Financial education fueled by the aging population Work 30 years, consume 90 years
Medical evolutions have made it possible to increase life expectancy, hence, consumers have to fund 90 years of life time with only 30 years of work. This is only possible when investing enough early on and at regular rates to meet the needs at retirement.
Investing early gives you the benefits of compounding, the financial mathematics making your money grow exponentially instead of linearly. However, we are never protected from a market downturn like we experience for the moment. The solution is therefore to invest regularly to benefit from dollar-cost averaging. This means that you benefit when the market is up, and you decrease your average purchase price when the market goes down!
In many of the Western countries, the baby boom generation is growing old, becoming a stressing problem for the legal pension schemes. In some countries, the legal pension scheme is virtually bankrupt as too much money has been spent in the past. You will probably wonder why governments would have made the decision to spend pension money. To understand this, assume an ever increasing population and assume that the working population contributing to the pension scheme is paying for the elder population benefiting from retirement. This leads to awkward situations when the birth rate drops below the minimum necessary birth rate to maintain the population level.
As a result, governments all over the world tend to focus on financial education and a lot of money is invested in this area to raise the awareness on building your own, private pension plan.
Healthcare
The benefit from better healthcare is that we live longer and healthier. The flipside of the medal is that we need to save more to be able to sustain our quality of life throughout our retirement. But the more scary part is that healthcare becomes more and more expensive! The amount of research and technology used for healthcare does not only increase the quality of healthcare, it puts a lot of pressure on the prices to go up.
The increased price of healthcare has two effects: first, as already discussed, your retirement savings should take into account a strong contingency factor. Second, the healthcare insurance coverage should be significantly increased.
Financial Education to Achieve Economic Growth Whenever you turn on the television or the radio and you hear about economic reports, it is all about economic growth. Obviously, growth is necessary to drive competition, new technologies, better processes, and increased quality of life. Without this, we would work from nine to five, replace old equipment and buildings and nothing would change, in other words eternal business as usual. Therefore the magic word: growth.
There are many debates on what fuels growth, and the common joke goes "If you put three economists in a room to debate about it, you will get four different statements!" However, besides the different standpoints, economists do agree on three factors that drive growth:
1. Population growth
2. Production output growth
3. Investments
Looking at the third parameter, investments, you now understand that the more people invest, the more money is available in the financial system for industrial and economically profitable projects. Financial education thus is no more seen as a cost to society, it actually drives growth.
Conclusion Policymakers have strong incentives to spend money on financial education. It is not only important to make sure that the elder people among us in their retirement do not have any financial shortcomings, it is also well-spent money that drives economic growth.
Jamie Wu is an expert in personal finance offering online visitors powerful graphical and interactive tools to understand long term implications of personal finance.
