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TMFBro (< 20)

Are people capable of financial planning?

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July 16, 2009 – Comments (6)

The Journal of Financial Planning has an article by Brent A. Neiser, CFP, about the difficulties "Middle America" (those with household incomes between $30,000 and $100,000) has with planning for, and planning in, retirement: 

"Almost half of At-Risk Middle Americans have 'extreme difficulty' understanding most financial information, and more than half think retirement planning is harder than raising kids. So where do they go for advice? Not to professional financial planners, not to the financial services industry, and not to the media—they rely on relatives, friends, and co-workers. The lack of professional direction shows up in a lot of unrealistic expectations: though only 12 percent of retirees have jobs, more than three-quarters of At-Risk Middle Americans approaching retirement are confident that they'll be making money after they retire. Financially, mentally, and culturally, At-Risk Middle Americans are terribly unprepared to fund their third stage of life."

Neiser is the director of strategic programs and alliances for the National Endowment for Financial Education, which has just unveiled a new website: http://www.decumulation.org.

However, as Neiser's article points out, just providing resources won't improve financial habits:

"But even if financial planning and perfectly structured products became suddenly available to every at-risk household, their behavioral patterns would largely stay the same. A senior financial services executive pointed out to think tank participants that his company had tried offering free online education and planning products. He said that consumers mostly ignored them, despite the company's highly regarded brand name and considerable promotion efforts."

Why don't people take responsibility for their financial planning? I have a few ideas:

1. Most people find this stuff boring.

2. After working all day, cooking and cleaning up after dinner, and getting the kids in bed, it's 9 o'clock and people are tired. They don't then want to read about IRAs.

3. They have to make choices that will likely involve sacrifice today for something that is decades away.

4. It could cause conflict. The article stated that "the large majority of At-Risk Middle American households say they seldom or never disagree with their own spouse about money, indicating that there's not a lot of talking about finances going on in the first place." My guess is, a lot of spouses are avoiding uncomfortable discussions about each other's spending habits, career choices, and priorities.

5. Basic financial literacy isn't taught in schools (a point raised by Fool tonyr53 on the Rule Your Retirement discussion boards, where I first heard about this article). 

6. People are overwhelmed by all the financial information and sometimes conflicting advice, and are in a state of analysis paralysis. 

I often ask myself, What would get people to change? I'd be open to your ideas. Maybe we need to produce a series of videos based on the old "Scared Straight" shows, but instead have destitute older Americans screaming about all the mistakes they made.

6 Comments – Post Your Own

#1) On July 16, 2009 at 12:11 PM, SkepticalOx (99.43) wrote:

It should start at home, but since people aren't doing it, I think it should be a mandated for schools to start teaching about managing finances in middle school or high school. Stuff like savings, future value of money, basic investing, etc.. It should be one of the major subject, like English, or Math, since EVERYONE deals with it. 

 

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#2) On July 16, 2009 at 12:23 PM, TMFBro (< 20) wrote:

Here's the link to the JFP article (for some reason, links keep dropping out of my posts): http://www.fpajournal.org/CurrentIssue/TableofContents/AvertingAt-RiskMiddleAmericasRetirementCrisis/

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#3) On July 16, 2009 at 12:36 PM, NechesInvst (99.60) wrote:

I work in an engineering office--and frankly, the best math class I had in high school was Mathmatics of Consumer Economics. A class designed for--get ready for it--Life.

No kidding, it taught you about credit and mortgages, and savings and balancing check books.

I cannot recommend a class like this enough.

For those of us out of school there's always Dave Ramsey. Google him, if you don't know him.

But too many Americans live for today, and don't plan for the future.

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#4) On July 16, 2009 at 1:11 PM, rofgile (99.31) wrote:

I think schools should require people to read "Your Money or Your Life".

I got much more fiscally determined when I got out of college, but I really wish I had more of a clue when I was still in high school and college.

 -Rof

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#5) On July 16, 2009 at 1:15 PM, Imperial1964 (97.78) wrote:

If finances are more difficult than raising kids, since we have all seen how many people "raise" their kids, many people are in a whole heap of trouble.

I agree with your enumerated causes and SkepticalOx's idea of finance as a school curriculum.  It should be just like Math and Reading.

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#6) On July 16, 2009 at 1:43 PM, lemoneater (81.73) wrote:

I think consumer math and economics should be considered required high school curriculum. (No elected official should be allowed to serve without studying these subjects, but that is another topic!) When we discussed buying a home (long before the subprime debacle!), the mortgage officer was explaining the process in painful detail so I told him that I already understood about interest and principal and mortgage rates. He was amazed, but I explained that I had consumer math in high school.

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