More than half of Americans 25 and older give the average American a failing grade when it comes to their knowledge of saving and investing according to a survey by Genworth Financial. Respondents (whose average annual income is $50,000 or higher) even go so far as to say a top reason Americans don’t have enough money saved for retirement is a lack of financial education.
Ah, but when those same people are asked to grade their own knowledge, guess what they gave themselves? An A or a B.
Who knew so many brilliant, financially-savvy people decided to take part in the Genworth survey? Or could there be something else going on?
I’d suggest we’re seeing a phenomenon that the co-workers of Apple CEO Steve Jobs once referred to as his “reality distortion field”.
Here’s a quote from Walter Isaacson’s biography on Steve Jobs:
Whether it involved personal topics relating to his family and marriage, or professional issues relating to engineering or business challenges, or health and cancer issues, Jobs simply didn’t engage.
Isaacson goes on to say that Jobs, who thought he could fight pancreatic cancer just fine by eating juice and fruit, lost at least nine months to an illness that had available treatments. Because he refused to face reality — and concocted his own reality to replace it —Jobs wasted valuable time, during which the cancer spread throughout his body and eventually killed him.
What does this have to do with personal finance, you might ask? Plenty. Let’s see if we can read into the Genworth study a step further.
How many of those people that gave themselves an A or B on their finances would genuinely earn such a grade from a financial planner or advisor?
Maybe 90 percent? How about 80? Does anybody else think I’m being generous?
It isn’t what we think about our financial knowledge and planning that matters, people. It’s what we’ve actually done, and what the pros tell us after checking our charts.
Even if we’re generous and guess that nine out 10 people really deserve the high grade they gave themselves, that means 10 percent suffer from reality distortion. But I’m willing to bet that number is much higher.
Here’s another example of apparent reality distortion at work. Two-thirds of the men, or 66 percent, gave themselves an A or B on their knowledge of saving and preparing for the future. By comparison, only 40 percent of women did. When checked under a microscope, would the men really deserve such high marks? And the women such low ones? What do you think?
Here’s how I see it: In my family, my dad perceived himself as something of a financial genius because he could make big money at the drop of a hat, while my mom had much lower self-esteem in such matters. And yet, Mom saved every dime she made as a seamstress, while my father often gambled money away or simply squandered it.
When I hit my hardest financial straits in college, little envelopes from Mom kept me from dropping out, whereas Dad came through in fits and starts. Eventually, he hit rocky financial shoals during my sophomore year that forced me to scramble for grants and financial aid. But the envelopes from Mom kept coming. In this case, the roles and stewardship didn’t correlate to the views my parents had of themselves financially. In fact, they were pretty much opposite.
I’m not at all taking issue with the Genworth numbers. They’re reliable to plus or minus 3 percent with 95 percent confidence. Rather, I think they reveal something fascinating that informs all of us on our financial journey.
That is: Don’t believe the grade you give yourself!
It may be much higher (or lower) than you deserve. Check it out with an expert before you pass self judgment — or answer a Genworth survey!
Otherwise, we don’t know. Back at Thanksgiving, I wrote about how I spent three days with my accountant brother, convinced I was in terrible financial shape. Crunching the numbers proved that I had amassed much more net worth than I thought. My problems revolve around sinking too much income, between property taxes and a 15-year mortgage, into my home. By way of metaphor: Had I skipped the exam, I might still think the terrible pain in my back was a rotting kidney instead of strain from hyperextended muscles.
Here’s a challenge then to our readers: If you haven’t had your financial numbers checked in a while, or at all, take some time to perform a cursory read of your savings, investments, retirement, assets, debts, and cash liquidity. Now, give yourself a grade. But hopefully, you’re not done yet.
For the especially brave among us, go get your financial condition checked out by a planner or analyst. There’s plenty of sound advice here, and elsewhere, on how to find one. And when in doubt, use word of mouth.
Now, lie down on the exam table and let the tests begin. How did you do? Was your grade better or worse than you thought? The proposition might seem intimidating or scary. But you can live with that fear, as opposed to live inside it. And unless you’re a trust fund kid, this is not optional. Not for any of us.
I say this because ignorance is only bliss for so long. And after a certain point it becomes a cancer.
Do you think most people are delusional about their money skills? Comment here.