Senior Financial Literacy
In 2004, the American Society on Aging sponsored a study to test the financial knowledge of Americans age 50+. This included a survey of three simple yes/no questions that assessed the knowledge of the respondents on concepts such as inflation, risk diversification, and interest rates. At that time only one-third of respondents could answer all three questions correctly.*
Since 2009, broader studies have been made within the wider population and the results were similarly dismal. However, there was a clear correlation between age and a failure to understand some basic financial concepts that make up financial literacy. This is especially worrisome given that money and debt management issues are most consequential to seniors.
This may seem an overwhelming topic to tackle for a senior or their family. While getting sound financial advice is one of the first things most money professionals recommend, that can be easier said than done. Many older adults rely on the advice of relatives, friends or neighbors. Yet, this is a strategy that as many as 70 percent of fraud victims report having used. Become more informed and consider learning more from an accredited Financial Advisor. These are the best first steps to improve one’s financial literacy. One online resource for understanding some of the basics is ConsumerCredit.com. This site offers useful tools designed for the 50+ population.
Here are several topics which seniors and their families may wish to consider when evaluating their financial health.
Know where your money is going
Based on a 2014 survey by the National Foundation for Credit Counseling, over 60% of Americans don’t have a budget. This is the first place to start in developing financial literacy. You cant make informed choices about your money if you don’t know where it is going.
Address your debt
Now that you know where your money is going, its time to develop a strategy to start eliminating it. This means identifying expenses that you can trim and develop strategies to change your spending habits.
Check your credit report
Your credit report can impact not only your ability to get a loan but to rent an apartment or land a job. Therefore, it is critical that you check your credit report often and understand the factors that affect it. If your score is low, there are many agencies available to help you start improving it.
Understand your retirement portfolio
Check your investment choices. For those seniors with retirement portfolios, it is important to understand your risk. While the safety of bonds has always been attractive, a perfect storm may be upon the bond market in the form of anticipated increases in interest rates, tax cuts and a ballooning national debt which will all impact the value of bonds. If your portfolio favors bonds, it may be time to consider a more diversified financial plan. Know whether your total living expenses could ride out a drop in value.
We’ve all heard the rule—you should have three to six months of expenses on hand for an emergency. Even if you don’t think you can get there, start somewhere. Have a set amount put away so if there’s an emergency you have something to fall back on.
* For more information on this study and a more in-depth discussion on the topic of financial literacy, go to asaging.org.