Financial advisors have lots of work ahead of them because they face a basic question.
Namely, who will be their clients in the next generation when millions of Americans don’t have a clue about financial issues?
Many Americans don’t have basic financial knowledge and don’t seem to acknowledge that the lack of savings, investments and planning are critical issues in their lives.
“It is an epidemic problem,” says Christopher Kuehne, a certified financial planner in Pound Ridge, N.Y.
Indeed, the Financial Industry Regulatory Authority's national financial capability study found that two-thirds of Americans don’t understand basic financial concepts. For example, they can’t compute the interest on a $20,000 loan with a 10 percent interest rate.
“Only 37 percent of respondents are considered to have high financial literacy,” according to Finra. That means they could not correctly answer four or more questions on a basic five-question financial literacy quiz.
“I think we have an obligation to do a better job of educating clients and would be clients,” says Charles Hughes, a CFP in Bayshore, N.Y.
Kuehne says financial professionals should do as much pro bono work as possible, especially with young people who are an underserved segment of the advisory industry. And he adds that advisors should also try to work with people starting their first jobs on how to effectively use their 401(k)s, as well as to impress upon young people how important stocks are over the long term.
Kuehne notes that many young people don’t have enough stock exposure. “They are spooked by volatility,” he says.
Kuehne adds that advisors should be proactive in helping those starting out and not likely to be getting any professional advice.