Advisers can — and must — help improve financial literacy in America

Advisers can — and must — help improve financial literacy in America
The lack of education is a problem, and there's a lot you can do to fix that.
MAR 09, 2019
The United States is one of the richest countries in the world, yet many of its citizens are woefully ignorant about the nuts and bolts of such financial vehicles as loans and retirement savings plans. In fact, a Standard & Poor's survey ranked the U.S. No. 14 globally in terms of its citizens' financial literacy and rated just 57% of U.S. adults financially literate. As InvestmentNews reporter Greg Iacurci's cover story last week pointed out, Americans' lack of knowledge about these topics can damage their personal financial well-being, and financial illiteracy also places a burden on the economy as a whole. The problem starts with the U.S. educational system. Just a third of states require students to take personal finance in high school, and in many cases the subject is just a component of another course, such as social studies or math. Given a study showing that 15-year-old students with bank accounts score higher on financial knowledge than students without accounts, the hurdles that lower-income people face in accessing such financial vehicles as savings or checking accounts also seems to militate against financial literacy. Still, it's not just lower-income people who come up short when they're quizzed on topics like compound interest and risk diversification. Seventy-eight percent of financial advisers surveyed by InvestmentNews agree that financial literacy is a problem, and 49.2% agree strongly that they have encountered financial literacy issues among their clients — individuals who are likely to have a decent amount of wealth.

Significant decisions

It's not as though people have a lifetime to pursue an expertise in financial topics, either. By the time they're in their late teens, students face significant financial decisions when it comes to choosing whether to pursue a college degree and if so, at what college and how to finance that. The mountain of debt that many students take on in the course of acquiring a degree can burden them for decades to come. That student loan debt also is seen as a factor limiting young adults' ability to purchase a home. But perhaps the biggest area of concern relates to retirement savings. Over the last few decades, U.S. companies have moved away from pension plans, whose investments are selected by the employer, to instead offer defined-contribution plans like 401(k)s in which workers make the decisions for themselves. Questions before the average person range from how much to contribute and what to invest in to how to draw down those savings in retirement. Employees' choices could have a big influence on their financial security in retirement.

Ways to contribute

There's a lot advisers can do to improve financial literacy, and you are a prime group to do it. Mr. Iacurci's cover story explored efforts such as working to get more states to mandate the teaching of personal finance, volunteering with schools and other groups to provide such education to students, or helping companies figure out how to make their 401(k) plans and other benefits more fail-safe for their employees. In fact, the InvestmentNews survey featured in the cover story showed that a big chunk — 41.3% — of advisers are already involved in efforts to improve financial literacy. Last week's story included profiles of advisers working with schools and other groups to raise the level of financial literacy among young people, as well as suggestions from an advisory board about which groups are the most effective to volunteer with. (More: Fighting financial illiteracy with personal economics lessons) - Video Advisers' involvement makes sense. Of all the opportunities for volunteering and activism out there, the promotion of financial literacy is perhaps most squarely in your wheelhouse. It's never too late to get started.

Latest News

SEC to lose Hester Peirce, deepening a commissioner crisis
SEC to lose Hester Peirce, deepening a commissioner crisis

The "Crypto Mom" departure would leave the SEC commission with just two members and no Democratic commissioners on the panel.

Florida B-D, RIA owner pitches bold long-term plan to sell to advisors
Florida B-D, RIA owner pitches bold long-term plan to sell to advisors

IFP Securities’ owner, Bill Hamm, has a long-term plan for the firm and its 279 financial advisors.

Fintech bytes: Vanilla, Wealth.com forge new estate planning partnerships
Fintech bytes: Vanilla, Wealth.com forge new estate planning partnerships

Meanwhile, a Osaic and Envestnet ink a new adaptive wealthtech partnership to better support the firm's 10,000-plus advisors, and RIA-focused VastAdvisor unveils native integrations with leading CRMs.

Fiduciary failure: Ex-advisor who sold practice fined after clients lost millions
Fiduciary failure: Ex-advisor who sold practice fined after clients lost millions

A former Alabama investment advisor and ex-Kestra rep has been permanently barred and penalized after clients he promised to protect got caught in a $2.6 million fraud.

Why the evolution of ETFs is changing the due diligence equation
Why the evolution of ETFs is changing the due diligence equation

As more active strategies get packaged into the ETF wrapper, advisors and investors have to look beyond expense ratios as the benchmark for value.

SPONSORED Are hedge funds the missing ingredient?

Wellington explores how multi strategy hedge funds may enhance diversification

SPONSORED Beyond wealth management: Why the future of advice is becoming more human

As technical expertise becomes increasingly commoditized, advisors who can integrate strategy, relationships, and specialized expertise into a cohesive client experience will define the next era of wealth management