Financial Planning: The Benefits of Financial Education
Many people might believe financial planning is only for the wealthy, or at least the accountants that wealthy individuals hire. However, no matter your level of income, financial literacy and education is a crucial skill that everyone should start cultivating from a young age. The more familiar you are with the financial world, the more stable you can be throughout your life.
A Growing Need for Financial Education
Now more than ever, it is important for individuals to be able to understand their financial situation and make educated choices. As people struggle to keep up with the economic world, a number of factors are making financial literacy an increasingly necessary skill.
- Longer life spans mean that retirees will require more savings than previous generations to maintain the same level of comfort and financial stability.
- The financial landscape is becoming more complicated. Banks, credit unions, brokerage firms, insurance firms, credit card companies, mortgage companies, financial planners and other financial service companies all fight for consumers’ attention and business, further adding to the confusion due to the number of complex investment and savings products.
- Government aid is no longer sufficient. Where previous generations lived off Social Security funds during their retirement, it is predicted that the Social Security Trust Fund will be completely depleted by 2033. Without proper planning, most citizens will not have adequate savings to support themselves their entire lives.
Financial Literacy and Income
Professors at Brown University reviewed materials from a number of different financial literacy studies, including a literacy survey using five basic financial questions that were presented to respondents of various ages and experience levels. Analyzing the data produced some startling, but not unexpected, results. Only five percent of individuals aged 18 to 24 were able to correctly answer all of the financial literacy questions. Comprehension seemed to increase with age, as 19 percent of the 65 and older group aced the test.
The biggest factor, however, seemed to be household income. Twelve percent of people with an income of $35,000 to $49,000 correctly answered each question, while 37 percent of the $150,000+ income bracket received a perfect score. While making more money doesn’t automatically increase financial literacy, it’s safe to assume that those who are more economically successful tend to have more financial education and practice.
Saving for Retirement
A survey conducted by the Consumer Federation of America (CFA) and Financial Planning Association (FPA) found that 21 percent of respondents considered winning the lottery the most practical strategy for accumulating money for their retirement. Not only is such an outcome statistically unlikely, it shows how little the general populace understands the necessity for planning and saving for the future. Workplace 401(k) plans, as well as diversified stock portfolios, are some of the safest and most effective saving tools. The low level of financial literacy among most Americans suggests that better financial education could encourage more personal savings, improving financial and economic security throughout life and into retirement.
Financial Education and Counseling in Seattle
American Financial Solutions is a non-profit 501(c)(3) financial education and credit counseling agency that helps clients find debt solutions and change their financial lives for the better. We offer a wide variety of resources to help Washington State consumers manage debt and better understand their own finances. Contact us today to speak with one of our experienced credit counselors.
Published May 9, 2017.