If you’re headed towards retirement, how prepared are you to give up your steady paycheck? If you’re already retired, how financially secure do you feel? Your goal doesn’t have to be living the lifestyle of the rich and famous, but examining your financial health is important, as financial stability can alleviate many of the pressures of your golden years. Not only does financial health impact your lifestyle, but it can also impact your physical health: according to many studies, the lower your income and net worth, the higher the rates of illnesses such as cardiovascular disease, cancer and obesity, and the shorter your life expectancy. The connection between income and health only grows greater with age.
The Senior Wealth Gap
There’s no denying that there are deeply rooted wealth gaps in America. We’re not just talking about the gap between the 1% and the rest of the population – there is even a large wealth gap between people of the same generation. An international study from the Organization for Economic Co-Operation and Development (OECD) found that the gap between wealthy and low-income seniors is wider in the United States than in nearly all other developed nations. In addition, according to a Financial Industry Regulatory Authority (FINRA) survey, 32% of adults ages 53-62 have no retirement or pension savings, and 30% of seniors experience a zero, or even negative, monthly budget after paying for basic needs.
There are multiple reasons why the wealth gap between seniors is growing, and why so many seniors are finding it difficult to save money or even stay afloat. What is clear is that this alarming trend is having a negative impact on seniors’ lives and even on their health. The OECD report advises immediate policy reforms to target this wealth gap as soon as possible, “in order to prevent health, labour market and other socio-economic disadvantages from accumulating over time.” Luckily, many experts are taking this issue seriously.
Building Communities of Wealth
Professor Keith Weigelt, from the University of Pennsylvania’s Wharton Business School, is one of those experts taking this issue seriously. His solution to a wealth-based public health crisis? Education and investment. Weigelt’s non-profit, Bridges To Wealth, offers free workshops at senior living facilities and community centers aimed at building what he calls “communities of wealth”. He believes that working with communities that typically don’t have access to expensive financial consultants can help to reduce the health and wealth gap. Each seminar consists of an educational lecture about a financial topic and concludes with an opportunity for participants to invest using the program’s portfolio.
Weigelt’s theory is backed by evidence: last year, seminar participants saw an average return of over 15%, and over 90% reported having a better understanding of the stock market, making changes in how they made investment decisions, and saving more money than they were before they started the program.
Tricks Of The Trade
Many experts share the idea that generational wealth – and generational knowledge – are a key factor to reducing wealth and health inequalities. Professor Weigelt agrees with this, and prioritizes focusing his seminars on investing in the stock market. 30% of the U.S. population have a net worth of greater than $100,000, and over half of these individuals are actively invested in the stock market, which sees an average return of 8% of investments yearly. Compare that to the 60% of the population who have a net worth of less than $50,000: only 4.9% of these families actively invest in the stock market.
If you’re putting your money into a savings account in a bank, then you’re probably only generating an average of 1% in interest a year at the most. Weigelt’s suggestion is to focus on your financial education, and thus become empowered to invest your money in the stock market rather than letting it sit in a savings account.
His three tips for wealth generation are surprisingly simple:
- Save as soon as possible. Once your money is saved, leave it there! Because interest is cumulative, the sooner you invest – even a little – the longer it will have to generate interest. He has a similar suggestion for debt: pay down any debt as soon possible to avoid extortionate interest rates.
- Use low cost investments. Doing so helps reduce the risk of investing, but can still result in a solid payout.
- Diversify your investments. Again, this helps to reduce risk – it’s like the old saying goes, “don’t put all your eggs into one basket.”
Professor Weigelt also recommends evaluating your current spending, and reallocating based on financial goals. Budgeting, he says, is a necessary skill that many people neglect. Start by identifying all sources of income, then identify all fixed costs (like rent, or insurance) and variable costs (like clothes, gifts, or entertainment) each month. Of course, it’s crucial to have a healthy savings account to cover for emergencies, but Weigelt also suggests reallocating some of your expendable variable costs so you can open up more funds for investing.
While there are many incredibly beneficial investment and financial education programs out there, there are also many fraudsters out there. In fact, a 2010 study suggests that seniors have lost at least $2.9 billion dollars to financial exploitation. The stark reality is that this exploitation is perpetrated by strangers as well as by people seniors know and trust. For seniors, losing savings can have drastic consequences, such as losing the ability to live independently, as well as a decline in health, broken trust, and decimated credit with few opportunities to regain what’s lost.
Awareness of the risk is the first step. Some warning signs of potential fraud include:
- The results sound too good to be true. People who reference substantially higher returns than the market average are probably exaggerating. Doing a little bit of background research on well-known stock indexes can help you verify any outlandish claims.
- Someone is pressuring you to send money immediately. A huge red flag is the pressure to spend money RIGHT NOW. Scammers often prey on you by presenting the offer as an urgent, once-in-a-lifetime deal. Resist the urge to be impulsive, take the time to consult a trusted friend or family member, and remember to breathe!
- You’re given extravagant guarantees. Beware of “guaranteed” language and false promises. Every single investment carries some degree of risk – there are no guarantees. Generally, a lower risk investment yields lower returns. High reward investments are accompanied by greater risk, and are best for people who are financially comfortable with that level of risk.
Dollars and Sense
Financial scams are out there, but they can be easily avoided by using common sense. Investing, on the other hand, is not always so simple. But everyone can do it if you dedicate a little bit of time and effort. A good place to start is by following the experts’ advice and getting educated on financial matters so that you can begin confidently building wealth for yourself – and the next generation. You can do this by finding financial seminars or classes at a local community center or by signing up for a well-vetted online course. It’s never too late to start! Investing a little now can help make your golden years healthy and wealthy.