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Americans think they know personal finance — even if they don’t

Retirement Plan

Americans are more confident in their own understanding of financial decision-making than they are in the financial system’s ability to provide a secure future, according to the latest Allstate/National Journal Heartland Monitor Poll. Photo courtesy of Kick Images via Getty Images.

The Dow Jones Industrial Average closed Friday at 16,064.77. But is the height of the market inspiring confidence in the financial system and Americans’ own financial decisions?

It’s a mixed tale. Americans are much more confident in their own financial decision-making than they are in the promise of the financial system. And yet, at the same time, Americans aren’t making all the financial decisions they know they should be — sometimes, because they simply can’t. Americans are pessimistic about the future of the country; only 23 percent believe the country is headed in the right direction and a majority isn’t convinced President Barack Obama’s economic policies have helped the economy, according to the latest Allstate/National Journal Heartland Monitor Poll. About half think we’re still in a recession.

But ask Americans about their understanding of financial decisions, and it’s a different story. Americans are much more confident in their own financial faculties. Almost 90 percent believe they understand what they need to know to make financial decisions.

But what kind of financial decisions are they making? If you believe 58 percent of Americans, participating in the financial system is still the safest way to secure their families’ financial futures, even if they don’t think that future will be so secure. Most have checking and savings accounts and credit cards; employee-sponsored 401(k) plans are more rare, as are personal investment accounts. Yet how can one retire without them?

In other words, just because Americans think they know what the right financial decisions are, that doesn’t mean they’re even close to making them. For example, three-quarters of Americans say they understand what it takes to save for retirement, but nearly half (44 percent) believe they’re behind in that saving.

That’s not surprising, especially for older folks, said Eleanor Blayney, the consumer advocate for the Certified Financial Planner Board, speaking about the results of the poll on a panel at Washington’s Newseum, Nov. 22. Admitting you can no longer drive happens last; the ability to make financial decisions goes first, she said. (Check out Paul Solman’s animated explanation of Harvard economist David Laibson’s research on the relationship between age and fluid intelligence. Lew Mandell, author of “What to Do When You Get Stupid,” has taken to the Business Desk several times to explain how to close the retirement income gap — before it’s too late.)

But if you don’t have the wages to begin with, no amount of financial planning will make a difference, Heidi Shierholz, an economist at the Economic Policy Institute, said. The recession impacted different demographics in different ways. Older Americans’ savings may have taken a hit. But for young people, she explained, the biggest effect is in weaker job opportunities. (Shierholz recently talked to us about the obstacles confronting new entrants to the labor market.)

But the same can be said for older workers, forced to work longer to build up — or replenish — that nest egg, as we’ve reported extensively. Of course, many boomers are dropping out of the labor force because of retirement, but many people 55 and over are also part of the “missing workforce” — those folks whose long-term unemployment excludes them from the officially unemployed, ironically, lowering the unemployment rate. Many more of those boomers would be working today, Shierholz argued, if it weren’t for the recession.

There is reason to worry, said former FDIC chair Sheila Bair at Friday’s event, since most of the recovery has been driven by an increased valuation of the market. Share prices may be up, but there’s no way to know, she said, whether that’s the doing of the companies or of the Fed’s monetary stimulus program. And the fact that only 30 percent of Americans have a personal investment account and are benefiting from Thursday’s record closing underlines what Bair called the “uneven” nature of the recovery.

National Journal editorial director Ron Brownstein, a demographic slicer-and-dicer, compiled a thorough roundup of the socioeconomically divergent ways Americans approach the financial system and have experienced America’s recovery.

This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions

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