Boston College: Americans Are Shortsighted When It Comes to Finances

Americans of all ages and income levels are shortsighted about their finances, choosing to focus more on immediate day-to-day needs rather than a financially secure retirement down the road, according to a new study by the Center for Retirement Research (CRR) at Boston College.

Based on data from the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation’s 2012 survey of more than 25,500 American adults, the CRR concludes that Americans are “present-minded” and “cannot be expected to devote much effort to addressing distant financial needs.”

The findings aren’t exactly a surprise, however, given the slew of research suggesting the nation’s “retirement crisis” and Americans’ overwhelming unpreparedness for their post-career days.

But to test exactly how shortsighted Americans are with their finances, the CRR study measured the strength of the relationships between households’ financial satisfaction and their day-to-day or distant financial problems.

Among the financial indicators used in the analysis were day-to-day problems such as difficulty covering expenses, heavy current debt burdens, unemployment and inability to access $2,000; and distant problems such as having no medical or life insurance, no retirement plan, mortgage underwater and others.

Day-to-day problems were associated with the largest reductions in financial satisfaction, suggesting that these concerns were top of mind for most of the survey respondents, while they were putting distant financial problems on the back burner.

A surprising result, CRR writes in the study, is that having no retirement plan — neither a defined benefit pension plan nor 401(k) or IRA savings — had no statistically significant effect on the financial assessments of workers in any age group, even those approaching retirement.

Still, the researchers note that the lack of attention given to distant needs, such as retirement planning, does not mean that people will resist efforts to nudge them in the right direction, citing the success of auto-enrollment in 401(k) plans.

“With the shift in financial responsibility to households, it is important to make saving easy and automatic for households at all ages and income levels, so that they can set aside enough to secure a basic level of financial well-being in retirement,” authors Steven A. Sass and Jorge D. Ramos-Mercado write.

Access the research brief here.

Written by Emily Study

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