Why Financial Literacy is Vital for a Happy Retirement
Editor’s Note: This is the last feature in a fourt-part series on financial education for April, which is National Financial Literacy Month. To see the first part of this series, click here.
As Benjamin Franklin is credited with saying, “An investment in knowledge pays the best interest.” But actually investing in gaining more financial knowledge is an activity that many Americans don’t seem to do.
While studies suggest that lots of people understand the value of financial literacy, the truth is many things compete for our time. When so much is going on, it’s easy to put learning time for money matters on the back-burner. Even so, what we know drives our money behaviors and decisions, and so a gap in knowledge can hit home in many ways.
This is a complex problem for several reasons. For instance, in one survey, GoBankingRates found that over half of Americans have less than $1,000 in savings. In another study by TD Ameritrade, 96% of Americans knew what they paid for streaming media services like Netflix, but only 27% knew what they paid in 401(k) plan fees.
In fact, the majority of investors in the TD Ameritrade survey thought they paid no employer plan fees, didn’t know if their plans had fees, or didn’t know how to determine the fees. Other studies have also captured similar data with investors and their familarity with their employer retirement plans.
All of this adds up to an ongoing cycle of money headaches, mistakes, and disappointments for many households.
Eye-Opening Statistics
This may be an eye-opening insight. The U.S. ranked 14th in financial literacy in 2015, according to The Standard & Poor’s Ratings Services Global Financial Literacy Survey. The survey is considered to be the world’s largest, most comprehensive global measurement of financial literacy.
In the study, nearly half of the U.S. population rated as “financially illiterate.” Another alarming finding as reported by the researchers: Risk diversification was determined to be the least understood concept. It also happens to be one of the most important concepts for those planning on a financially secure retirement.
Despite those results, the good news is it’s irreversible. And it starts on a personal level. Developing your financial literacy is the starting point for becoming one of the “three percent” of Americans who have planned for retirement.
“Money is the oxygen that gives you the ability to do things in life,” is something that Jim Chilton, Founder and CEO of financial education organization SOFA, is known for saying. Having financial oxygen in retirement is especially important because, after decades of saving, investing and preparing, you’re now living off your finite life savings, retirement accounts, investment portfolio and other personal assets.
Plant Your Tree
Warren Buffet, famed investor, business leader, and financial commentator, is quoted as saying: “Someone is sitting in the shade today because someone planted a tree a long time ago.”
Increasing our financial literacy is a good first step toward creating a well-thought-out retirement plan. Then, with better knowledge secured, it’s time to put it to work and plan smart for the future. That can help to put the best foot forward for ensuring you will be comfortably sitting in the shade during your retirement.
Now is the perfect time to get started with improving financial literacy and making the most of your money matters.
Let Your Fingertips Do the Research
We are lucky to live in a world where knowledge is at our fingertips, especially if our fingertips are on a keyboard connected to the internet. The insights and recommendations of the finest financial minds are just a few clicks away.
Start by honing in on the financial publications and industry leaders whose key financial philosophies resonate with you. Of course there are many options, which can feel overwhelming. Choose a few online financial magazines, sign up for their informational newsletters, and start to build your understanding in key areas, such as budgeting, investing, and retirement planning.
Kiplinger.com is a good option, considering that Kiplinger created the nation’s first personal finance magazine in 1947. Other heavy hitters include Fortune, Forbes, and Money, which offer diverse content and free access to it. You will build up your knowledge of financial terms and start to understand the components that should go into a strong retirement plan.
Not to pat ourselves on the back… But here at SafeMoney.com, you also have access to a wide array of content on financial planning, retirement planning, and building as well as protecting your personal wealth.
Because retirement differs from the working years in money matters, we have also created three research reports to help you make the most of your financial retirement planning efforts.
Learn While You Burn
If you believe you are too busy to spend time searching the internet to build your financial literacy, then consider strengthening your knowledge while you are working out. How many hours a week do you spend at the gym? Are you mindlessly watching whatever is on the screen above the treadmill?
How many hours do you spend walking your dog? Are you a runner? You can use this “found” time to listen to personal finance radio broadcasts or personal finance podcasts. Perform a search on “best personal financial podcasts” and you will have a starting point from which you can choose.
There are many sources you can check out beyond the well-known financial news and commentary outlets like those above. Here at SafeMoney, some of our favorite retirement resources and podcasts include:
- Retirement Researcher and Dr. Wade Pfau — an excellent source for retirement income planning research
- Center for Retirement Research, a leading retirement research organization at Boston College
- Todd Tresidder, Financial Mentor podcast, a long-time online financial education resource and podcast
- Richard Eisenberg and NextAvenue.org, a website focused exclusively on people ages 50 and up
- Jim Blankenship and Financial Ducks in a Row, a great resource for retirement, income planning, and other post-work money matters
- Transamerica Center for Retirement Studies — excellent research resource to see what people are ‘mass-thinking’ about retirement and other helpful data
And, if you have any personal questions about your retirement future, financial professionals are available here to help you find answers.
Learning Helps Avoid Making Costly Mistakes
The National Bureau of Economic Research reported on a working paper by researcher Annamaria Lusardi called “Household Saving Behavior: The Role of Financial Literacy, Information, and Financial Education Programs.”
Echoing the findings of the Standard & Poor’s survey results highlighted above, Lusardi believes we all pay a price when Americans lack financial literacy. In her paper she concludes, “Poor financial literacy and a lack of planning may lead individuals to make financial mistakes, such as not saving enough for retirement or investing in assets that are too risky or too conservative. If taxpayers will be asked to support those who have made mistakes, there is a role for regulation and for implementing ‘mandatory’ programs,” such as requiring people to acquire some basic financial knowledge.
Research and studies suggest that working with a financial professional can help you increase your financial literacy and give you the building blocks for planning your ideal retirement.
If you could benefit from the guidance of an expert, financial professionals stand ready to help you at SafeMoney.com. Use our “Find a Financial Professional” section to connect with someone directly. And if you need a personal referral, call us at 877.476.9723.
