Nine in ten Americans say financial literacy lessons should be required in high school, new research shows. The emphasis should be on money management, so that young people learn to start saving early and to live within their means.
Currently, just five states meet this standard, according to Bank of America Merrill Lynch and aging consultant Age Wave, which reported the findings today. By comparison, 36 states require sex education, according to the report.
The findings are part of a comprehensive series of reports released over the past four years, looking at the role in retirement planning of seven “life priorities”—family, health, home, work, leisure, giving, and finances. Today’s release is the final installment. It addresses gaps in individuals’ financial plans and concludes that financial education at a young age must be part of the long-term solution.
A third of adults have no savings for retirement and another 23% has less than $10,000. That means more than half the population is essentially unfunded for retirement, according to the report. Only 13% have saved as much as $300,000.
At its core, this is a problem of understanding—and that is where financial education can fill some gaps. Americans are generally not comfortable with personal finance. They don’t talk about it at home and two-thirds concede they find the language of money to be baffling, the report finds.
Only six in 10 Americans past age 50 clearly understand the two terms most associated with saving for retirement—IRA and 401(k). Far fewer understand the process of spending down savings in retirement or how loans and early distributions from tax-advantaged accounts can cripple a savings plan over the long term. Only 17% give themselves high grades for understanding how Social Security works, the report found.
Just a third of those ages 50-plus give themselves an A or B when asked to grade their financial ability. The average grade was C-minus. Further illustrating this lack of financial know-how, Americans are twice as likely to second-guess financial decisions as they are decisions about their career or health.
Financial education in school and continuing at the workplace can make a big difference. A quarter of workers that participate in a workplace retirement plan attribute their enrollment to an employer reaching out and offering them information about the plan. Effective communication is emerging as an important aspect of financial education at work.
“In order to better experience the great upsides of aging and the new freedoms retirement can offer, people could take steps to better understand their finances, more openly discuss finance topics and seek out positive role models,” says Kevin Crain, Head of Workplace Financial Solutions and Bank of America Merrill Lynch. “That process can start now, no matter what age you are.”
Ultimately, all money decisions are a retirement issue. Spending wisely and saving while young may translate into hundreds of thousands of dollars more in 30 or 40 years. That’s worth noting in any financial lesson, even if your just discussing how to pick the right cell phone deal.