By Derek Fiorenza, AIF^®, C(k)P^®, CPFA, PPC™,
Co-Founder/COO/CCO
Summit Group Retirement Planners, Inc.

How would you answer these three questions?

1. Suppose you had $100 in a savings account and the interest rate was 2% per year. After five years, how much do you think you would have in the account if you left the money to grow?
   1. More than $102
   2. Exactly $102
   3. Less than $102
   4. Do not know
      
      
2. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year, with the money in this account, would you be able to buy…
   1. More than today
   2. Exactly the same as today
   3. Less than today
   4. Do not know
      
      
3. Do you think the following statement is true or false? Buying a single company stock usually provides a safer return than a stock mutual fund.
   1. True
   2. False
   3. Do not know

(The answers are found at the end of this article.)

Recently the World Economic Forum conducted a study on financial literacy. And they used the three questions above to test financial literacy. They discovered that in the US, financial literacy rates are around 50%. The European Union is also underperforming as well. The World Economic Forum is spearheading the Future of Global Fintech Research Initiative, which is striving to explore lessons that have been learned from public-private efforts to improve financial literacy. Lastly, April is Financial Literacy Month in the US.

There is a robust study conducted with 28 questions given annually to US adults (P-Fin Index). The areas studied are earnings, savings, insurance and comprehension of risk. The results through the years continue to demonstrate that financial literacy has been hovering around 50% for 8 years in a row, and there has been a further decline of 2% over the past two years. The areas where Americans feel more comfortable center around borrowing, saving, and consuming with the area of least comfort being around financial risk.

These questions help to develop a framework for our working knowledge of financial literacy for the majority of individuals. In the 2021 study, under 30% of Americans responded to these three questions accurately. Even more of a concern is that these respondents had confidence of their financial knowledge giving themselves a rating of 5.1 out of 7.

It’s a Global Perspective

When we shift our attention to the European Union, it also reveals a large financial knowledge gap. One quarter of respondents scored low for their financial knowledge in the 2023 Eurobarometer survey. 18% of these responders scored on the low level of financial literacy. This reveals that this is more of a universal problem, rather than a country specific issue.

Providing Financial Support Holistically

As a thoughtful segway, these findings beckon, how can we help to provide financial education and support to the masses? As a retirement plan specialist organization, we work with employers at a macro level to assist with their fiduciary responsibilities such as plan governance and design, investment oversight and monitoring, and ongoing due diligence. We also have an opportunity to serve the employees of such organizations through individual one-on-one and group financial coaching/counseling. This enables us, as retirement plan specialists, to have an understanding of the employees’ financial needs and concerns resulting in our ability to design and share potential solutions for them as they implement these strategies in their daily lives.

Topics covered in the employee training sessions range from investment allocation, to budgeting and debt consolidation. According to Legal Zoom, only 32% of Americans have a will in place. In an article from Yahoo, they found that 59% of Americans want Financial Advice, but most do not know where to find it. These studies show that there not only is a desire but a need for these types of financial counseling services.

Outside The Workspace

There are powerful ways to support employees of a corporation, but what about the many individuals that do not have access to financial literacy training? That is where FinLit Futures can address this need head on and make a dramatic difference. Financial literacy training can be offered by financial advisors, CPAs, Attorneys, Bankers, and other financial professionals to the community outside of the typical professional environment as laid out above.

Real Solutions

We can partner with local YMCAs, after school programs, The United Way, and other local regional non-profit organizations to offer financial literacy training. The financial education can be geared to children, adults, families, and individuals that have fallen on hard times in homeless shelters and homes. As we collaborate with other non-profit entities, we could offer pro bono advice and coaching to their constituents. That is part of an initiative we will be spearheading this summer with our local YMCA during their Kids Camp to teach and inform about the basics of budgeting, debt, saving, and investing.

If you would like to learn more about ways to offer financial literacy training in your community, please feel free to reach out to Derek Fiorenza to review goals and strategies to impact your local community.

Answers:

Q1. Simple Interest

“Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow?”

1. More than $102
2. Exactly $102
3. Less than $102
4. Do not know
5. Refuse to answer

Q2. Understanding of inflation

“Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, would you be able to buy?”

1. More than today
2. Exactly the same as today
3. Less than today
4. Do not know
5. Refuse to answer

Q3: Understanding of risk diversification

“Do you think that the following statement is true or false? ‘Buying a single company stock usually provides a safer return than a stock mutual fund.’”

1. True
2. False
3. Do not know

References

https://www.weforum.org/agenda/2024/04/financial-literacy-money-education/

https://www.legalzoom.com/articles/estate-planning-statistics

Americans Want Financial Advice - Yahoo News

EXCITING NEWS! Financial Advisors and colleagues across the Retirement Industry can earn CE credits associated with their Youth Financial Literacy Education Volunteer efforts. The Retirement Advisor Council and FinLitFuture$ worked with Fi360 (now Broadridge) and Fred Barstein to secure CE credits associated with your AIF, AIFA, C(k)P, ARPC, and ARPS designations. Submit your volunteer efforts here! https://lnkd.in/eTg_Ds5U
hashtag#financialliteracymatters hashtag#financialadvisors hashtag#AIF hashtag#AIFA hashtag#CkP hashtag#ARPC hashtag#ARPS hashtag#retirement

By Paula Hendrickson, CFP®, C(k)P™, Director Retirement Plan Consulting and Retirement Advisor Council Member

I worked for an organization that was passionate about financial literacy for elementary through high school aged children. We created a relationship with Junior Achievement and committed to a specific amount of time to be donated by our employees each year. I volunteered for three years in a row to teach a classroom of children; third, fifth and eight grades. Junior Achievement does a great job of putting together curriculum that is age appropriate and keep the children engaged and learning about finances. From creating efficiencies with manufacturing – an assembly line putting together ball point pens – balancing a checkbook, creating a budget, drafting a business plan to understanding world economies.

It was so rewarding and the letters that I received following that day were so heartwarming. It gave me as much of a sense of accomplishment as winning a large retirement engagement. It was exhausting and I give teachers so much respect for keeping children engaged all day, every day. I only had one day to do it and it was tougher than presenting to the most difficult investment or buying committees.

There so many ways to volunteer other than by committing to a full day. Junior Achievement for example, has other programs that ask for a commitment of one hour per week for 6-8 weeks. So many ways for the community to get involved in this very important initiative… driving financial awareness for our future generations of leaders.