When preparing for retirement, it’s not all about the Benjamins.
Investing alone is not enough to achieve financial security, according to the National Financial Capability Study (NFCS) put out by the FINRA Investor Education Foundation. The study sheds light on a holistic approach to planning that includes health and financial education.1
The study found big causes of financial distress are tied to elements that don’t involve investing, including medical debt and financial illiteracy.1
The NFCS drew from a data set of 27,000 Americans, making it one of the largest and most comprehensive studies in the country, according to FINRA. As part of a large-scale, multi-year study, it takes a comprehensive look at financial capabilities and behaviors all over the nation from a diverse cross-section of the population based on age, race, gender, and education.
The findings indicate average Americans might be missing elements of financial security if they are focused only on investments and savings.
Findings of note:
• Some 23% of Americans have unpaid medical debt.
• Women are more likely than men to delay medical services because of cost, including visiting a doctor, buying prescriptions, or undergoing medical procedures.
• Only 40% of Americans could correctly answer four of six questions on a financial literacy quiz.
• Almost half, 40%, of those with a high school diploma or less could not scrape up $2,000 in 30 days in case of an emergency. With a college diploma, that percentage drops by more than half.
“The research underscores the critical need for innovative strategies to equip consumers with the tools and education required to effectively manage their financial lives,” said FINRA Foundation Chairman Richard Ketchum.
How does this affect you?
Based on these findings, you may want to review your financial outlook and evaluate your own understanding of a comprehensive approach to preparing financially for the future. That means having discussions that go deeper than just investing. You’ll also want to look at your health, family history, and longevity. The rising cost of healthcare — and the uncertainty surrounding it in general — will likely guide financial decisions. Have a conversation with your financial professional and consider the points below:
You may have a solid foundation of retirement savings, but you could be leaving those savings at risk if you don’t consider the consequences of unexpected medical bills or poor health. Even with insurance, you might face surprise costs in the event of an emergency.
According to a study by the Center for Health Policy at Brookings, “Surprise medical bills result from providers (physicians, hospitals, out-patient facilities, laboratories, etc.) that patients reasonably assumed would be in-network, but actually are out-of-network, or when patients have no real choice over the network status of their provider.” This could include everything from an ambulance ride and ER visit to an out-of-network hospital specialist working within an in-network hospital.
While you think about the potential impact of unforeseen medical expenses on your financial security, it’s a good time to assess your overall health. Are you taking care of yourself as you age? That includes diet, exercise, and regular doctor visits. Anything you can do to maintain your physical fitness could help safeguard your financial fitness in the years to come.
According to the Northwestern Mutual 2018 Planning & Progress Study, Americans have about $38,000 in debt. The main source of debt is credit cards and mortgages.2
In 2018, 35% of Americans with credit cards only paid the minimum payment amount some months of the previous year, according to the FINRA study. Additionally, 56% of Americans don’t do any comparison shopping for credit cards.1
What does this all mean? With typically high-interest rates, carrying debt on a credit card is an expensive way to borrow money and can negatively impact your credit score. As you manage debt, think about where your money is going. Are you overspending on luxury items that may put your financial future in jeopardy? The key is making decisions based on sound information.
Even if you’re on solid footing, are you preparing for your children’s education?
With costs for college continuing to rise, a college savings plan can pay dividends for future generations.
Remember that without higher education, the National Financial Capabilities Study shows Americans are more likely to find themselves in financial distress. By affording your children the opportunity to attend college, you could be increasing their chances for establishing financial security of their own.
Takeaway from the study
On the whole, findings from the NFCS show some cause for concern with behaviors toward financial literacy and strategies. But it also represents an opportunity to better educate more Americans. As you make important decisions regarding your plans for the future, remember to take a broader look at all factors affecting your financial security. A good financial professional can offer guidance. Ask questions, get educated, and make an effort to be better informed.
Things to Consider:
• Look deeper than your investments and take a holistic view of your financial future.
• Assess and prepare for rising medical costs as you age — and consider how unexpected events could impact you.
• Evaluate the amount of debt you carry and, if necessary, take steps to reduce it.
• Improve your children’s chances for achieving financial security by starting a college fund.
• Most of all, get educated and make an effort to be better informed.
1 "The State of U.S. Financial Capability: The 2018 National Financial Capability Study," FINRA Investor Education Foundation, June 2019
2 "2018 Planning & Progress Study," Northwestern Mutual, 2018