The Danger of Financial Ignorance

  By Daniel Bloom
Daniel Bloom

Do you understand money? How well can you answer these three questions?

– If you had $100 in your savings account earning 2% interest annually, after 5 years, would you have more, the same, or less?

– If the interest rate on your savings was 1% and inflation was 2%, after 1 year, would you be able to buy more, the same, or less than today?

– True or false: Buying a single company stock usually provides a safer return than a stock mutual fund.

In Russia, 96% could not answer these three questions correctly. In America, only 30% got them right. The best-performing respondents were the Germans at 53%.

According to the findings of this research, financial ignorance is widespread. The financial choices facing people has never been greater. Credit cards, mortgages, payday loans, pawn shops, tax refund loans, rent-to-own shops, individual retirement accounts, 401(k) plans, mutual funds, exchange traded funds, hedge funds, annuities—all of the options available place greater responsibility on people for their own financial well-being. For a growing number of people, bankruptcy is just one bad decision away.

You would think the demand for financial education is very strong. But it’s not, mostly because people tend to overestimate how much they know about money.

Research conducted by the Vanguard Group indicates that people who use the services of a fee-only, fiduciary financial advisor can dramatically improve their financial wellbeing. Avoid the mistake of trying to do it all yourself or succumbing to the financial sales pitch of a salesperson. Get objective advice from an experienced, credentialed professional who is placing your best interests first.

For more insight, listen to Jentner Wealth Management’s weekly podcast by clicking here. Or download Jentner’s white papers on The Four Cornerstones of Prudent Investing and The Active Versus Passive Investing Debate.