The American Society on Aging sponsored a study to evaluate the financial knowledge of Americans age 50+ which included a survey of three simple questions that assessed the knowledge on concepts such as inflation, risk diversification and interest rates.* At that time only one-third of respondents could answer all three questions correctly. Since then, broader studies have been made within the wider population and the results were similar, but there was a clear correlation between age and a lack of understanding of basic financial concepts that make up financial literacy. This is especially worrisome given that money and debt management issues are most consequential to this most vulnerable population.
This may seem an overwhelming topic to tackle, certainly for a senior at such a late stage in life, but also for their families. And while getting sound financial advice is one of the first things most money professionals recommend, that can be easier said than done. Many older adults rely on the advice of loved ones, which is a strategy that as many as 70 percent of fraud victims report having used. In the end, becoming as informed as possible, and then considering getting further educated by an accredited and referred professional Financial Advisor are the best first steps to improve one’s financial literacy. One online resource available for those 50+ is ConsumerCredit.com.
To get the ball rolling, here are several topics which seniors and their families may wish to consider when evaluating their financial health.
Know where your money’s going. Based on a survey by the National Foundation for Credit Counseling, over 60% of Americans don’t have a budget. This is the first place to start in developing financial literacy. You can’t make informed choices about your money if you don’t know where it is going.
Address your debt. If you carry significant debt, it’s time to develop a strategy to start eliminating it. This usually means identifying expenses you can trim and changing your spending habits.
Check your credit report. It’s critical to check your credit report at least once a year and understand the factors that effect it. If your score is low, there are many agencies available to help you improve it.
Understand your retirement portfolio. For seniors with retirement portfolios, it is important to understand your risk and regularly evaluate your investment choices. If your portfolio heavily favors bonds, it may be time to consider a more diversified financial plan, and evaluate whether your total living expenses could ride out a drop in value.
Prepare. Have at least three months of expenses on hand for an emergency. If you don’t, start somewhere; target an amount to set aside in case you have an unexpected bill.
* For more information on this study, and a more in-depth discussion on the topic of financial literacy, go to http:// www.asaging.org/ blog/financial-literacy-and-financial-decision-making-older-adults.
—By Caren Parnes