http://yesand.co.uk/author/john-brooker/page/20/ As financial education becomes more about leading individuals to good outcomes and less about teaching them to get there on their own, we risk overshooting and missing out on the benefits of fully employing both strategies, new research suggests.
Looking only at retirement savings, those who seek financial planning advice and also take a hands-on role in calculating their needs see a bigger boost in savings than those who only do one or the other, found researchers, Terrance Martin, Michael Guillemette, and Christopher Browning of University of Texas Rio Grande Valley, University of Missouri-Columbia, and Texas Tech University, respectively. Their study was published in the Applied Economic Letters journal.
The authors used thousands of responses from a national survey of Americans in their 40s and 50s, looking at various factors that corresponded with increases in money saved for retirement. They found that people who did nothing more than consult with a financial planner increased savings the least. Those who had taken the time to calculate their needs on their own saved more, and those who did both saved the most.
These findings suggest that personal involvement is an important part of financial management, and personal involvement is more likely where individuals understand financial concepts and aren’t simply being advised on how to act. In other words, we can only outsource so much responsibility for our financial future. In the end, actively engaging is an important part of getting from goals to outcomes, the researchers conclude.
These findings underscore the need for greater financial education in schools. That is where a groundwork can be laid for understanding financial concepts and being able to use that understanding as adults to be involved in big personal money decisions like how much to save and where to invest.
In recent years, outcomes-oriented policymakers have pushed more for programs that offer guidance at crucial moments in one’s financial life. They have de-emphasized programs that teach underlying financial concepts. This shift from financial “literacy” to financial “capability” got a big boost under the Obama administration. We can’t be sure where it will go under president-elect Trump. But research shows us that the best outcomes occur when both strategies are in play.