I happened to see an article on the CNBC Money website highlighting the troubling issue surrounding the lack of financial literacy in our country. When asked three basic questions related to inflation, stock risk, and interest, 70% of respondents failed to correctly answer all three questions.
As disappointing as this result is it shouldn’t be shocking given the lack of financial literacy taught in our schools. The article mentions that fewer than 50% of our states require financial leteracy to be taught in our public schools. As an example, New Jersey has only a 2 credit course mandated to be taught in one’s Sophomore year, and it relates more to basic principals than it does to handling a retirement account.
What makes this particularly troubling is the fact that we continue to migrate our employees away from DB plans that are professionally managed to DC plans that force the individual participant to “manage” their account. As you may recall, the DC plan was originally created as a means for wealthy executives to defer more income. It was never intended to be anyone’s primary retirement vehicle.
Not surprisingly, this migration is creating a retirement crisis in our country. Asking untrained individuals to fund, manage, and disperse their retirement account is poor policy, and the social and economic consequences of this action will be quite grave. I don’t need a survey to understand that something needs to change, and fast!