Generations X, Y uninformed about investments

What do you get when you mix trillions of dollars in assets and a quasi-ignorant understanding of finance? Generation X and Generation Y consumers.

More than half of U.S. Gen X and Gen Y consumers admit having little or no knowledge about investments and financial products, according to a recent LIMRA study.

The study revealed that consumers who work with financial professionals to make investment decisions are more likely than those who do not work with financial professionals to be very knowledgeable about investments and financial products (14% versus 6%), but only one in five do.

And that doesn’t necessarily mean working with an adviser guarantees financial enlightenment.

“The increased knowledge levels could be related to education efforts on the part of financial professionals, or the fact that more knowledgeable Gen X and Gen Y consumers work with financial professionals,” says Cecilia Shiner, senior analyst at LIMRA Retirement Research.

Respondents who had access to a defined contribution plan through their employer, but had never made contributions, were reported to be more likely to feel less knowledgeable about investments and financial products than those currently contributing to their DC plan.

“Most Gen X and Y Americans will have to rely solely on their savings to fund their retirement, yet few are taking full advantage of the retirement savings vehicles available to them,” Shiner says. “The decisions these consumers make today will have a lasting impact on their ability to be financially secure in their retirement years.”

Of the nearly $3 trillion in Gen X household financial assets, 43% is invested in retirement and pension accounts. Among retirement and pension accounts, two thirds of assets are held in DC savings plans and 30% are in IRAs, according to Federal Reserve Board’s 2010 Survey of Consumer Finances.

This compares to the $229 billion Gen Y consumer industry, who on average have contributed to their current employer’s DC plan for four years, accumulating slightly less than $26,000. The median deferral rate for Gen Y consumers is 6%, with one in five Gen Y consumers contributing 3% or less to their current employer’s DC plan, according to the Federal Reserve Board.

“There’s a lot of attention on the baby boomers (78 million) but there are nearly 116 million Americans aged 20 to 47, and as an industry we need to help these Americans plan and save for retirement,” Shiner says.

Teck Lim writes for Financial Planning, a SourceMedia publication.