An expanded definition of literacy goes beyond knowing how to read to include life skills that adults need to prosper. Financial literacy matters because knowing how to read is not enough to manage your finances—you need to have some knowledge about financial markets and to know how to get help with the things that you don’t know. The National Bureau of Economic Research has published its findings on “how low levels of consumer financial literacy lead to money-losing decisions.” In other words, ignorance is not bliss and what you don’t know can hurt you when it comes to finance.
When it comes to investments, there are many people who do not invest at all. They have little knowledge of investment markets and practices, may not have a desire to invest, or they may be wary of investing because the abundance of information about dishonest investment firms and brokers is not very encouraging.
Others who are aware of the advantages of investing are not knowledgeable enough to make the kind of investing decisions that would be beneficial. MSN.com cites the National Bureau of Economic Research findings to show the pitfalls that face these individuals:
- “The least financially literate are more likely to pay higher investment fees and expenses.”
- “Of course, the least financially literate also left the stock market and have stayed away, costing them about 4 percent of their wealth as market values recovered from the recession.”
- “Failing to have a diversified investment portfolio costs financially inexperienced investors a substantial amount of investment income.”
A Fee-Only financial planner like Claire Emory, MBA, CFA, CFP of Clarity Financial Planning will work with you to make sure that your investments are well suited to your life situation and financial goals. She does not work on commission, so she won’t push products on you. Instead, she will help you understand how to simplify and streamline your investment strategy to lower expenses, protect against market volatility, and balance risk with return.