In the News

Social Security Warning: Consumers Can't Go it Alone - Consumers Lose $30-$50 Billion Annually through Poor Investments and Inertia

“Studies show that consumers cannot effectively manage their money on their own, and they will likely do worse investing their money than the Social Security Administration,” says Jennifer Openshaw, CEO of Family Financial Network, author and frequent TV commentator.

Openshaw pointed to four reasons consumers are likely to see poor returns through the management of their own personal accounts, as proposed by President Bush. As a result, she says, “any positive impact of making Americans more responsible for their retirements will be wiped-out by their own inertia, lack of investment skills, and inadequate access to professional financial help.”

Lack of skills, lost earnings – “Consumers lack the expertise and confidence in investing, causing them to leave assets in low yielding savings accounts,” says Openshaw. A 2000 study by the Consumer Federation of America found that consumers lose $30 billion to $50 billion annually by failing to properly invest the $1 trillion they leave in low-yielding savings accounts. Today, the Federal Reserve estimates there is even more sitting in low-interest savings accounts. “Saving just $100 a month in a higher returning investment compared to a checking account could result in some $300,000 in additional earnings to a family over a lifetime,” says Openshaw, who is giving away 1 million free copies of FamilyFN’s Budget Kit to help consumers save (www.freebudgetkit.com).

No time & inertia – “With more dual-income households today and greater daily pressures, consumers have less time to themselves and even less time to devote to managing their money properly,” she says. “So, it is unlikely they will actually manage their own social security investments. Inertia will take over.”

Overconfidence – A recent study by the Employee Benefit Research Institute (EBRI) found consumers over-confident about their prospects for retirement. EBRI found that 24 percent of workers are very confident and 44 percent are somewhat confident about having enough money to retire. Yet, savings rates remain at about 2 percent of income and 45 percent of workers reported total assets, excluding their home, of less than $25,000. And, while many (7 in 10) expect to work well into retirement, EBRI found that 37 percent left the workforce earlier than planned, often because of health issues or downsizing. This false sense of security could well prevent people from actively managing their social security money. “People think retirement will be about fun and travel, until they find out the hard way it will often be about living in mobile homes,” said Openshaw.

Professional advice not accessible – The average minimum account balance required to be accepted as a client by a financial advisor is $250,000, according to the Financial Planning Association (FPA), and more often $500,000 or $1 million, leaving the vast majority of middle-income Americans on their own. According to the FPA, the average minimum fee for a one-time financial plan is $1,800, and the hourly rate ranges from about $200 to $375 in large cities. “Trustworthy, professional advice is just not within the reach of most Americans,” says Openshaw.

Openshaw stressed that “any positive benefits of personal social security accounts would be more than offset by either the high cost of professional advice or the loss of earnings through consumers’ own inertia or lack of investment skills.”

“If social security or any portion of it is privatized, the nation will need financial education in the schools, professional financial advice that is affordable to the masses, and concentrated efforts to overcome inertia and other human frailties,” concluded Openshaw.

FamilyFN brings objective financial advice to middle income Americans at a fraction of the price. Openshaw, host of the Public Television show What’s Your Net Worth? and a frequent guest on CNN, has worked as an executive inside some of America’s largest financial institutions, including Bank of America and Bank One. For more information, visit www.familyfn.com. # # #