Americans still struggle with financial literacy, which is why it is so important for employers to offer personalized financial education to employees, along with a 401(k) plan.

Demographics play a major role in determining who is and isn’t financially literate, according to data compiled by the Teachers Insurance and Annuity Association of America and the Global Financial Literacy Excellence Center at George Washington University. In fact, when they surveyed Americans about their financial knowledge and understanding, the organizations found that women and those who make less than $50,000 a year are the most likely to struggle with financial literacy.

The survey asked respondents about their earnings, how much they are budgeting and managing their spending, how much they are saving and investing, how much they are borrowing and how they are managing that debt, the types of insurance coverages they have purchased, whether they understand the risks associated with various financial outcomes and where they go to get their information about financial topics.

“The bad news is that only 50% of the respondents in this representative sample of the U.S. population are able to answer the questions we asked in this survey, questions that cover the functional knowledge that people should have to make savings, investment and other financial decisions,” says Dr. Annamaria Lusardi, founder and economic director of the Global Financial Literacy Excellence Center.

She says that one in five respondents was able to answer less than seven answers correctly and only 16% were able to answer 75% of the questions correctly.

“In a sense, this is not a passing grade when you look at financial knowledge and financial literacy,” Lusardi says.

Paul Yakoboski, senior economist with TIAA Institute, says that where respondents did get it right is in their knowledge of borrowing and managing debt. On average, 60% of the borrowing questions were answered correctly.

“Unfortunately for some, this is knowledge gained at the school of hard knocks, as it were,” he says. When it comes to comprehending risk, only 35% of questions were answered correctly, which is troubling given that uncertainty is inherent in financial decision making. “Grasping risk is integral in making appropriate decisions,” he adds.

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The gender divide in fiscal literacy

The study found that women seem to have less knowledge about finances than men. The young also have less knowledge because they lack experience, Lusardi says. But even with a lack of years and experience behind them, these same young people are expected to make many financial decisions in their life cycle. And even though financial knowledge is higher among the older population, there is still a high proportion of people close to retirement, who have made many financial decisions before, who still display a low level of knowledge, she says.

Financial knowledge tends to increase with income, the study found. People who are unemployed have the lowest level of financial knowledge, according to the survey. “Groups that are already vulnerable because of income, age and gender are very vulnerable indeed when it comes to financial literacy,” she adds.

The big question is how people gain financial knowledge. If they don’t pick up this information in high school or college, it is up to employers to step in and help out, if they want their employees to have a safe and secure retirement someday.

Lusardi says that financial education isn’t a one-size-fits-all subject, especially for the most vulnerable demographics.

“When we look at them and financial security, we have to be very careful about what financial security really means,” says Lusardi.

When push comes to shove

A question on the survey asks respondents whether they are able to come up with $2,000 in 30 days if the need arises.

“A disproportion of people with lower incomes have a harder time dealing with a shock. We have to make sure people are able to deal with a short-time shock, not just financial security in the long-term,” she says. “All tax incentives are geared to long-term financial security, leaving people financially vulnerable in the short-term. The employer has to be particularly attentive in doing a much more personalized type of program for people. We have gone in that direction in so many other areas. Even health care is more personalized so we have to do that for finances as well.”

Yakobaski adds that many companies have had great success focusing on overall financial wellness rather than just retirement income security. Many employers have determined it is good business practice because employee productivity goes up when workers aren’t distracted by the financial issues they are grappling with. They aren’t taking time off from work to address them. It also has value in terms of recruitment and retention.

“I think we are only going to see more efforts and sophisticated efforts in this regard,” he says.

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