Mandatory Savings vs. Mandatory Financial Education

Here is a 3 step process to start as early as possible in one’s working years:

  • Make money
  • Spend less money than you make
  • Take the difference between the two above, otherwise known as savings, and invest it.

Do this regularly from early on, and you’re on your way to increasing net worth.  You’re also on your way to being far, far ahead of the average American in terms of putting yourself on a path toward being able to eventually retire voluntarily.

I say that because it seems as though the average person out there is simply not taking these 3 steps above.  According to this article at MarketWatch, only about 66% of Americans are estimated to save a portion of their paycheck.  What’s unfortunate is that for over half of the people saving money, the amount saved is under $25,000.

That’s simply not going to cut it for retirement.  I wonder how so many people are going to be able to handle their retirement years.  If there is no money, what do they do?  I’ve often wondered, and to me, it seems like they have to work deep into their senior years, until physically or mentally unable to do so.  Or, until they are no longer wanted in the workforce in any capacity.  Avoiding this type of scenario is a huge source of financial motivation for me.

The article I mentioned brought up the topic of mandatory retirement savings, and whether or not that should be put in place.  On the surface, I can see the appeal to it.  If people are forced to save, they might find themselves in a much better position down the line.  Lack of discipline might be made up for by the imposition of required responsibility.  That’s part of the benefit of automatic savings, right?

What are your thoughts about this?

To me, the notion of forcing people to do things isn’t one that seems like a viable long-term solution, nor does it seem to be a good fit with our way of doing things here.  I think that it’s up to each of us to figure out our own way to make savings and ultimately retirement happen.  We have the freedom to choose, whether it’s the freedom to be responsible or the freedom to lack personal accountability.

That being said, I do think that teaching people how to be financially responsible is something that would be a good idea.  A way to make that happen is to really take seriously the notion of comprehensively teaching personal finance in schools, to make sure that people graduate high school with a really strong foundation in how to approach money.  Frankly, if many parents don’t have a clue, how can the kids be expected be different without intervention or some exposure to teachings about money?

This would help many people avoid taking on out-sized student loans without really understanding the concept of return on investment.  People might then spend based on needs vs. wants, thus building wealth earlier in life through the 3-step process noted up front.

It could go a long way to increasing that overly modest sub-$25,000 savings amount that many folks have!

My Questions For You

What do you think about those findings, about 2/3 of people saving and more than half of those having less than $25,000 actually saved?

How in the world are most people going to handle paying for their needs in old age?

Do you agree that mandatory financial education is better than mandatory savings?

Comments

  1. says

    So true about holding parents responsible Squirrelers! I was never always financially literate, but I wasn’t very poor with money either at least when it came to living below one’s means. I’ll have to thank my parents for that.

  2. says

    I think a lot of people these days are just assuming they’ll be working until they drop dead, literally. Unfortunately the realty will be that most of them will become too debilitated to work long before death. Then what? I think that’s the excellent question you raise. Maybe children will support parents? Maybe the taxpayers will support poor seniors?

    • Squirrelers says

      This is the thing that really catches my attention, the notion that people seem to think that they will be able to work until very late in life. You know, saying that they’re healthy now, or that they have some relative who worked until old age, etc. All kinds of rationalization, but the reality might be very different. Best to plan on being able to work less than desired.

  3. says

    I think that education on personal finance topics should be covered in high school. There really isn’t any reason that this couldn’t be required as part of some other class, like math, business, or even home econ. It’s always surprized me that something we use every day isn’t taught more widely.

  4. says

    When people haven’t saved much and have little financial knowledge they think 100k is a lot of money. I always say it depends on how old you are. 100k at 20 you are great however at 65 not so much.

    I think financial education is huge but I can say I didnt get it when I was younger. Parents are as educated as they should be and it becomes the trickle down effect. You learn from you parents. I learned the hard way by making mistakes. Our children are being taught about money, finances, and credit at an early age.

  5. says

    Personal Finance should definitely be covered in depth in High School. For the most part, people will use personal finance knowledge in their daily lives way more then they will ever use chemistry or calculus. Why it isn’t focused on beats me, but I guess that’s why we are trillions in debt and 1/4 of Americans have less then $100 in their savings accounts.

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