We have a problem. Most people don’t know much about savings and how invested money accumulates. For example, it was reported in the Economist that a survey found that barely half of Americans — over 50 years of age — understood that $100 earning 2 percent a year would grow above $102 after five years. Also, the same meager numbers answered correctly this question: Would a 1 percent investment yield excess spending power if inflation was 2 percent?
These are easy questions: A $100 investment earning 2 percent a year would yield more than $102 after five years, and a fixed amount of money earning 1 percent a year would lose spending power if inflation was at 2 percent. That about half of older Americans, those very close to retirement, don’t understand these basic concepts is alarming.
It’s crucial that savers, regardless of their ages, motivate themselves to learn more about saving money, compounded interest, risk and what it takes to save for retirement. The days of relying on pensions are mostly gone. It’s our responsibility to save. Government programs, such as Medicare and Social Security, are not only in bad fiscal health, our pols in Washington D.C. seem to have little resolve to reform these debt-inflating programs.
In our opinion, if you are financially challenged, you’re playing a dangerous game. It’s irresponsible not to be saving. According to the Economist, studies have shown that early education on savings has not led to more fiscally savvy adults. People generally wait to get interested in a subject when it’s relevant to them. We have a message to all adults — in today’s economy, headed by dysfunctional political leaders — saving money and learning how to accumulate a nest egg is relevant.
We could argue that the feds could make financial education more interesting, perhaps by turning it into a cool video game, but frankly, a blunter touch is needed. It’s time to look adults in the face, catch their attention, and say, “more and more you’re on your own when it comes to your financial future. If you want to screw it up, keep doing nothing. If you want a chance to succeed, become financially literate and start saving in a smart manner.”
It’s that simple.