If consumer studies give any indication, America needs a financial wake-up call.
A lack of consumer financial awareness is taking a toll nationwide, as InvestmentNews covers in a recent story. And the effects of what the advisory news publisher calls a “financial literacy crisis” are significant.
Almost two-thirds of people shows signs of low financial awareness, according to FINRA. Financial advisors also recognize the challenge. In a survey by InvestmentNews, 78% of advisors strongly agreed that financial literacy is of national concern.
WalletHub reports that the average household credit card debt is the highest it has been in nearly a decade. Financial stress is affecting work productivity, according to a recent survey of 10,000 employees by Salary Financial.
Nearly one in two Americans (48%) said they worry about their finances, leading to sleep loss, distractions at work, and other disruptors in work performance. The survey drew responses from employees ranging from entry-level to C-suite professionals.
In turn, this wave of personal financial stress costs U.S. businesses $500 billion per year in lost productivity, Salary Financial estimates.
And the washout from lower financial awareness isn’t limited to just working-age Americans, either.
Retirees Also Feeling the Heat
When it comes to financial literacy, and the understanding of how to plan now to have the financial resources needed to fund a fulfilling future, many of us approaching retirement don’t have a clue.
According to the Pew Research Center, there are approximately 74 million baby boomers in the U.S.
That means baby boomers make up our largest population set (until Gen Xers starts to outnumber Boomers in 2028).
But boomers “hold less wealth, are deeper in debt, and will face higher expenses than retirees a decade older than them,” according to a new report by the Stanford Center on Longevity.
Among boomers with positive balances, the study found their median savings was approximately $200,000.
Setting a Course for Retirement
Stanford research scientist Jialu Streeter offered this somber assessment: “Boomers who run out of funds towards the end of life will either fall back on children, who by then will be in their 50s and 60s, or the social safety network.”
No one wants to be in a position to burden their relatives or to have to rely on our social safety resources. The good news is that, as a boomer or Gen Xer, taking action now to enhance your financial knowledge and learn about all your options gives you an opportunity to improve your financial outlook.
In other words, it’s not too late to work toward financial wellness and avoid being a burden to loved ones.
Putting Yourself First
When taking the first step toward better financial fitness, consider that there are two distinct approaches people take to managing their money.
Many pre-retirement investors burn through their income, then “pay themselves” with what's left over.
On the other hand, those who successfully manage to build up their retirement nest egg take the approach of "paying themselves" first, then tending to their expenses with the remaining cash-flow.
They are also conscientious of how much cash-flow they bring in each month. They control their monthly expenses to remain within that income stream.
Notice that we aren't using the words “live within your means” or “set a budget, then stick to it” in this assertion. This is a completely different mentality than working from a “making ends meet” mentality.
It's the mindset of taking your money and putting it to work for you, versus letting your financial matters run your life.
Fiscal Fitness Doesn't End in Retirement
As an investor and as someone who has built up a retirement nest egg of any size, you have shown discipline in the “accumulation” phase of your financial life. What might not be as apparent is that focus and discipline will also be needed during the next phase of your financial life: the distribution phase.
In fact, the distribution phase can be just as involved as when you were building and growing your financial portfolio.
Improve Your Fiscal Fitness for Retirement Success
Remember that making money is half the challenge.
The other half is keeping as much of it for yourself when the time comes to make withdrawals or “distributions” from your portfolio. Just like in all other financial phases of life, there are tax consequences, opportunity costs, and other dimensions to every decision you make.
During your distribution phase, Uncle Sam is paying close attention to what money you are receiving and what type of accounts your funds are coming from.
There can be a hefty tax bill if money is taken from financial accounts or vehicles that let you benefit from tax-advantaged accumulation.
Gain Confidence from Working with Financial “Trainers”
You probably know people who have successfully transformed their eating and physical health with the guidance of a coach or personal trainer.
That same kind of advice, encouragement, and accountability can be found by consulting a financial professional. Consider looking for someone who is knowledgeable in retirement planning strategies and maximizing your income while minimizing tax consequences.
There is no need to “go it alone” when making difficult or complex financial decisions.
Better Tomorrows Start Today
A financial professional can help you make the most of your financial resources now, having the right plan and strategies in place to enjoy an income-rich retirement later. Consider working with one to improve your financial literacy and see how you can benefit.
And what are the very real costs of not being financially literate? Facing the prospect of an increased debt load, increased financial stress, and often lower-than-needed savings, whether now or set aside for your retirement.
Working with a financial professional can help you make more effective, informed and confident choices. And it puts you in control of envisioning and achieving your ideal financial future for you...and for your family.
Are you ready to work with a financial professional? Help is only a click away at JenniferLangFinancialServices.com.