As financial advisors we get to know people not only on a professional level but also a personal level. It is vital to know our clients, their lifestyles, and their awareness of financial topics, more specifically their financial literacy. Part of the reason people seek out a financial advisor in the first place is to leverage their knowledge and expertise, so it’s expected that the average client wouldn’t be an expert in most financial topics. What has become increasingly alarming, however, is the total lack of any basic financial knowledge. Currently, our country and our world are navigating “unprecedented” times with a true physical health pandemic, the COVID-19 crisis. However, there is another pandemic that is plaguing our country and that is the financial illiteracy epidemic that is presently being compounded by the COVID-19 health crisis.
Like any form of illiteracy, the antidote is education. Yet, this education for many in the U.S. never comes, or is so late in life many are left with a lack luster “retirement” or having to work well beyond the years they imagined. The NY Times reports that only 21 states require students to study money matters in high school. In the past four years only 5 states have added financial courses as a pre-requisite to graduate, while one state dropped it completely. This means that more than half the students in America are not required to have any classroom exposure to personal financial intelligence. The Financial Industry Regulatory Authority study shows that financial literacy is trending down. According to the study, 4 out of 5 (or 80%) of young people between the ages of 18 and 35 were incapable of passing a basic financial quiz.
As a result, we are a very financially unhealthy country. Two out of 3 adults lack an emergency fund that could last more than 6 weeks (most adults should have closer to 6 months of expenses saved). 78% of adults are living paycheck to paycheck, thus putting most U.S. adults at risk for financial disaster if an emergency were to happen.
The COVID-19 crisis has only exacerbated the problem. The pandemic has increased financial stress significantly and put a strain on mental health. Over 58% of people are feeling more stressed about their finances than before the COVID-19 pandemic. 44% of adults report that talking about their finances is stressful, while 53% say they are experiencing anxiety just thinking about their finances.
Here are a few symptoms of poor financial health to look out for:
- Inadequately saving for retirement or not having retirement savings at all.
- Spending more than your budget allows.
- Relying on short term gratification to make decisions about spending and ignoring harmful long-term consequences.
- Not understanding basic financial services.
- Not accepting sound financial guidance or being in denial about needing help.
- Allowing embarrassment or pride to keep you from gaining financial knowledge or seeking financial advice from a professional.
Unfortunately, there is no one-time shot or quick treatment to cure financial illiteracy. Proper financial health and decision making starts with each of us. Educating yourself and your family is an important step in securing a healthier financial future. Consulting with a trusted financial professional who can properly evaluate your situation and “write” you a customized “prescription” is another step to improving your financial health. Now more than ever it’s important that we are mentally, physically, and financially fit.