How Confident Are You in Your Financial Knowledge?

Understanding Financial Literacy in the U.S.

According to a 2023 Pew Research Center Survey, a significant portion of the U.S. adult population has some knowledge of personal finances. However, this understanding varies widely across different age groups and income levels. Over half of U.S. adults report knowing a great deal or a fair amount about personal finances, while one-third say they have some knowledge, and over one-tenth admit to knowing little or nothing. This data highlights a growing need for improved financial education and awareness.

Confidence vs. Knowledge

Older Americans, particularly those over 50, tend to feel more confident about their money management skills. A large percentage of this group (63%) says they know a great deal or a fair amount about personal finances. In contrast, only 45% of younger adults (ages 18-49) express the same level of confidence. Despite this, confidence does not always equate to expertise. While many Americans are adept at managing daily financial tasks such as budgeting, paying bills, and monitoring credit, fewer are comfortable creating an investment plan that can build long-term wealth.

This gap is especially concerning when it comes to retirement planning. Only 27% of Americans feel confident in their ability to create an investment plan, and this number remains relatively stable across age groups. This suggests that even financially savvy seniors may lack the necessary skills to manage their investments effectively during retirement.

Gaps in Financial Knowledge

Older adults often develop strong financial skills through years of experience with everyday money tasks. However, investment planning requires a different set of competencies. It involves understanding market behavior, asset allocation, risk tolerance, and various investment products like annuities or target-date funds. Unlike budgeting mistakes that can be corrected quickly, investment errors made in one’s 50s or 60s can have lasting consequences before retirement.

The Pew Research findings also reveal disparities in financial confidence. Only 21% of Americans feel confident handling all financial tasks, compared to 40% of upper-income households and 13% of lower-income individuals. Even among financially stable older adults, there are significant gaps in knowledge, underscoring the need for better education and resources.

Learning About Finances

Many Americans learn about personal finance from informal sources such as family and friends. Nearly half of financially literate individuals say they learned from these channels, followed by online resources, college courses, and media. However, this reliance on informal education can lead to problems. Family advice may reflect outdated strategies or economic conditions that no longer apply. Similarly, advice from friends might be based on incomplete understanding or personal biases.

Younger generations are more likely to turn to online sources for financial information. While this provides access to a wider range of perspectives, the quality of information varies significantly. This generational divide in learning methods highlights the need for more structured and reliable financial education.

The Importance of Investment Knowledge for Retirees

For those approaching or already in retirement, weak investment planning skills can have immediate and serious consequences. Without solid strategies, retirees risk running out of money due to overly conservative portfolios, taking dangerous risks to catch up on savings, falling victim to investment scams, missing tax-efficient withdrawal strategies, and failing to diversify properly across asset types.

Today’s retirees face challenges that previous generations did not, including longer life spans, eroding pensions, increasing healthcare costs, and volatile markets. These factors make sophisticated investment planning more critical than ever, yet most retirees lack confidence in this area.

Steps to Improve Investment Knowledge

Recognizing one's limitations is the first step toward improving investment planning skills. Being skilled at monthly budgeting does not automatically make someone an expert in retirement portfolio management. Here are some practical steps to consider:

• Get professional help: Financial advisors can provide personalized investment strategies. Consider this as tuition for a vital life skill.
• Use free resources: Many employers offer retirement planning workshops. Libraries host financial programs, and organizations like the SEC and FINRA publish legitimate investor education materials.
• Focus your learning: Start by understanding your own retirement accounts. What are you invested in? What fees are you paying? How should your allocation change as retirement approaches?
• Verify advice: Don’t rely solely on that friend who claims market expertise. Cross-check guidance from books, reputable websites, and professionals before making decisions.
• Check your confidence: The Pew data shows older adults feel more financially knowledgeable overall. That confidence might prevent seeking help when it’s most needed. Acknowledging knowledge gaps enables growth.

The Path to Better Investment Planning

America’s investment planning knowledge and confidence crisis extends beyond individual struggles. It is a societal challenge with widespread implications. As traditional pensions disappear, retirement security increasingly depends on personal investment decisions most people don’t feel prepared to make.

While systemic improvements such as enhanced financial education or simplified retirement plans are needed, individuals are wise to act now. That might mean admitting you need investment planning help, even after successfully managing other finances for decades.

Financial literacy can grow throughout life and retirement. The key is understanding that general money confidence doesn’t equate to mastery of every financial skill, especially investment planning, which can determine whether your retirement dreams become a reality.

Expert Guidance for Your Investments

If you have more than $100,000 in savings, now might be the time to get some advice from a pro. Services like SmartAsset offer a free service that matches you to a vetted fiduciary advisor in less than 5 minutes. You fill out a short questionnaire and instantly get matched with up to three vetted financial advisors in your area, all legally bound to work in your best interests.

Even if you don’t want help picking investments, an advisor can help lower your tax burden, create a financial plan, maximize your Social Security, help with estate planning, and lots more. Using the service takes only a few minutes, and in many cases, you’ll be offered a free consultation. Check it out right now—your future self will thank you!