When it comes to personal finance, one knowledge gap cuts across every generation, income bracket and demographic: Understanding risk.
According to the 2025 TIAA Institute-GFLEC Personal Finance Index, just 36% of U.S. adults could correctly answer questions about financial risk. That’s the lowest score across all eight financial literacy categories in the study, and it’s actually even lower than it was in 2017.
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Gen Z scored lowest, answering 32% of questions in the “comprehending risk” category, but they’re not the only generation struggling. Gen X scored only slightly better at 37%, millennials hit 36% and boomers reached 38%. Even the Silent Generation, with the most experience, scored just 39%.
Risk is misunderstood across the board. GOBankingRates breaks down why this lack of understanding is widespread among people, no matter their age.
Why Risk Knowledge Matters
Misjudging risk doesn’t just lead to mistakes in investing, it affects nearly every part of financial life. So many decisions rely on understanding and preventing risk, including insurance, debt, savings and retirement planning.
Without this foundation, it’s easy to fall into traps like buying extended warranties that aren’t needed, skipping renters insurance, or taking on high-interest debt without a plan.
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The Real Cost of Confusion
Low risk literacy doesn’t exist in a vacuum. The P-Fin Index shows that adults with poor financial knowledge are twice as likely to be debt-constrained, meaning debt stops them from covering other priorities, and three times more likely to be financially fragile, with 28% saying they couldn’t come up with $2,000 for an unexpected expense.
That means limited flexibility to manage emergencies, increased stress and a reduced ability to build long-term wealth. While the lack of knowledge might seem minor, the consequences can snowball over time.
And anxiety is already high. According to the Pew Research Center, 28% of adults now expect their finances to worsen over the next year, up from 16% in 2024.
Why Risk Is So Hard To Grasp
Risk feels vague. With budgeting or debt, the numbers are clearer: What comes in, what goes out, what’s owed. Risk involves outcomes that might or might not happen, and it’s tough to judge how likely those outcomes are. That uncertainty makes people uncomfortable. It can lead to decisions like avoiding the stock market altogether or underinsuring a home.
The P-Fin Index also found that U.S. adults struggle with retirement fluency. Just 23% could answer a question about the likelihood of needing long-term care, something that’s a real possibility for many.
The Knowledge Gap Doesn’t Close With Age
One of the most revealing findings is that risk comprehension doesn’t improve with experience. Younger adults struggle with it, but so do older generations. While other areas, like borrowing or saving, show slight improvement over time, risk understanding stays flat.
That suggests the problem isn’t simply about lack of experience. It’s about a lack of education and tools that make risk concepts accessible.
How To Move Forward
Improving functional knowledge around risk doesn’t require mastering complex math. It starts with better awareness of what risk really means in everyday decisions, by recognizing trade-offs, questioning worst-case scenarios and learning how to protect against the unknown without overpaying for peace of mind.
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This article originally appeared on GOBankingRates.com: This Is the Most Common Financial Mistake Across Every Generation
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