Just because we're entering May after the close of Financial Literacy Month doesn't mean we put financial literacy education on hold for a year. If I had a vote, I would make every day Financial Literacy Day.
Whether it be investing, retirement planning, debt management or just day-to-day living, we can all benefit from becoming better at financial decision-making.
The economic challenges are numerous, with the rise of inflation and recent stock market volatility. The stock market as measured by the S&P 500 Index reached an all-time high as the year opened (Jan. 3, 2022), only to drop more than 10% by Thursday, April 29. The Nasdaq Composite, which peaked on Nov. 19, 2021, also an all-time high, dropped more than 18% this year. Netflix is down about 70%; Meta (formerly Facebook) is down about 40%.
To address personal family finances, cash-flow management is key -- understand the dollars that flow into and out of the household. Tools are available. FINRA (the Financial Industry Regulatory Authority), which regulates the brokerage industry, provides a sample worksheet to help examine monthly income and expenses at tinyurl.com/srjaxt5z.
There are financial challenges on the retirement front as well. According to a Bankrate survey (tinyurl.com/2p894wjb), nearly 36% of Americans said they have never had a retirement account. That means they are missing out on the value of tax-deferred growth (IRA) or more. In a 401(k), the benefit of company contributions, coupled with time, creates the optimal environment for the math of compounding to create important retirement savings.
That type of knowledge leads to more saving for retirement -- something that needs to be done. A recent report (tinyurl.com/4zf9pxbm) by T. Rowe Price, a global investment management company, found there is an estimated U.S. retirement savings gap (defined as the difference between what people saving for retirement need and what they have accumulated) of nearly $4 trillion.
Knowledge of financial needs in retirement leads to better decisions. Insured Retirement Institute's "Retirement Readiness Among Older Workers" report (https://tinyurl.com/2s3kuxs9) found only 26% of respondents correctly estimated how much annual income would be required in 10 years to maintain their standard of living. Filling that gap takes financial literacy education.
Given that data point, what can explain why studies show the vast majority of workers are confident in having enough money to retire? The Employee Benefits Research Institute's 2022 Retirement Confidence Survey (tinyurl.com/2e28wxw3) found that more than 7 in 10 workers are at least somewhat confident in having enough for a comfortable retirement.
Then again, the survey also found that nearly 4 in 10 workers (and 2 in 10 retirees) said they do not know who to go to for financial and retirement planning advice. Who do other people turn to? Thirty-five percent of workers (and 21% of retirees) said they turn to sources like family and friends, and 29% of workers (23% of retirees) said they do their own research online.
In late April, the National Financial Literacy Council released the results of a 30-question test (tinyurl.com/mse9um7x). More than 70,000 people across the U.S. took the exam, which measured the ability to earn, save and grow personal finances. While it was designed for 15- to 18-year-olds, people of any age could take it.
The results? Not good. The average score for all ages was 67.5%, with 57.5% of respondents failing to reach the passing mark of 70%.
It's one more reason to consider financial literacy education a key theme each and every day.
As a proponent of financial literacy education, I am launching the "Train the Champion" program in May, which is designed to help people have a better understanding of how a 401(k) works, and how it can be a key part of retirement planning. The Train the Champion program is part of the annual national 401(k) Champion competition that recognizes successful 401(k) participants.
Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (readers@juliejason.com). Please visit www.juliejason.com.
DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION