Financial Education Books
One of the things I’ve always emphasized as a financial planner is that people need to become more educated about money. While there are numerous financial education books available, not many of them explore the causes of financial literacy or expand on the definition of financial literacy. One of the themes in my book, Redefining Financial Literacy, is that we need to understand the hidden forces that impact our financial decisions.
Financial Literacy Crisis
One of the ironies of America being an economic superpower is the lack of financial literacy. There are two broad reasons for this. First, our educational system never incorporated financial literacy into the curriculum. Second, the financial industry does not devote enough time or money towards educating the public about financial literacy. Consider the following statistics:
- 40% of adults give themselves a grade of C, D, or F in terms of their knowledge of personal finance.1
- 60% of adults have no budget.2
- More than a third of Americans pay only the minimum on their credit card each month.3
- The average American family’s credit card debt is $15,000, and they owe $33,000 in student loans.4
- Almost 70% of Americans are worried they won’t have enough to retire.
- Only six states require a complete personal finance course to graduate high school.5
It is important to understand that women are worse off when it comes to financial literacy. Despite the fact women are better educated than men, and are moving up in the corporate world, they still perform worse than men when it comes to financial literacy.
Redefining Financial Literacy
In addition to having a financial literacy crisis, our definition of financial literacy is too narrow. For many people, the definition of financial literacy is limited to a rudimentary understanding of budgets, savings, and basic investing in stocks and bonds. I believe there is a macro, big picture perspective that is critical to our understanding of how money operates in our capitalist system.
These hidden forces impact not only how we view money, but also how we invest money. In other words, there are hidden political, historical, economic, psychological, and even social media forces that influence our investment decisions and outcome.
Financial planning is perhaps the most important step you can take to achieve financial freedom and retirement security. The first step in creating a financial plan is to have a budget. In the old days, one created a budget with a pencil and paper. Today, there are simple apps on your smartphone that help you create a budget with extraordinary ease. The purpose of a budget, of course, is to track your expenses in relation to your income. Once you track your expenses, you can see where you are overspending, which may help you save more.
The other, more important aspect of financial planning is to prepare for retirement. If you think Social Security will carry you through your retirement years, then you are probably kidding yourself. For one thing, you may have to work to the age of 66 in order to get full benefits. If you have a 401(k) plan, you should determine if you are contributing enough for a comfortable retirement. Lastly, I believe you need to have an experienced and qualified certified financial planner to help you with your investment strategy. In my opinion, the financial planner is versed in alternative investment strategies.
How to Prepare for Retirement
Preparing for retirement is similar to financial planning. One difference is that targeted retirement planning is targeted towards a specific goal. First, you need to determine when you want to retire and how much you need to retire. To answer the how much question, you need to set up a retirement budget. For Social Security benefits, you can use a Social Security calculator to determine how much you will receive in benefits at different ages. For example, how much will receive at age 62, which is early retirement; at age 66, which is average; and how much at 70, which will give you a higher monthly check. You will also need to understand your 401(k), how it is invested, and your monthly contribution.
I feel that you need to do all this preparation with an experienced and qualified certified financial planner. Some of the benefits of having a financial planner include knowledge and experience, certified financial planners (CFPs) are required to take rigorous tests, and CFPs have a competitive advantage.
1 Douglas P. McCormick, “Financial Literacy – The Big Problem No One is Talking About,” huffpost.com, June 3, 2017. https://www.huffpost.com/entry/financial-literacythe-big_b_10264622
5 Tim Ranzetta, “How Many States Require Students to Take a Personal Finance Course Before Graduating High School? Is it 6 or 21?” ngpf.org, February 12, 2020. https://www.ngpf.org/blog/advocacy/how-many-states-require-students-to-take-a-personal-finance-course-before-graduating-from-high-school-is-it-6-or-is-it-21/.