Erik Carter has worked in personal financial planning at every level, from a small brokerage office to the halls of Congress. Currently, he's a Senior Resident Financial Planner with Financial Finesse and also works on their social media team. Erik spoke with us about his company and the troubling lack of financial education among Americans.
How did you become involved with Financial Finesse?
After about 10 years in the financial services industry, I decided to start a new career as a financial educator at Financial Finesse because I was tired of the traditional focus on selling financial services or gathering assets to manage. Instead, I really wanted to help people who might not be able to afford the help but needed it the most.
Why are financial education programs so necessary?
There are a couple of reasons. One is a longer term trend of increased availability of consumer credit, which can get a lot of people in trouble. The second is a more recent shift in responsibility for people's financial well-being from employers to employees. Think of the decline of the traditional defined benefit pension plan where all you had to do was show up to work and the rise of the 401(k), which requires you to decide how much to save, what type of contributions to make, and how to invest those savings. That's a huge burden on someone who has never been educated on how to make those decisions. These trends can contribute to higher levels of financial stress and lower levels of retirement preparedness, both of which can be costly for the employee and the employer alike.
What are some common topics many of us need education about when it comes to financial matters?
The two most common topics where people need more financial education are around day-to-day money management and retirement planning.
Why should employers take an active interest in their employee's financial education?
When employees are under a lot of financial stress, they aren't going to be as productive. Financial stress is also the #1 cause of stress-related illnesses. One study found that people who are stressed about finances have 24% higher health care costs.
Lack of retirement preparedness also has an impact on employers. An employee who delays retirement for financial reasons can cost their employer $10-50k per year in higher costs. This doesn't include the lower morale and productivity of someone who doesn't really want to be there.
What's the one misconception you wish everyone would let go of when it comes to finances?
The biggest misconception is that managing your finances has to be complicated. What we find is that the biggest impact comes from simple steps taken consistently over time. The key is maintaining that consistency, which comes from training yourself to derive pleasure from behaviors that improve your financial situation rather than that of the people marketing to you every day.
What are some of the financial topics we'll need to know more about in the future?
One topic we'll need to know more about in the future is health care as we see the rise in self-directed health care plans, in people purchasing health insurance through the new exchanges rather than through their employer, and in the possibility of Medicare converting to a premium support model. This mirrors the shift in retirement responsibility from governments and employers to individuals. As medical technology advances, there will also be all the issues around people living longer such as making sure they don't outlast their income and dealing with the difficulty of managing money for people who may be cognitively impaired.
Finally, I think you're going to see increased interest in the possibility of retiring overseas, where the weather can be warmer, technology can make it easier to maintain contact with family and friends, and the cost of living is significantly less. As more Americans relocate, it will be easier for others to follow in their footsteps.
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