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While a majority of consumers consider themselves financially literate, their use of basic financial accounts severely lags behind.
Over half (53.8%) of Americans rate their own financial literacy as good (40.5%) or excellent (13.3%), including 59.2% of men and 49.3% of women, according to a recent Million Dollar Round Table (MDRT) survey, however, far fewer Americans report owning retirement savings accounts and high-yield savings accounts.
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“The American worker feels strapped with the rise of expenses in general,” said Damon Winter, MDRT member and co-founder of OnMark Asset Management. “Add in the often-poor perception that they can just put off financial decisions to a later day, and the result is reduced employee participation.”
Fewer than half of Americans have basic investment accounts, despite broad majorities saying they understand how such tools work. Only 35.3% of Americans have a 401(k) or Roth 401(k) account and another 36.3% of Americans say they know how these accounts work. “Many American’s finances have really been stretched the last few years – with the cost of groceries, utilities, auto and homeowners’ insurance, they feel the need to ‘take home’ every dollar they can get,” explains Winter.
Slightly fewer Americans (31.6%) own stocks, though another 39.2% know how they work. Only 28.2% of Americans have an IRA or Roth IRA, and another 34.6% know how they work, according to the survey.
“Knowledge is not the same as action, especially when it comes to personal finance,” says Terri Krueger, a 10-year MDRT member with two Top of the Table qualifications. “These results clearly demonstrate that financial advisors have a responsibility and an opportunity to inspire Americans who already know what they should be doing.”
Americans who work with financial advisors are substantially more confident in their own financial capabilities than the general public. A strong 78.5% majority of Americans with advisors rate their own financial literacy as good (52.4%) or excellent (26.2%). This includes 81.7% of men with advisors and 75.7% of women with advisors.
Americans with advisors are also more likely to have basic investment accounts:
- 66.8% own stocks, and another 21.2% know how they work
- 66% have an IRA or Roth IRA, and another 20.7% know how they work
- 62.6% have a 401(k) or Roth 401(k) account, and another 27.7% know how they work
“Working with a financial advisor is one of the best ways to close the gap between knowing what is best for your finances and actually taking those steps,” says Krueger. “Having a qualified professional there to help can give consumers the confidence they need to get their personal finances in order.”
“Employers should consider bringing in an independent financial advisor who is not tied to their benefits program to provide educational opportunities to their employees,” said Winter. “This will help with the resistance employees feel about being ‘sold’ on the benefit plans. It can also signal to the employees that their employer really values their financial well-being.
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“Advisors should increase employees’ understanding of the time value of money and the magic of compound interest. Also, aim to help them grasp the importance of an employer ‘match’ in a retirement plan. If they aren’t participating at least to the level of the match, the employees are leaving money on the table. For instance, if the employer matches 100% of the 4% contributed, the employee can get 8% of their income put away, at only a cost of about 3% of their income, with the tax reduction.”
While all employees will benefit from a financial advisor, “near retirees are the most agreeable” to working with a financial advisor, said Winter. “They have typically accumulated more money, but they’re very concerned about the question of “do we have enough,” and how to structure retirement income in conjunction with our Social Security benefits.”
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
