Big banks are beginning to talk openly about the connection between financial literacy and retirement security. This is a significant development that should boost the global effort to improve individuals’ money management skills.
Boomers Hold Most of the Wealth
For decades, financial firms have been singularly focused on counseling boomers who are in or nearing their retirement years. And why not? That’s where the money is. Boomers control half of the net household wealth in the U.S. They will continue to be the U.S.’s wealthiest generation until at least 2030.
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And yet, by the time people get to retirement, there isn’t a lot they can do to improve their nest egg. Financial education remains critical then because individuals must understand how to make any savings last. But the best time to really help them was four decades earlier.
Yet in just the last few months, three of the world’s largest financial institutions have publicly recognized this issue. BlackRock, Bank of America, and Fidelity Investments have all spoken up on the importance of teaching financial literacy as a means to solving the nation’s retirement savings crisis.
Combatting the Retirement Savings Crisis
In his most recent annual letter to CEOs of the largest companies in America, BlackRock chairman and CEO Laurence Fink called upon businesses “to empower savers with new technologies and the education they need to make smart financial decisions.”
In a survey, Bank of America Merrill Lynch found that nine in 10 Americans believe financial literacy lessons should be required in high school. The survey also found that 25% of people enrolled in a 401(k) plan because of educational material they received on the job. Meanwhile Fidelity reported in a press release that 401(k) accounts had reached record high balances and contribution rates partly as a result of rising participation in more user-friendly workplace financial education programs.
The connection between financial literacy and retirement security has never been made so strongly. With Millennials reaching full-on adulthood, the timing for financial firms is right. But another important driver is the clear failure of the old model of saving, where employers offer options and leave it up to workers to sort them out. Nearly half of boomers have no retirement savings at all. Only half of those who have saved have more than $100,000.
That’s bad. But it could be worse. Many boomers still have lifetime income guaranteed through traditional pensions to soften the blow of meager savings. For the most part, the next generations have no such cushion.
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This is where financial education programs, starting in school and continuing in the workplace, can make a difference. Yes, it’s good business for big banks to get young people to start saving and to stir older savers to be more aware of their money habits. But it’s also good practice for people to start saving early and stick with a strategy.
With this formal linkage between financial education and retirement security, banks are recognizing that raising individuals’ financial literacy must be part of the solution.