Financial Literacy Especially Critical during Financial Crises
Some 30 million Americans have already lost their jobs due to COVID-19. It is expected that many more face potential unemployment as well. According to a National Endowment for Financial Education (NEFE) survey, nearly 9 in 10 Americans state that the pandemic is creating financial stress. The same NEFE survey found that 75% of Americans are now adjusting their finances in response. It’s times like these when having a good understanding of finances is especially important, and can help alleviate the financial and emotional stress that so many Americans are experiencing now.
Achieving Financial Literacy
It is a sad fact that many Americans do not have a good understanding of financial matters. They don’t understand basic economic concepts and financial terms such as compound interest, inflation, risk, diversification, etc. They don’t know how their credit scores are established, nor do they know the roles of different insurance products, employee benefits and investments. Many are not actively involved in their retirement planning and many do not have professional financial advisors. There are real repercussions to financial illiteracy.
When personal finances come under severe pressure as they are now, individuals’ lack of financial literacy leaves them vulnerable to increasing debt, erosion of a retirement plan, and the possibility of losing their homes, filing bankruptcy, and leaving their families destitute. By gaining a good foundational education about basic financial terms, products and planning instruments, and relying on the counsel of experienced professionals, individuals can avoid these devastating outcomes.
How Brokers Can Help
Brokers can play a pivotal role in assisting plan sponsors with raising the financial literacy of their employees/plan members. Providing educational materials on the different benefits provided, sponsoring workplace financial seminars and offering financial educational materials on a regular basis can be extremely helpful to many workers. These measures can be implemented year-round and not just during benefit enrollment periods.
Among the topics that could be covered are:
- How your 401(k) works
- The stock market and how it functions
- The roles of different insurance products
- Voluntary benefits and how they help meet individual needs
- Retirement planning basics
- How credit scores are determined
- What adjustments should be made to your finances when a triggering life event occurs (i.e., marriage, divorce, birth of a child, loss of job, inability to work due to illness or an accident),
By offering financial literacy support to clients, brokers convey a real commitment to helping employers/plan sponsors meet the important goal of raising their employees/plan members’ knowledge of basic financial terms, products and strategies for gaining financial protection and build a secure financial future.