Monday, November 21, 2011

State Differences in Financial Literacy

The Employee Benefits Institute has an interesting look out at state by state differences in financial literacy. Equally as interesting is the potential coorellation between states that are low on financial literacy and low on finanancial behavior.

To quote EBRI:

"This suggests that there might be something going on at the state level whereby individual financial literacy and financial behavior are being shaped not only by individual demographic characteristics but also by the state in which people live."

So what can we do? EBRI is unsure. According to their researcher, "there may be a reason for policy intervention at the state level to help Americans achieve a financially secure retirement."

Interesting study. Worth keeping an eye on.

Tuesday, November 15, 2011

How Do Americans Learn About Financial Tools

In 2005, CFS conducted a survey with the League of United Latin American Citizens (LULAC) about some of the causes of financial security among Americans who had the resources to save and prepare for the future but did not.

The survey uncovered a number of causes, most notably a lack of finanical literacy and a lack of contact with professionals who could connect communities with tools like IRAs, life insurance and other products.

The Hartford-Courant this week has an article about a new tool being used to educate breadwinners about the importance of life insurance - - video games. The article notes the dramatic drop in the usage of life insurance and notes how video games may help educate certain demographics.

Interesting read.

Monday, November 7, 2011

Advice and Retirement

This blog has devoted significant attention to potential regulations in Washington regarding retirement advice. Today the Wall Street Journal has a practical look at how workers are using that advice in the 401(k) market.

The good news is that more and more plans are offering advice. The bad news is that Americans are still not taking advantage of it.

Key points:

Survey after survey shows that formal advice leads investors to increase their savings, diversify their holdings and continue holding stocks even when the market takes a plunge.

But here's the catch: Only about a quarter of the people who have access to advice through their retirement plans actually take advantage of it, according to retirement-plan providers and firms that provide advice services. And most of those who do use advisory services neglect to provide the personal details that would make the advice more valuable.
The article ends with some practical advice for those with 401(ks) looking to learn about options that are available.

Friday, November 4, 2011

Retirement Crisis

Reuters has an absolutely devastating look at the retirement crisis facing Americans. If you read between the lines, the article makes the point that Americans are increasingly on their own when it comes to preparing for retirement.

As it notes:

There are multiple reasons for reversals in gains in fighting elderly poverty, including the impact of the financial crisis on stock prices and interest rates, the end of many traditional defined-benefit pension plans which provided people with a guarantee of retirement income, and the bursting of the U.S. housing bubble. But the trend is in line with statistics showing that median household income fell last year to levels not seen since 1996.

Huge numbers of older Americans are likely to fall below the official poverty line in the coming years, said Jack VanDerhei, research director of the Employee Benefit Research Institute (EBRI).

The question then for policy-makers is how do we help? With pensions a thing of the past, Social Security uncertain and the housing market no longer a path to the American Dream, what can we do to make sure Americans retire secure.

Interesting ideas noted on this blog include automatic enrollment into 401ks, auto-matic IRAs, better finanical literacy and more access to qualified, financial professions who can ask Americans difficult questions and help them in their planning.

Thursday, November 3, 2011

What Happens to Financial Literacy as We Age?

There is a fascinating article in the Wall Street Journal this week about how financial literacy acumen changes as we age. The conclusion? Financial knowledge peaks in the late 40s.

There are obviously consequences for this. Just as Americans are reaching their retirements and making major financial decisions, their ability to make smart choices is declining. Further compounding the issue is the fact that age and experience leads a lot of older Americans to feel a false sense of confidence about their financial know-how.

The article includes a lot of pratical advice and insight. Here is a snapshot:

First, acknowledge that your ability to make financial decisions will decline after age 60. Don't think this won't happen to you; it will.

Of course, you won't know that it's happening when it does. In fact, you're likely to develop a false sense of security about your ability to make financial decisions given that your confidence—if you're like most older Americans—will rise over time.