Preparing for a Pending Paradigm Shift

Since the New Deal, government programs that support our financial success have been a consistent part of our social fabric until now. With questionable social security solvency and dwindling numbers of traditional pension plans, recent public policy has shifted towards more personal ownership and creating unprecedented individual savings opportunities. However, new opportunities breed new responsibilities and we must question whether individuals are prepared for such a societal paradigm shift. In light of recent events and retirement preparedness data, it is clear that many people are inadequately armed to take full ownership of their financial futures.

Retirement preparedness

According to the latest Retirement Confidence Survey (RCS), conducted by the Employee Benefit Research Institute, Americans still have yet to handle the new responsibilities well. The 2006 survey results show a continuation of a trend that started several years ago: many American workers are not ready to undertake the task of financial planning for their own retirement and face the prospect of having to work longer than they expect. The survey points to some interesting observations:

The number of people who said they had calculated the amount of money they need to save for retirement remains unchanged around 42%.

More than half of all workers have less than $50,000 saved for retirement and three quarters of all workers who have not put any money aside have less than $10,000 in total assets.

Only 40% of employees say that they or their spouse has a defined benefit plan at work, yet 61% state that they intend to receive income from such a plan in retirement.

A look at the past

A look at recent events further suggests America’s lack of preparation and financial self-sufficiency. During the first years of the 21st century, for instance, millions of Americans lost their retirement savings along with their jobs. Paradoxically, as stock prices went up during the booming 90’s, financial literacy went down. Exaggerated exuberance in an inflated stock market coupled with a seemingly endless cycle of growth, investors showed ignorance to conventional financial wisdom in expectation of perpetually expanding wealth. And the nation paid—and in many ways is still paying—the price.
While the corporate scandals and the terrorist attacks of September 2001 that precipitated the economic recession were nearly impossible to predict, a financially literate population could, at least theoretically, have taken some basic steps to mitigate the severity of individual loss. For example, many survivors of 9/11 victims discovered that their loved ones had not made adequate financial arrangements: insurance was insufficient or non-existent, beneficiaries were not designated, and contingency plans for spouses and children were incomplete or nonexistent. Further, many who incurred financial losses due to the economic downtu
could have better protected their assets by employing a couple of basic financial principles: diversify your investments, limit holdings of your It is not a question of if and when things will happen, but how prepared are we for the unpredictable?
Looking forwardr
The intention is not to perpetuate the fear-based financial dogma often found in today’s popular media – in fact that is part of the problem. Instead, the intention is to highlight the need for enhanced financial literacy and emphasize that the current financial messages are not reversing the trend.
To enhance national financial literacy, a cursory observation suggests a few possible solutions:

Approach financial literacy from a softer emotional and psychological level. Avoid poverty consciousness with fear-based dogma while increasing prosperity and abundance rhetoric.
Align and unite fragmented efforts. Educate and leverage non-profit and community-based organizations as they are usually the first to help those in the most need

Educate our youth.

Make financial services professionals less confusing, more transparent, and more accessible to all people across all demographics.

While it is clear that we are experiencing a drastic societal transition, it is unclear if American citizens will be adequately prepared. Because of this, it is imperative that education and financial literacy remain as the paramount tenant of the ownership debate. Together, a financially literate, warmly secure, and enormously prosperous populous can be self-sufficiently prepared for unexpected events, but can also have the strength and power to do wonderful things.