple technology companies

• Nothing can be inferred about the risk of the investment

• Don’t know

An example question about investing

Results:

Correct 45%

Incorrect 27%

Don’t Know 28%

No Answer 1%

Source: TIAA Institute-GFLEC Personal Finance Index (2023).
Financial literacy in America: A failing grade

Source: TIAA Institute-GFLEC Personal Finance Index (2023).
Financial (il)literacy is holding steady: 2017-2023

Source: TIAA Institute-GFLEC Personal Finance Index (2017-2023).

2017 2018 2019 2020 2021 2022 2023 2017 2018 2019 2020 2021 2022 2023

22–28 correct

(76%–100%)

15–21 correct

(51%–75%)

8–14 correct

(26%–50%)

0–7 correct

(<26%)
What do people know the most and the least

Source: TIAA Institute-GFLEC Personal Finance Index (2023).

35%

42%

44%

47%

49%

50%

55%

58%

% of P-Fin questions answered correctly

Borrowing

Saving

Consuming

Go-to info 

sources

Earning

Investing

Insuring

Comprehending 

risk
Stanford Graduate School of Business

Demographic variation: Age

Source: TIAA Institute-GFLEC Personal Finance Index (2023).

% of P-Fin Index questions answered correctly Distribution of correct answers to P-Fin questions

43%

53%

18-29 30-44

0-7 correct

(<26%)

8-14 correct

(26%-50%)

15-21 correct

(51%-75%)

22-28 correct

(76%-100%)

37% 28% 22% 17%

29%

26% 26% 25%

22%

31% 35% 39%

12% 15% 18% 18%

45-59 60+

40%

46%

51% 53%

18-29 30-44 45-59 60+
Demographic variation: Women and knowledge
Large variation in finlit across income/education/employment status

Source: TIAA Institute-GFLEC Personal Finance Index (2023).

29%

37%

48%

62%

28%

38%

47%

58%

50%

51%

34%

Less than HS

High School

Some college

College

< $25k

$25k-$49k

$50k-$99k

$100k-plus

Employed

Retired

Unemployed/disabled

HH income

% of P-Fin questions answered correctly
Stanford Graduate School of Business

Where changes happened over time: Toward an unequal path

Source: TIAA Institute-GFLEC Personal 

Finance Index (2017, 2023).

% point change in P-Fin questions answered correctly, 2017 to 2023

-4
• Stubbornly low levels of financial literacy over time

- Financial literacy is not improving over time

• Knowledge is particularly low for investing, insuring and managing risk

- Complex topics that people may not learn without formal training

• Large heterogeneity across demographic subpopulations

- One size does not fit all

• Cost of financial illiteracy can be high

- Lack of participation in the stock market (Bucher-Koenen et al, 2023).

What we learn from data and research
Using data for 

policy and 

programs
Stanford Graduate School of Business

Financial education works: Our meta-analysis of financial 

education programs

https://gflec.org/metaanalysis/
Personal finance courses in college

• I started teaching Personal Finance courses 

at GW to undergraduate and graduate 

students based on the P-Fin data

• Extensive coverage of risk and risk 

management

• Paying attention to gender and other 

differences in financial literacy

• A lot of applications
Stanford Graduate School of Business

New personal finance course at Stanford University

• When the course opened, 362 

students signed up. It become 

one of the most popular courses 

in Econ.

• Can serve as a springboard to 

scale compelling curriculum 

online to a wide variety of 

constituents and ensure as 

much access as possible for 

effective distribution
A conference about teaching personal finance
20

From one of the Founding Fathers

“An investment in knowledge pays 

the best interest”

- Benjamin Franklin
Thank you!

For more info visit www.gflec.org.

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If you have any questions, please send them to alusardi@stanford.edu.

Thank you.