The Wall Street Journal‘s Anne Tergesen maintains that lower unemployment and higher stock markets have Americans feeling more confident about their finances than they have in the recent past. She also maintains, based on the results of a 10-question financial literacy quiz, that much of that confidence may be misplaced.
Tergesen’s September 7 piece lays out a compelling case arguing that the current round of increased confidence is probably greater than it should be. Financial illiteracy remains high, especially among younger workers, and the advice they are getting is either incomplete or altogether nonexistent.
Western International Securities, a Pasadena dealer-broker firm, stresses the importance of financial advisors educating clients. They encourage advisors to tap into misplaced confidence and financial ignorance by digging into the details of financial planning with clients.
Start with Social Security
The place to begin in the drive to overcome misplaced confidence is with Social Security. What most people think they know about Social Security is not even close to the truth, which leads them to make assumptions about what they can expect once they retire. For example, a lot of people do not know that Social Security payments can be deferred until age 70. Doing so means higher payments once they begin.
People also don’t have a full grasp of the fact that Social Security is not intended to be the main source of income in retirement. Few people know that it pays just a fraction of what they earn right now. Explaining the truth of Social Security opens doors to investment discussions.
Talk about Spending Habits
The next step is to talk about current spending habits. Take credit cards, for example. Using a credit card to purchase something now rather than waiting a few months and saving the money in the bank means a person is spending more than he or she needs to for instant gratification. Similarly, not shopping around for car loans oftentimes means spending more than is necessary to buy a car. The point is that financially illiterate people do not realize there are plenty of ways to save money that could be put away for the future.
Talk about the Cost of Living
Next is the concept of the cost of living. It is surprising how many people do not give any thought to their current cost of living and what it might cost to maintain the same kind of lifestyle in retirement. People know about inflation, for instance, but they never stop to think about what inflation means for retirement income. People need to be educated about the quality of life they want as retirees so they can be encouraged to invest.
Present a Full Range of Scenarios
Lastly, financial advisors should be presenting clients with a full range of future scenarios. The idea here is to bring to the forefront the reality that the client could face significant problems in the future; problems related to poor health, longer life expectancy, economic downturn, and so on.
It is easy for younger people to dismiss retirement because it seems such a long way off. But if the advisor can sit down and go through a number of real-life scenarios, the future suddenly becomes more real as well. Real-life scenarios with examples are great eye openers.
The numbers say that financial confidence is higher today than it has been in a long time. However, the numbers also say that some of that confidence is misplaced. Your job as a financial advisor couldn’t be more challenging. But rest assured you can overcome misplaced confidence with the right kind of information presented in the right way.
Traditional health plans are not capable to deal with rising health costs of present conditions. Almost all employees are struggling for extra savings and choices for medical reimbursements from employers who in return keep finding ways to add-on traditional health plans and tackling new laws that force them to cover family members of employees, even children up to 26 years of age.
One of the most valuable additions to health plans is FSA or Flexible Saving Account, through which these employers can help their employees to save on health care while getting employee contributions for these plans from paychecks in pre-tax dollars.
FSA doesn’t substitute health plan rather supplement them. For instance, employ contributes $500 deductible to health insurance plan kicked in and this deductible is covered by FSA. Most of FSAs even pay for co-pays, visits to eye doctors and even prescription drugs. Usually there are annual limits on FSA payment amount, may be $3000 or like, but employee doesn’t pay for medical care or such services.
Medical or health saving accounts also supplements usual employer health insurance through employee health plans. By medical saving accounts, employees have option to save ahead for future health problems. If amount isn’t spent in existing year, it can be rolled over to the next year. On the other hand, the Health Saving Accounts are slightly different from health plans or FSAs. In this, employers have full charge of saving money and then giving it to cover reimbursements for employees’ medical expenses, but not all medical expenses are eligible.
Like medical saving accounts, the unused amount is rolled over to next year, but the difference is that in medical saving plans, employees contribute funds while in health saving accounts only employer is responsible for that. Raise in age limit for children to 26 is another change which helps families a lot to save their money and avoid paying for health insurance of their children separately. This kind of health insurance is particularly boon for unemployed children to guaranteeing medical care for free from any stress.
However, there are certain potential pitfalls if the firm allows older children to be on their parents’ health plans. Premium may sharply go up and mostly company managers have balked at giving health insurance to children of 26 years of age. Most children are healthy at this age, thus, making health insurance affordable for them, and leaving health plans’ administrators to unwilling to offer such options to employers.