A Lack of Financial Literacy Is Just One of Americans' Problems

Earlier this year, I met with a client who was preparing for retirement.

She had enough saved to retire comfortably, yet nearly 90% of her portfolio was invested in stocks.

For someone approaching retirement, that level of exposure can be risky.

At the time, the market was nearing its peak. The client considered making adjustments, but she assumed that the market would continue performing at the same level. She made no changes.

Shortly after, the market declined around 10%, impacting the savings the client had worked so hard to build.

The Glut

One problem clients face is having so much information available at their fingertips.

In some cases, access to that data can be helpful. In other cases, it can be overwhelming.

Another problem is that different sources of information say different things.

Deciphering misinformation, or honest but conflicting advice, can make it difficult for people to know what the right move is. Fear of making the wrong decision can become paralyzing.

A third problem is that the information available changes.

While the basics of saving, investing and credit don't change much over time, financial products, strategies and tax implications are constantly evolving.

Understanding these fundamentals isn't enough to address fear, uncertainty, or conflicting advice.

The Psychology

Even clients who have help with filtering and understanding financial information may struggle to act.

Recommendations such as 'save more' or 'diversify' may sound vague and will not necessarily address the factors holding the client back.

Clients should start by asking themselves: "What's preventing me from making a change?"

Answering the question with help from an advisor may help clients uncover the barriers.

Some clients, for example, have trouble with reducing high-interest debt, particularly from credit cards.

The money the clients spend on interest is not being invested or compounded over time. That can hinder long-term financial progress.

But clients who need to pay off $25,000 or more in debt may have no idea where to start.

For those clients, real progress comes from taking small, clear steps.

Instead of asking a client who freezes to solve everything at once, start with one clear objective.

If the client needs a retirement plan, put off building a full retirement plan. Begin by identifying the baseline income the client will need each month.

Once the client answers one question, the answer will lead naturally to the next question.

These small wins help build confidence and create the momentum the client needs to keep moving forward.

Angie Welsh is the founder and president of My Annuity Agents.