Time to Democratize Financial Literacy

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Today’s young workers understand they are on their own when it comes to their retirement savings. In a recent poll, young adults (ages 18 to 25) predicted that 61 percent of their retirement income, on average, would need to come from personal savings. A startling 59 percent of young adults—higher than any other previous age group—assume they will be financially worse-off and less secure than prior generations.
 
It is not hard to see what drives this belief.
 
The risks associated with retirement security were once borne largely by employers through traditional pensions. But now these risks have shifted to individual workers and their families with the rise of 401k's and similar investment accounts.
 
As young workers, we will be left to manage our own retirement savings. Yet, it is overwhelmingly clear we lack the tools and skills necessary to safely invest our money for the future. Recent research has shown that less than one-third of young workers (the lowest of any other age cohort, and lower than previous generations) recognize and understand key financial concepts, such as interest rates, inflation and risk diversification.
 
Financial literacy is especially low for young women, minorities and those with little educational attainment. If the government expects us to accept the full responsibility for our financial security, it must also democratize access to financial education and literacy.
 
I propose the government intervene to provide timely and targeted financial education and information through one of its most successful retirement security and social insurance programs: Social Security. Social Security has access to birth, address and earnings information for virtually all American citizens. The information linked to Social Security is already used for a variety of government programs and benefits.
 
Currently, young workers receive a "welcome letter" to Social Security shortly before their 25th birthday that describes how the program works and the importance of private savings. Yet this information is too little and too late for many young adults who may have already lost up to seven years of savings. Nor does their letter include details about the components of retirement savings.
 
Let's use Social Security to send out a series of targeted mailings at various points in the lives of current and future workers--starting in the teens--with detailed explanations of the available options for retirement savings and the hypothetical effects of different levels of contributions.
 
One packet could be sent to all teenagers on their 16th birthday (along with a guide for parents). Another could be sent upon the receipt of a worker's first Social Security taxable-income (typically their first “real” job), and a third could be sent when workers change their place of employment, a key moment when retirement savings can “leak” out.
 
Once implemented, the program would require relatively little maintenance, with only periodic updates of the literature. Together, these changes will democratize access to financial education and help workers better understand what they must do to ensure adequate savings for their retirement.
 
(Image by Kayepants)
 
Read more stories at YPNation, America's young professionals network.