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Nansemond River Financial Services

Financial Planning, Investment & Insurance Planning

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The Importance of Financial Literacy

Posted on May 11, 2017 at 4:12 PM
The Importance of Financial Literacy

Too few Americans understand personal finance fundamentals.
 
If only money came with instructions. If it did, the route toward wealth would be clear and direct. Unfortunately, many people have inadequate financial knowledge, and for them, the path is more obscure. 
 
Are most people clueless about financial matters? That depends on what gauge you want to use to measure financial knowledge. The U.S. ranked fourteenth in Standard & Poor's 2015 Global Financial Literacy Study, with just 57% of the country's population estimated as financially literate. 1
 
Obviously, the other 43% of Americans have some degree of financial understanding - but it is mixed with a degree of incomprehension. Witness some examples:
 
*A recent LendU survey found that nearly half of college students carrying student loans thought those debts would eventually be forgiven if left unpaid.
*This year, Fidelity Investments asked Americans the following question in a multiple-choice quiz: "If you were able to set aside $50 each month for retirement, how much could that end up becoming 25 years from now, including interest, if it grew at the historical stock market average?" The correct answer was $40,000, but just 16% of respondents got it right. Another 27% guessed $15,000 (i.e., 50 x 12 x 25, as if interest was not a factor). 
*Only 42% of those quizzed by Fidelity knew that withdrawing 4-5% a year from retirement savings is commonly recommended. Fifteen percent of those older than 55 thought they would be "safe" withdrawing 10-12% per year.
*The S&P 500 has returned positively in 30 of the last 35 years. Just 8% of those answering Fidelity's quiz guessed this. 2,3
 
Apart from these examples, consider another one at the macro level. According to the latest National Financial Capability Study from FINRA (the Financial Industry Regulatory Authority), only about a third of Americans younger than 40 understand the basic financial concepts of compounding, inflation, and risk diversification. 1
 
Statistics aside, think about how a lack of financial acumen hurts people's chances to build or protect wealth. How about the employee who skips retirement plan enrollment at work, mistakenly thinking that a tax-advantaged retirement account is the same as a bank account? Or the small business owner puzzled by cash flow and profit-and-loss statements? Or the young borrower who fails to grasp the long-run consequences of only making interest payments on a credit card or loan?
      
Financial professionals continually educate themselves. They stay on top of economic, tax law, and market developments. Investors should as well. Ten or twenty years from now, you may find yourself in an entirely different place financially - who knows? The economy, the Wall Street climate, and even the investment opportunities before you could all differ from what you see today. If your financial knowledge is ten or twenty years out of date, you risk being at a disadvantage. 
 
Financial literacy is not about prevention, but instead about empowerment. The more you understand about personal finance, the more potential you give yourself to make smart money decisions.  
          
Mark McGahee may be reached at 757 539 9465 or [email protected]
www.nansemondriverfinancialservices.com
 
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
 
Securities offered through Securities America, Inc. Member FINRA/SIPC. Advisory Services offered through Securities America Advisors, Inc. Trading instructions sent via e-mail may not be honored. Please contact my office at 757-539-9465 or Securities America, Inc. at 800-747-6111 for all buy/sell orders. You should continue to rely on confirmations and statements received from the custodian(s) of your assets. The text of this communication is confidential and use by any person who is not the intended recipient is prohibited. Any person who receives this communication in error is requested to immediately destroy the text of this communication without copying or further dissemination. Your cooperation is appreciated."
   
Citations.
1 - marketwatch.com/story/should-colleges-require-a-financial-literacy-class-2017-04-03/ [4/3/17]
2 - investopedia.com/news/3-ways-improve-financial-literacy/ [4/21/17]
3 - marketwatch.com/story/most-americans-failed-this-eight-question-retirement-quiz-2017-03-23 [3/23/17]
 

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213 Comments

Reply bradgly
8:17 PM on May 13, 2022 
Reply Mariozep
5:01 PM on June 29, 2022 
They’re written in countless books and passed down as folk wisdom.
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Now that we’ve covered the aphorism definition, are you ready for more examples.
Nanakorobi yaoki.
Remember that.
Picture of Benjamin Franklin and a caption that says "Aphorist Extraordinaire"
Interestingly enough, this saying was initially intended as a compliment.
(I say these words to make me glad),
It’s time.
The term aphorism originates from late Latin aphorismus and Greek aphorismos.
If you do, you agree with George Herbert’s famous aphorism from his book, Outlandish Proverbs.
This quote originated from Thomas Howell in New Sonnets and Pretty Pamphlets.
It’s one of the most recognized aphoristic statements today.
Washington’s message was that it’s wiser to be upfront and deal with the consequences.
He once stated, If you want a thing done well, do it yourself.
Aphorisms state universal truths about life that encourage reflection.
And get this.
Reply Marioindum
5:01 PM on June 29, 2022 
Practice what you preach.
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Aphorisms often use metaphors or creative imagery to express ideas.
The original dictum said, A penny spar’d is twice got, but it’s adapted over the years for modern English.
The idea is simple.
Let me ask you.
Other Common Examples of Aphorisms
’Ah, all things come to those who wait,’
Your stories can benefit from this method too.
They’re written in countless books and passed down as folk wisdom.
Take this proverb, for example.
So what do you do.
The part in Star Wars where Yoda says, There is do, or do not.
Like George Washington, Sandys believed that telling the truth is always the way to go.
Oftentimes, it makes sense to delegate tasks.
Another memorable aphorism is, An apple a day keeps the doctor away.
Give it a try!