In 2025, the TIAA Institute-GFLEC Personal Finance Index revealed a significant knowledge gap in understanding financial risk among U.S. adults, with only 36% answering questions correctly. This marks the lowest score across all eight categories surveyed and shows a decline since 2017. Every generation, from Gen Z to the Silent Generation, struggles with grasping risk, which affects decision-making in insurance, debt management, savings, and retirement planning. The consequences of this misunderstanding are substantial, leading to financial fragility, increased debt constraints, and limited emergency preparedness. Despite its importance, comprehension of risk does not improve significantly with age, indicating a systemic lack of education rather than a lack of experience.
Rising Financial Vulnerability Due to Risk Misunderstanding
In the current financial landscape, understanding risk remains elusive for many Americans. According to recent data released in early 2025, less than half of U.S. adults truly grasp how risk impacts their financial decisions. The study, conducted by the TIAA Institute and GFLEC, found that only 36% of adults could correctly answer basic questions related to financial risk—a troubling statistic that underscores a widespread issue affecting people regardless of age or income level. Gen Z scored the lowest at 32%, followed closely by millennials at 36%, Gen X at 37%, and boomers at 38%. Even the most experienced group, the Silent Generation, only reached 39% accuracy. These findings suggest that the challenge of understanding risk is persistent and pervasive, impacting individuals throughout their financial journey.
Educating for a More Secure Financial Future
The implications of poor risk literacy extend beyond personal investment choices. They manifest in everyday financial behaviors—such as skipping essential insurance coverage, purchasing unnecessary warranties, or taking on high-interest debt without a repayment strategy. The ripple effects include heightened financial stress, reduced flexibility in handling emergencies, and an overall inability to build long-term wealth. Alarmingly, the P-Fin Index also found that those with low financial knowledge are twice as likely to face debt constraints and three times more likely to be financially fragile. With a quarter of adults expecting their financial situation to worsen in the coming year, improving risk comprehension has never been more urgent.
Towards Better Financial Decision-Making
As a journalist observing the evolving financial landscape, it’s clear that the problem of risk misunderstanding isn’t simply due to inexperience—it stems from a lack of accessible education and practical tools. While other financial skills like saving and borrowing show slight improvement over time, risk comprehension remains stagnant across generations. This suggests that traditional learning through life experience isn’t enough. What’s needed now is a shift toward more effective financial education strategies that simplify complex concepts and integrate them into daily decision-making. By fostering awareness of trade-offs, encouraging scenario planning, and promoting smart protective measures, individuals can begin to navigate uncertainty with greater confidence and clarity.