Building Financial Literacy for an Era of Longevity

By Surya Kolluri, TIAA Institute

The miracle of modern longevity makes financial literacy more important than ever — especially in times of economic stress. Amid stubborn inflation and fears of a recession, Americans are facing a two-pronged challenge: How do we navigate near-term turbulence, while planning for long-term financial needs spread, unevenly, across lives that may stretch for decades past traditional retirement age?

Many are struggling to find answers. According to our new report, The TIAA Institute-GFLEC Personal Finance Index (P-Fin Index), 25 percent of U.S. workers decreased their retirement savings and 12 percent stopped saving entirely because of inflation in the past year. There have also been significant increases in the share of people who are finding it difficult to make ends meet (30%), struggling with debt (26%), or lack non-retirement savings to cover one month of living expenses (39%).

But this is more than just an inflation problem. People are certain to encounter various financial stresses and setbacks over the course of today’s long lives, whether that’s inflation, recession, unemployment, or others. The key is equipping them with the knowledge, tools, and strategies to weather those periods, while minimizing the impact on their long-term financial well-being.

Financial literacy joins longevity literacy at the core of it all, and there is still much work to do. In our survey, respondents answered less than half of the questions correctly on the building blocks of personal finance, like saving, investing, and managing debt. And since the launch of the P-Fin Index in 2017, this number has actually fallen one percentage point, to 48 percent. The impacts are real, as those with very low financial literacy were more likely to decrease or stop their savings, as well as 4x more likely to struggle to make ends meet.

While these statistics are troubling, they also represent a call-to-action. Policymakers, employers, researchers, the financial services industry, and all of us living longer can take steps to help recover and build enduring financial health for all of us. If decreased savings persist, people may feel the impacts for decades. On the other hand, a savings rebound supported by greater financial literacy could drive lifelong financial well-being.

Four principles can help to drive progress towards this goal:

· Build both financial and longevity literacy. To make sound financial decisions, people must understand not only the basics of personal finance, but also the larger context of longevity. Yet, as we highlighted in another recent report, less than half of American adults have a basic understanding of how long people typically live in retirement — and, by extension, how much money they’ll need to live comfortably. Longevity literacy helps people understand why they need to save and invest; financial longevity helps them understand how.

· Bridge the gaps. Our study finds the impacts of inflation and low financial literacy are particularly common for certain groups. Hispanic adults were almost twice as likely to decrease or stop savings in the past year, and rates of financial literacy were comparatively lower for women, Gen Z and Gen Y, and Black and Hispanic adults. Building financial literacy among these groups is an especially pressing need.

· Work smarter to earn longer. This is perhaps the simplest route for financial longevity. Employers can support older workers to extend their careers with policies like flexible work arrangements, benefits for employee-caregivers, and roles that center on teaching, coaching, or consulting. At the societal level, we can all embrace a new, more dynamic model where people learn throughout their life, launch second careers, and increase their years of contributing and earning income.

· Healthy aging, healthy saving. In the long run, what’s good for your health is good for your bank account. Healthy aging helps with both sides of the financial equation, enabling people to stay active, work, earn, and save for longer, while mitigating the health expenses that represent by far the largest financial threat in our later decades.

Leaders and organizations across sectors all have a role to play in helping all of us achieve this vision. While there has been important progress in recent years, more action is still needed to connect people with information and tools like health savings accounts, supportive workplace policies, longevity-informed financial advisors.

It starts with financial literacy. This knowledge becomes a skill to empower all of us to better manage whatever obstacles inevitably faced. Today, for many people, that’s inflation; tomorrow, it may be a different challenge — or a new opportunity. While we can’t predict the ripples ahead, we can be certain that people will need to work, earn, save, invest, and spend in new ways for longer lives.

Surya Kolluri is Head of the TIAA Institute.