Research suggests investment ignorance underestimated | 401(k ...

Research suggests investment ignorance underestimated

Many Americans are not familiar with basic concepts associated with investing, impeding their ability to make informed decisions in terms of retirement planning or 401(k) participation.

When asked general questions about their investment knowledge by researchers, Americans tend to overstate their knowledge. In contrast, specific queries cause many to reveal that they do not know an answer, while others have trouble answering even basic questions correctly. In one 2009 study by the Investor Education Foundation of the Financial Industry Regulatory Authority, less than one-third of respondents knew that rising interest rates typically cause bond prices to fall.

Your workers likely harbor many of these uncertainties and misconceptions, which could lead them into trouble. It may be necessary to ensure they receive appropriate advice and have access to informational resources when participating in any retirement plan, or else the opportunity and effort could be wasted as a result of your employees? lack of knowledge.

Retirement plan administration concerns have broadened among many in recent years, as the depth of this ignorance became more apparent. A recently-released study from the Securities and Exchange Commission noted that U.S. retail investors may not understand basic financial concepts, supporting the idea that more help is needed if retirement plans are to be effective tools.

As the research shows, part of the problem is the many people who think there is no problem. A significant number of people hold the mistaken belief that they are prepared, which is likely to prevent them from asking for help and encourage them to make decisions without the understanding they need.

Adjusting retirement plan administration
The SEC study suggested that improvements in disclosures could help investors, but highlighted financial literacy as a related issue. Education programs may benefit from presenting more information in a visual format, among other changes, researchers stated. Your organization may wish to re-evaluate and revise any training or advising provided to participants in retirement plans to take into account recent research on Americans? knowledge of investing and financial matters, and keep in mind that people often overestimate their own knowledge.

This could help your employees improve their retirement planning, increasing their satisfaction and improving their financial outlook for the future. If they grow more confident in their ability to plan for the future, they may also benefit from reduced stress or other changes.

Source: http://www.401kcomplete.com/2012/09/06/research-suggests-investment-ignorance-underestimated/

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