A new test given as part of the Aegon Retirement Readiness Survey, about the financial literacy of people worldwide, has produced some alarming, yet not that surprising, results. It should be of no surprise that people globally don’t really understand some of the central tenants to global monetary policy, nor do they understand some of the key concepts about retirement. This was revealed in a recent Bloomberg article published today, which states that “Many of the participants failed the quiz, with big potential consequences for their future security.”
Here’s the quiz in its entirety.
The first alarming problem is that the average every day investor doesn’t seem to understand the difference between a stock and a mutual fund. When asked which of the two were the riskier financial instrument, only 45% of people around the world knew the answer – that’s less than half. Bloomberg wrote:
But before we get to that, take a look at this question—only 45 percent of people around the world got right:
Q. Do you think the following statement is true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.”
The possible answers? True, false, do not know and refuse to answer.
Sixteen percent of people got it wrong. “Do not know” was chosen by 38 percent. In the U.S., 46 percent of workers got it right. Good for you, America. (The answer, in case you were wondering, is false.)
Also, it is a little to no surprise that the average middle-class worker doesn’t seem to understand how inflation works or how it affects their ability to purchase goods. This may explain Central Banks’ obsession with manipulating it and using it as a tool to further their spending agendas. The article continued:
It was an inflation question that had the highest percentage of wrong answers, however. More than 20 percent of workers didn’t grasp how higher inflation hurts their buying power. Given that declining health was the most-cited retirement worry, at 49 percent, and healthcare is an area (in the U.S., especially) with high cost-inflation, well, that makes the subject something older folks should have down cold.
Despite the lack of understanding, making fiscal sense remains a major concern for people heading toward retirement. The survey also queried participants regarding what their biggest concerns were as they approached retirement. “Running out of money” came in second, only to “declining physical health”.
Despite not understanding the core principles of the government’s monetary policy, participants in the survey seemed to be sure that the government benefits offered for retirement were crucial to a comfortable retirement. As the government takes with the hand of inflation, it gave survey participants a warm and comfortable feeling with the other hand that spends on their retirement benefits.
The survey asked workers—about 1,000 per country—what global trends would affect their retirement plans. “Reduction in government retirement benefits” was the most popular answer worldwide, chosen by 38 percent globally; in America, it was 26 percent. The countries most worried about cuts to government benefits? Brazil and Hungary, at about 53 percent.
The reality of trends that will actually impact retirees seemed to go unnoticed, however, according to the survey.
Across the board, though, workers didn’t seem to recognize the huge impact that basic changes in the labor force, technology and the climate will probably have on their retirement plans, said Catherine Collinson, president of the nonprofit Transamerica Center for Retirement Studies and executive director of The Aegon Center for Longevity and Retirement.
Survey participants also seemed to be a little detached from when they would actually stop working, on average. The survey found an alarming number of people who wanted to work to 65 but had to retire early, generally for reasons of declining health or simply “job loss”. The article continued:
“It makes me wonder about the extent to which people are naive about the magnitude of the disruption in our world, and the level of change that has not only occurred, but is imminent,” said Collinson. “Is it that people don’t see it coming, or is it so overwhelming that people are in denial?”
Many workers may well be in denial about how long they can actually work. The survey found workers generally plan to retire around age 65. “The sobering reality is that 39 percent of retirees globally retired sooner than planned,” according to the report. “Of those, 30 percent stopped working earlier than they had planned for reasons of ill health, and 26 percent due to unemployment/job loss.”
As for being kept company during retirement, 20% of Chinese workers believed that robots will be doing the job by the time they retire.
The survey asked about “aging friendly modifications or devices” people envisioned having in their homes. Thirty-five percent of workers in India, 34 percent of workers in Turkey and 18 percent in the U.S. figured aging could include video monitoring devices. Then there are the robots, which 20 percent of Chinese workers see coming in retirement, compared with 6 percent of American workers.
This comes just a couple months after we released this report detailing the real retirement crisis: elderly people are simply broke.
A study released by GoBankingRates reveals that older people planning their retirement have cause for concern. Forty-two percent of Americans are facing their golden years with less than $10,000 in savings. A lack of savings and planning has reduced what should be an enjoyable time in seniors’ lives to a period of stress and worries for many.
Out-of-pocket expenses for health care is spiraling. The Bureau of Labor Statistics indicates that Americans 65 years of age and older may spend up to $46,000 annually on healthcare. This is not good news for those with only $10,000 on which to fall back on.
For adults over 50, this should be a call to act now, while there is still time. Only one-third of adults in that age group have savings greater than $10,000. Retirement planning needs to become a priority, as there is little time to waste. Pensions are becoming rarer, and Social Security is becoming less secure than it used to be. Many health needs of seniors are not covered by Medicare. Some experts believe the Social Security system will be depleted by 2030. Adults over the age of 50 need to consider making contributions into 401(k) accounts or similar retirement plans.
Social Security was never intended to be the sole income of retiring seniors. It was meant to supplement approximately only 40% ofpost-retirement spending. Social security was supposed to enhance seniors’ lives, not support it entirely. However, according to Investopedia.com, 43 percent of unmarried seniors rely on Social Security to cover 90 percent of their basic needs. Almost a quarter of married couples depend on Social Security to meet most of their expenses.
Some seniors struggling with poverty are able to receive supplemental income (“SPM”), such as food stamps for a bit of additional help. The need is especially high for seniors who are women, African Americans, and Hispanics, and those with ongoing health issues.
6,400,000 million American seniors are living at poverty level, struggling to meet fundamental needs such as rent and food.
So if you are confused as to why more people are not appalled about the state of global economic policy, maybe it’s because they simply don’t understand it. It is only those that know how policy works behind the scenes and can see through the “tricks of the trade” that find themselves speaking out against the way global economic policy is managed.
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