Education Level and Wealth Also Affected Results
Earlier this week, the American College of Financial Services Center for Retirement Income released its 2017 survey results on retirement income literacy. The data came from a 38-question quiz and 20-minute online interviews with 1,244 Americans. All participants in the study were between ages 60-75 and owned at least $100,000 in assets.
While this survey generated a lot of interesting data on financial literacy, the disparity between men and women was especially concerning. That is, though a majority of all survey takers (74%) failed the quiz, men passed at twice the rate of women. Furthermore, what these results say about those in or nearing retirement and their money matters quite a bit when we talk about personal finance at any time in life.
Unpacking the Quiz
The questions on the Retirement Income Literacy Quiz focused a lot on specific scenarios and knowledge about retirement investment (IRAs, 401k, etc.) and withdrawals. For example, one question asks:
If you had a well diversified portfolio of 50% stocks and 50% bonds that was worth $100,000 at retirement, based on historical returns in the United States the most you can afford to withdraw each year is about ____ plus inflation each year to have a 95% chance that your assets will last for 30 years.
Additional questions focused on healthcare, specifically medicare and supplemental insurance, housing, and broader financial issues such as inflation.
As I mentioned above, some three-quarters of survey respondents flunked this financial literacy quiz, proving that pretty much everyone needs to learn more about retirement. However, there were specific gaps in knowledge between several groups. This included:
- Men vs. Women
35% of men passed the quiz compared to only 18% of women.
- College Educated
32% of those with a Bachelor’s degree or higher passed the quiz vs. 9% of those without.
Notably, only 40% of those with a graduate degree passed.
- Income Level
Respondents with more than $1 million in assets (49%) passed at a higher rate than those with less than $1 million (20%).
- Financial Advisor
Interestingly, those with a financial advisor passed less often (22%) than those who manage their own finances (34%).
Investigating the Gender Gap
This is not the first time that I have discussed the extreme differences (and gaps) between men and women and their finances. However, since this study focuses solely on older Americans, some of its results are worth investigating more deeply. For example, married women especially have a very different view on their finances compared to their spouses. This was especially true when it came to financial decision making. In fact, 80% of women claim to “share” these responsibilities with their spouse while only 35% of men say the same. Further, almost all the married men who responded to this survey classified themselves as the “sole” decision maker in their household.
Another big issue is confidence. Women were far less likely to perceive themselves as knowledgeable about finances. This, though true, can have a cumulative negative impact as more women believe themselves incapable of planning and therefore refuse to do it. Finally, women from this survey confirmed another difference between the genders as they were much more risk-averse. This is actually a good thing since retirement time is when taking risks more dangerous.
Retirement Planning Needs to Start Now
Whether you are 62 or 26, the main takeaway from this report is that you need to learn more and start planning for your retirement now. Planning early and often matters,. So does amassing knowledge, and this report clearly shows that.
Remember, the only insulation you have in finance is knowledge. You cannot control the markets. You cannot control fate, as it were. So take the quiz, see what you know – and what you don’t – and let us know how you did. It will help you understand what you need to learn and should, ultimately help you plan for your future in the right way.