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Financial Advisors Ignoring Financial Literacy


Financial literacy is a huge issue in my world that is the financial services industry.  It is a driving force in these emails and also how I approach financial planning and wealth management – making it as simple as possible.  You may be wondering what exactly financial literacy means.  The short version is it’s the ability for people to understand the basics of financial decision-making.  Some compare it to the ABCs of finance.  The premise is the better one’s financial literacy the better decisions they will make related to everything from debt to investing for retirement to taxes to avoiding costly investment products. 

I thought I would share some highlights of a great article in InvestmentNews I read recently about financial literacy.

  • 78% of financial advisors believe financial literacy is a serious issue in our country.
  • Only 41% of advisors are doing anything about it.
  • 90% of advisors say they have encountered financial literacy issues with clients.
  • The US has the world’s largest economy, but scores 14th in financial literacy.To put this in perspective, our financial literacy level of 57% is slightly higher than Botswana. 
  • FINRA (Financial Industry Regulatory Authority) conducts regular studies to gauge financial literacy in the US.  Sadly, their results show fewer people are able to answer basic financial questions.
  • College debt is a huge issue. The decade ending 2016 saw the average debt level double.Student loans are the second-highest household liability, only behind mortgages.
  • The median retirement savings rate for ages 55-64 is $104,000. 
  • Only 1/3 of states require students to take a personal finance class, but these classes are often buried in other classes, like economics. Five states do have a separate personal finance class that is a semester long. 
  • Studies show the earlier people have a basic understanding of personal finance, the better they will make the right decisions going forward with their finances.
  • For example, 15-year old students who have their own bank accounts score 40 points higher on financial literacy tests than their peers without accounts. 
  • The marketing dollars spent toward selling financial products versus how much is spent on educating consumers is eye-opening.  $17 billion is spent on advertising products and services annually, while $670 million is spent on financial education.  Or, $25 to sell versus $1 to educate. And this data is 6 years old!

Part of what caught my attention with this article is a conversation I had with my high school senior and what he learned in his economics class about personal finance.He said his teacher spent a few minutes out of a whole semester on the topic of saving for retirement.  And the “teaching” was along the lines of - “You should save for retirement and not have a lot of debt, but I like new cars and new things so I don’t really save.”  My sons are now upset as the world’s meanest father will now be putting them through a personal finance class. 

I’m honestly not sure what my point is with this week’s email, except to say it is important to improve your own financial literacy level.  Unfortunately, you cannot rely on your advisor to educate you as the majority of financial advisors are doing nothing about it.  I mean, seriously - 90% of advisors have encountered financial literacy issues with clients, 80% think it’s a serious problem, but only 40% of us are doing anything about it!  No wonder we have such a bad reputation.  If I didn’t know better, I would almost think the financial services industry feels ignorant clients are better for their bottom line.  However, that would be very cynical of me😉 

Ultimately, to improve your financial literacy, I encourage you to read as much as you can on the basics of finances, talk to people whose opinions you trust, and never be afraid to ask lots of questions of your advisor.  Because the more you know the less you are dependent on others or susceptible to those who may not have your best interests in mind.  And just so you know, one of my physician clients says MD stands for “Money Dumb.”  So, if you are feeling your financial literacy is lacking, you are not alone.