Why It Matters:
Financial literacy in America is on the decline.
In some cases, people think they have more financial knowledge than they actually do.
You’re in a position to help your clients become more financially literate.
Happy Financial Literacy Month! If you’re reading this, there is a good chance you are financially literate. But what about your clients?
According to findings from the National Financial Capability Study (NFCS) released by the Financial Industry Regulatory Authority’s (FINRA) Investor Education Foundation, Americans just aren’t that literate when it comes to basic principles of finance.
The study showed that, “61 percent of respondents were unable to answer more than three of the five questions correctly.” And, “only 37 percent of respondents were considered to have high financial literacy, meaning they could answer four or more questions correctly on the five-question financial literacy quiz — down from 39 percent in 2012 and 42 percent in 2009.”
And if you have clients who consistently nod their heads as you explain complicated financial concepts, take this into account: according to the study, “When asked to assess their own financial knowledge, over three-quarters of respondents (76 percent) gave themselves high marks. So, in contrast to the decline in financial literacy quiz performance from previous years, self-perceptions of financial knowledge have become more positive relative to the 67 percent in 2009 and 73 percent in 2012 who rated themselves highly.”
The bottom line is, if we don’t focus on education, we won’t be able to prevent an increasingly turbulent economic landscape. Uninformed financial decisions may put people further into debt, increasing financial stress and harming their wealth and well-being.
Luckily, you are in the unique position to help provide that info. So how can you best educate your clients and raise their financial literacy?
Teaching financial literacy
According to this New York Times article, there are three things our industry should be doing to increase financial literacy among people.
- Just-in-time education. Learning decays quickly so provide assistance and education at the critical moments immediately before a big financial decision.
- Use simple rules of thumb. Even personal finance education as early as high school didn’t appear as effective as providing simple financial maxims like: always contribute the max amount to your 401k.
- Make the financial system more user-friendly. As institutions work to provide better and easier access via apps and user-friendly websites, you can work to make your clients feel comfortable within the financial landscape by designing your guidance through the eyes of a layman.
Financial literacy is needed now more than ever. You can help your clients navigate the difficult waters of financial decision-making, leading to a stronger economy and less stress for its members. Reach out to your clients and see how they do on the FINRA Financial Literacy Quiz.
What to Do:
Assess your client’s financial literacy.
Help them identify weak points.
Impart guidance before their big financial decisions, use small rules of thumb and take steps to make the financial system more user-friendly.