Can't Reform Social Security if Americans Don't Understand It

By Susan Jones | July 7, 2008 | 8:22 PM EDT

( - There are many ways of saying that Americans are clueless when it comes to managing their finances. Here's a polite way of saying it:

"The current debate over Social Security -- whether or not individual accounts are added to the program -- demonstrates the acute need for improving financial literacy in the United States." That's what the president of the Employee Benefit Research Institute (EBRI) told the House Committee on Financial Services on Wednesday.

"Financial literacy in the nation is not good, and most Americans are not planning for their financial future and saving for retirement and other life events," Dallas Salisbury told the panel.

He called for a national effort to "increase the delivery of financial education." Salisbury said individuals should be taught how to track expenses, how to budget, the meaning of compound interest, the nature of a stock and a bond, the danger of inertia -- for starters.

In a list of major financial risks facing Americans, Salisbury mentioned the lack of savings accounts; incurring excessive debt; carrying excessive interest expense; not diversifying investments; and the possibility of outliving one's savings.

According to Salisbury, statistics show that Social Security is the only source of income for 25 percent of retirees. It is the primary source of income for 66 percent of retirees.

And with so many retirees depending on a program that is facing a financial shortfall, Salisbury said it is crucial that more Americans learn the basics of how to handle money and control their finances.

"Whatever results from Social Security reform, Americans will need to understand how the program works and how it affects their overall financial future," Salisbury said.

EBRI research shows that only 18 percent of workers know at what age they will be eligible for full Social Security benefits, even though Americans have been getting annual benefit statements for years.

"Clearly, most people do not read or understand their Social Security benefit statements," he said.

Salisbury noted there are extensive and growing coalitions aimed at improving financial literacy; but "as a matter of public education, it is quite a challenge," he said.

EBRI describes its mission as advancing the knowledge and understanding of employee benefits and their importance to the nation's economy. Among other things, the group sponsors the "Choose to Save" program.

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