A recently published research study in the Journal of Financial Planning shows that financial literacy has a huge impact on having a more financially secure retirement. The research consisted of data collected from roughly 1,200 Americans between the ages of 60 and 75, with at least $100,000 of investable assets – the data set excludes many lower income Americans.
Conducted by The American College of Financial Services, the research asked a number of questions around retirement, financial planning and other financial areas aimed at gauging both America’s retirement income preparedness and their literacy rates. The results, while perhaps not shocking, were troubling.
Americans on the whole performed poorly on the retirement income literacy quiz, which asked 38 questions over a variety of different topics including taxes, Medicare, Social Security and retirement plans like 401(k)s. Only 26 percent of respondents were able to pass the quiz with a score of 60 percent or higher. The mean score was a little bit less than 50 percent.
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The quiz questions were organized into topic areas across twelve different categories. Respondents scored highest on the Medicare planning questions (while also indicating the highest level of concern about changes) and scored lowest on annuity products. Women respondents were especially concerned about how changes to Medicare would impact their retirement security.
While literacy rates were fairly low, confidence remained high with most respondents indicating they were moderately to extremely confident that they would have enough money for retirement. However, the research showed that this was likely higher than the average American due to the investable asset requirement of $100,000 minimum to qualify for the survey. Those with higher assets in the survey were more likely to feel confident about their own retirement preparedness, so it is likely that lower wealth individuals not captured in the survey would feel less confident.