Why are so many Americans unprepared for retirement? One possible reason is that they simply do not understand basic financial and retirement topics.
In a study on financial literacy, LIMRA asked 2,000 Americans 10 multiple choice and true/false. More than one-third (36 percent) answered less than half of the questions correctly and only 12 percent answered nine or more of the questions correctly.
“As Americans are required to take greater responsibility for their retirement saving, the issue of financial literacy becomes increasingly important,” said Alison Salka, corporate vice president and director LIMRA Retirement Research.
Based on the results, the majority of Americans (52 percent) have a medium level understanding of financial matters. More than one-quarter of Americans (27 percent) have a high level of financial understanding while 21 percent have a low level.
Thirty-one percent of men have a high level of financial understanding compared to 23 percent of women. Almost 40 percent of consumers over the age of 55 have a high level of understanding while only 21 percent of consumers under 55 could say the same thing.
The study also revealed that respondents were unsure of their own knowledge of investments and financial products. One-quarter said they are “not at all knowledgeable” on financial products, yet 60 percent answered five to seven questions correctly. And the few Americans who rated themselves as “very knowledgeable” (6 percent) actually scored poorly on the quiz.
Americans interested in improving their financial understanding can:
- Educate early. Twenty four states have some type of financial literacy requirement for K-12 education.
- Educate at work. Many worksite education programs currently focus on transactional activities – how to enroll in a health or retirement plan, how to select investments, etc.
- Acknowledge and address differences. Differences in confidence levels, as well as actual knowledge levels, should be addressed as part of a targeted education program.
- Communicate resources. Make people aware of the many resources available to them, whether through a website, financial institution, organization, or advisor.