When the big shift from a defined benefit system, pensions, to a defined contribution system, IRAs and 401(k)s, occurred, an enormous responsibility was dropped in the lap of every working person in this country.
If the outcomes are any indication, not one thought was given to whether they were capable of handling their new responsibility.
Here’s where the big shift has gotten us…
Forty percent of the middle class will live at or near the poverty level in retirement.
Seventy percent plan on working past their retirement age, most for financial reasons.
Millions of retirees will live below the federal poverty level of $11,670 for an individual and $15,730 for a couple.
When the current contribution-based system was created, no one imagined the results could be as bad as what we face today. And I’m here to tell you that the popular solution – getting people to save more – isn’t enough.
We have to include a focus on financial literacy.
Anyone who works in the money business will tell you that the toughest part of our job isn’t picking winners, planning or even the volatility that has plagued us recently. It is the fact that most people don’t have a clue about money, finance, economics, you name it. We are a nation of financial illiterates.
And unlike most situations, this financial knowledge gap doesn’t improve with age. It gets worse.
A recent survey discussed in the Journal of Financial Planning showed that only 26% of 1,244 older persons scored 60% or more on a test that asked 38 questions about finances in retirement.
Most failed miserably.
After almost 30 years of working with the average investor, I’m not surprised by these results. In my experience, understandable information about money and investing is virtually nonexistent.
The Wall Street marketing machine makes matters worse. It pretends to be information-centered, but it is designed to serve its own needs, not those of the investor.
Saving more is one of the required steps to correct, or at least to limit, the current retirement funding crisis. But it will be useless without comprehensive financial education.
In fact, that could be a noble retirement career for people like myself who have spent the bulk of their adult life in the money business: a nonprofit, independent money education network at the local level.
Anything would be an improvement over what we have now.
Here’s a link to the 2017 Retirement Income Literacy Quiz featured in theJournal of Financial Planning. See how you rank.
P.S. As Steve writes, thorough financial education is notoriously rare – that’s why answering all of your questions in our Financial Literacy channel is so important to us. Let us help fill in the blanks – take a look at our recent articles now.