Brokers, financial advice providers, and many others need to test peoples’ ability to manage their money. Nevertheless, there are some who debate such tests arguing that they aren’t useful for predicting behavior. But our work has confirmed that there actually IS a short and very effective diagnostic financial literacy test that can be used to measure financial know-how and predict behavior.…Read More
Since 2000, the Programme for International Student Assessment (PISA) coordinated by the Organization for Economic Cooperation and Development (OEDC) has assessed the reading, math, and science knowledge of 15-year-olds around the world every three years. More recently, since 2012, the program has also measured teen’s financial literacy. The latest findings just released by the OECDs provided small – but consequential – reasons for celebration.…Read More
In the world of financial advice, we are seeing a welcome trend toward goals-based investing. This trend puts a greater focus on the goals that investors want to achieve with their savings —such as retirement security, paying for college or purchasing a house — and uses these goals to drive investment strategy and monitor progress.…Read More
Defined contribution plans – often known as 401k plans – have become the mainstay of US company pensions, yet their main function has been to get employees to save and invest during their work years. These plans haven’t been successful at delivering lifetime income benefits, as a rule: fewer than one-fifth of all such plans today help workers convert their plan assets into retirement paychecks.…Read More
Interest rates are nothing more than the cost of spending money today instead of saving it. And a main tool of monetary policy has always been controlling interest rates as a means of stimulating or cooling off economic activity. When central bankers lower interest rates, they encourage people to spend more today. This is because lowering the return on saving encourages firms to hire and invest to meet the increased demand and boosts economic activity.…Read More
Today’s release of the latest National Financial Capability Study shows that we’re doing better protecting ourselves against financial emergencies than in the past. We’re also doing a better job cutting our high-interest debt than previously. Yet our personal finances, particularly the amount of debt we’re taking on, is still troubling.…Read More
When average Americans confront the complicated problem of how much to save for retirement, they often use so-called “rules of thumb,” or greatly-simplified approaches, to figure out how much to save and how to invest. It turns out that many of the computer programs created to help with retirement income planning do exactly the same thing: use rules of thumb.…Read More
April is Financial Literacy Month. You might suspect there is a problem with financial literacy in America, if an entire month is dedicated to it! And you would be right.…Read More
The global economic environment presents new challenges for investors across the board. Public and private pension plans, consultants, Wall Street strategists, and money managers have all ratcheted down their forward-looking views on asset returns, meaning that defined contribution plan participants will be hurting if the financial community’s morose predictions bear fruit.…Read More
Target Date Funds, which automatically diversify, adjust and rebalance retirement saving allocations over very long periods of time, are among the most successful individual investing products of the past decade. Initially introduced in 1994, target date funds (TDFs) really took off after the U.S. Pension Protection Act of 2006 allowed defined contribution (DC) pension plans to use them as a default option for plan participants. Assets in TDFs rose from a total of $100 billion in assets in 2005 to over $700 billion in 2015, and more than 60% of new DC pension contributions are now flowing into these funds. At least 36 mutual fund companies offer TDFs to pension plans, and a growing part of the pension consulting business consists of helping pension plan sponsors to “customize” their TDFs.…Read More
