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National Strategies for Addressing Financial Literacy

Nancy LeaMond
Group Executive Officer of Social Impact at AARP
The U.S.-U.K. Dialogue on Pensions in Washington, DC

I want to thank Dan Iannicola and Shaun Mundy for outlining our two countries' national strategies to address financial literacy. It's encouraging to see that both governments take this problem seriously.

Lois Vitt and Janet Hill also have done magnificent work presenting the current state of financial education in the U.S. and the UK respectively. We at AARP (specifically our Economic Security Group) commissioned Lois' report because we recognize this challenge and want to be a part of the solution. On both sides of the Atlantic, we clearly have a lot of work to do…but also the will and the expertise to get it done.

The American dancer Fred Astaire once said: "Old age is like everything else. To make a success of it, you've got to start young." To ensure economic security in old age, the planning has to begin at an early age, when—let's face it—it's pretty tempting to use extra money to splurge on a new toy.

At the same time that we bring this message of long-term financial planning to young people, we mustn't forget about those for whom the problem isn't long-term at all. There are millions of aging boomers who are well behind the retirement planning curve and running out of time. So in addition to introducing financial education into the school curriculum, we have to find effective ways to reach an older population.

This isn't your father's retirement. It used to be simple. You worked for one company your whole career; they paid into your pension fund; you retired with a comfortable sum that allowed you to enjoy the golden years.

Given that these defined benefit pensions have given way to the risk and uncertainty of the defined contribution system, it's inconceivable to me that we would also consider introducing the same risk and uncertainty into Social Security, as the proposed private accounts would do. So many Americans don't have the time or resources to handle a private investment portfolio; why would we eliminate the one guaranteed, worry-free, lifelong benefit and force people to manage their Social Security assets as well?

Now suddenly, people are being asked to more responsibility for their own retirement planning. Which is fine in theory, except that they're being thrust into a very complex consumer market, one involving all kinds of jargon, paperwork and fine print, and one where the consequences of a misstep can be truly disastrous. Confronted by an overwhelming and confusing information glut—20,000 investment adviser firms in the U.S.; more than 8,000 different mutual funds—a lot of people are simply throwing up their hands and tuning out.

Consumer choice is undeniably a good thing, but there is such a thing as too much of a good thing. Health plans…utilities... long-distance phone service—suddenly we have a menu of options for all these things, and it can frankly become a bit much.

A psychologist named Barry Schwartz wrote a book called The Paradox of Choice in which he describes this phenomenon. He relates a story of going to buy a new pair of jeans and being bombarded with different varieties—easy fit, button fly, stonewashed, etc. "I just want regular jeans," Schwartz told the saleswoman. "You know, the kind that used to be the only kind."

I think a lot of people feel that way about their investments: 401(k)... Roth IRA... no-load mutual fuinds... give me the kind that used to be the only kind.

AARP did some research last year in which we measured American consumers' money-managing skills. 38 percent of Americans and nearly half of seniors scored poorly both in terms of financial product ownership and prudent financial behavior. They are, as we put it in the study, lost.

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