A good financial education can help senior citizens navigate the complex financial issues surrounding retirement. What’s your financial IQ?
Financial education is crucial to Americans assuming greater responsibility for their retirement security, but advocates fear that many seniors lack the financial literacy necessary for the job.
“Financial education is a lifelong process that employers individuals to plan for their futures and have the funs and sustainability for the lifestyle of their choosing,” according to the NFI, or Networks Financial Institute at Indiana State University. “However, statistics show that the majority of our nation’s adults lack this knowledge.”
Responsibility for retirement is shifting from employers to individuals with demise of traditional pension plans and the rise of 401(k)s and other employer-sponsored defined contribution plans. At the same time, the prolonged economic downturn has affected the ability of most American workers to save for retirement. Many are now contemplating working longer than planned, upping their contributions to retirement plans and reallocating their investments, according to AARP, a nonprofit organization that advocates for Americans age 50 and older. Many retirees are returning to work to compensate for poorly performing retirement investments.
“For a person without financial knowledge, these questions are much more difficult to answer,” according to an AARP Public Policy Institute report on Financial Literacy. “As a result, they are more likely to make a costly mistake or just do nothing.”
Investors with a good financial education are more likely to plan for retirement, said AARP, and the ability to plan is a “powerful predictor” of wealth. A strong financial education also lowers the chances an employee will stop participating in programs that automatically deduct 401(k) contributions from their paychecks.
Levels of financial education strongly correlate with gender and wealth, according to a survey of 1,150 investors conducted in February by Millionaire Corner. Nearly one-fourth of men rate themselves as “very knowledgeable” and 62 percent say they are “fairly knowledgeable.” In contrast, one-fourth of women report being “very knowledgeable” and 55 percent say they are “fairly knowledgeable.”
Financial education levels also increase with wealth. Nearly 30 percent of Millionaire investors report being “very knowledgeable” and nearly 60 percent say they are “fairly knowledgeable.” Fewer than 6 percent of individuals with less than $100,000 in investable assets say they are knowledgeable and 42 percent say they are “fairly knowledgeable.”
Overall education levels are also linked with financial literacy, according to an AARP survey released this week that measures older Americans’ knowledge of rules affecting their Social Security benefits. More than 60 percent of the respondents with post-graduate degrees described themselves as knowledgeable, compared to 51 percent of those with bachelor’s degrees and 41 percent of those with an associates degrees or less. Respondents with higher incomes and savings were also more likely to describe themselves as knowledgeable, and nearly 60 percent of those who said their health was “excellent” said they had a high level of financial education.