By                    John Csiszar

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Respondents Indicate They Are Financially Literate Yet Lacking in Crucial Knowledge

The survey reveals an interesting dichotomy between how financially literate Americans think they are and what they actually know. Overall, 80.93% of Americans consider themselves financially literate, yet a large number admit to not understanding certain aspects of basic finance. For example, over half of Americans in the survey indicate they don’t fully understand the child tax credit, while nearly two-thirds find at least some part of the process of buying a car confusing. That jumps up to nearly three-quarters of respondents who find some or all of the homebuying process confusing.

Americans Avoid Investing Due to Lack of Knowledge

Financial literacy doesn’t simply apply to big purchases like cars and houses. It also relates to successful investing, which is a big part of retirement planning. And in this area, Americans in the survey offered a frank admission: Over 44% of respondents indicated that they simply avoid investing because they don’t understand it. This points to a woeful lack of education in America, something that is needed to generate wealth and meet lifelong savings goals, like retirement. 

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A Large Number of Americans Haven’t Saved at All for Retirement

Just like many Americans are putting off investing, when it comes to saving for retirement, a large number of survey respondents indicated they started much too late. In fact, more than one-third of respondents indicated that they either waited until age 46 to begin saving or have not even started at all. That number jumps to a whopping 40% of female respondents. Starting that late in life brings major hurdles to saving for retirement, as outlined below.

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Hazards of Waiting To Save

The hazards of waiting until later in life to save are clear. Not only does it take more time, effort and money to reach retirement goals with every year that passes, it’s also more likely that you may never begin at all. Most Americans who delay or fail to save for retirement also come up short in the area of building an emergency fund. Failing to save for either of these needs can have serious consequences in other areas of life, including the following: 

  • May have to divert cash flow from other needs, such as housing, education, food and utilities
  • May have to go into debt to meet your needs
  • May have to work longer than desired to have needed funds
  • May create undue stress and/or mental health problems

The bottom line is that failing to save can trigger a snowball effect that can put you in a financial hole that only keeps growing. Gaining financial literacy and applying those principles to saving and investing are the cornerstones of a sound financial life.

Things You Can Do To Catch Up

The first step in any crisis situation is to identify the problem openly and honestly. If you find yourself at age 45 with no retirement savings at all, for example, it’s best to put your cards on the table and tackle that problem head-on. Burying your head in the sand and hoping the problem will somehow resolve itself is not a recipe for financial success. Acknowledging where you stand, on the other hand, allows you to be proactive and chart out a path for success. Here are just a few of the steps you can take if you find yourself behind in your retirement savings:

Make Catch-Up Contributions

The U.S. government realizes that there is a retirement savings shortfall in the country, and it makes fairly generous provisions to help Americans beef up their retirement accounts in later life. Specifically, if you contribute to an IRA, the IRS permits a $1,000 “catch-up” contribution for those ages 50 and older. This is in addition to the annual $6,000 maximum that all workers can contribute. If you have access to a 401(k) plan, terms are even more generous. On top of the $20,500 that eligible workers can contribute to a 401(k) plan, those ages 50 and older can kick in another $6,500, bringing the total available contribution level to $27,000. Assuming you earn enough to make these types of contributions, in the 10 years from age 50 to 60 this means you can put $70,000 into an IRA, or a whopping $270,000 into a 401(k). Combined with the investment returns on those contributions, you can rapidly build up a decent nest egg.

Find Extra Income/Side Work

Unfortunately, most Americans aren’t able to put aside $27,000 per year into a 401(k) plan — or even $7,000 per year into an IRA. In that case, increasing your earnings is the best way to build up your savings. While this may be easier said than done, there are certain strategies you can employ to beef up your earnings, including asking for a raise, looking for a higher-paying job, picking up a side gig or generating passive income, such as from rental properties. 

Revise Your Budget 

Hand-in-hand with boosting your income comes trimming your expenses. When employed together, these strategies can dramatically improve your cash flow, and therefore the money you have available to set aside for savings and investments. Review your budget to see where your money is going and do what you can to stem any outflows. One strategy that more than half of respondents are employing during the current spike in gas prices is to drive less. Other common budget items that you can target to reduce your spending include monthly subscriptions, dining and entertainment expenses, and housing costs. In some cases, simply moving to a different part of town — or perhaps a different state — can be a way to cut your overall expenses without having to deprive yourself. 

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