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America Needs Financial Advice

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What You Need to Know

  • To manage money, households need to know what they think is important.
  • They also need to know what they have.
  • Knowing where the holes and the traps are could help, too.

 Education is a cornerstone of American culture. For generations we have made obtaining a better education for our children, including obtaining a college degree, a part of the American dream. This effort to fully educate our children has fallen short in one essential area of life — personal finance. America has a learning deficit when it comes to money matters with only 20 states having the foresight to mandate the taking of a personal finance course prior to graduating high school.

The impact of this lack of formal education and training can be seen with Americans leaking their valuable cash in numerous places, including:

  • Poor financial literacy test scores
  • The lack of formal, written financial plans for the majority of households
  • A significant percentage of households working without a cash budget
  • Low levels of emergency savings
  • Underinsurance for life, property, health and income protection
  • Low levels of retirement savings
  • A reliance on debt to make ends meet each month
  • Large amounts of student loan debt incurred that doesn’t qualify individuals for reasonably paying jobs.
  • These are just some of the financial realities I see every day. To help households become financially successful, Americans need better access to help — they need professional money advice. America won’t overcome its lack of financial knowledge for the foreseeable future, the gap is just too big.

Yet, as I look around the financial services industry and the regulatory framework in place, it seems to me that we continue to take actions that limit access to advice, rather than expand it. It is time we really focused on improving access to financial advice for Americans.

The Importance of Financial Advice

Why is advice so important? Working with households financial planning helps determine short and long-term financial goals and helps create a balanced plan to meet those goals. The key elements involved in creating a comprehensive financial plan usually include:

1. Determining Financial Values and Goals

Households can’t manage their money and create a plan until they:

  • Have established financial values, including the role money plays
  • Spent time improving their basic knowledge of personal finance
  • Understand their life goals (e.g., when they want to buy a home or how much college education support they want to provide their children) and expected timing.

2. Taking a Personal Financial Inventory

Households need to make a list of all of their assets (bank and investment accounts, real estate, valuable personal property) and another list of all of their debts (credit cards, mortgages, student loans). This essential starting point creates a better awareness of money matters.

3. Creating a Cash Plan or Budget

Households need to have a cash budget or plan in place that clearly shows inflows and outflows. This forms the foundation for saving and investing actions they will plan for their future.

4. Developing a Debt Plan

Households need to develop the actions to reduce the amount and carrying cost of that debt through possible refinancing, restructuring or aggressive repayment.

More on this topic

5. Creating a Retirement Plan

A plan to accumulate retirement savings and, once full-time work stops, a retirement income plan. There are numerous decisions that need to be made to develop these plans including asset management, benefit elections and properly covering expected healthcare needs.

6. Creating A Personal Financial Safety Net, including an Emergency Fund

The pandemic has taught us that the unexpected can and does happen. A cash emergency fund (ideally six months’ – worth of essential living expenses (e.g., groceries, housing, transportation, debt service and utilities) should be established to help offset the unexpected costs of life, including medical bills, house repairs, accidents or a period of unemployment.

7. Putting Proper Insurance Coverages in Place

Insurance coverage is purchased to provide cash for future delivery to help minimize the costs of financial risks. Consumers need to have a comprehensive set of coverages in place that should include:

  • Health insurance
  • Long-term care insurance (for over age 50 individuals)
  • Disability insurance or income protection insurance
  • Auto and homeowners’/renters’ insurance
  • Liability insurance
  • Life insurance
  • Longevity insurance

8. Developing A Legacy or Estate Plan

At a minimum, households need wills and other essential legal documents in place. Having a professional highlight which documents are needed and should be in place will create a much stronger household if an unexpected life event takes place.

In my view, completing the above basic personal financial planning actions would strengthen and better prepare America’s households for the future. A more financially secure future.

Suggested Industry Actions

If each American household were able to have even the most basic financial plan in place, backed by increased personal finance knowledge, we would likely have more financially secure and less money-stressed families. Here are some suggested actions the financial services industry should consider:

  • Examine existing licensing standards with the objective of creating the ability for more professionals to provide basic money management advice to consumers.
  • Carefully consider any new regulatory proposals for their impact on consumer access to advice.
  • Continue to increase the number of financial wellness programs available through employers and benefit plan providers.
  • Agree that it costs to provide financial advice and/or services and that for many households an up-front commission included in the product allows them to access products and services they would not if they needed to pay up-front costs. Product commissions are not always bad and the result of conflict of interest. For every piece of advice delivered or financial product sold someone is paid to deliver the service or product. We need to better acknowledge this.
  • Develop new standards to create “advice-lite” offerings that would allow more professionals to work with consumers on their money basics such as budgets, expense management and debt repayment.
  • Create an above-the-line deduction for households to get and pay for financial advice. Without this advice many households have nowhere to go to get the basic financial education they need.

Given the levels of personal financial knowledge in our country today, American households need advice to help guide their savings, investing and cash flow management decisions. All constituencies, including product providers, advice organizations and their respective regulators need to join in this effort to expand the availability of advice.


Harry N. Stout (credit: Stout)Harry N. Stout has been the president of Fidelity & Guaranty Life, deputy chief executive of Old Mutual Financial Network, and managing director of Insurance Insight Group. He is also the author of the new book Good Money Habits in 17 Minutes Per Day and host of the FinancialVerse Podcast.