The seemingly endless discussions about the pros and cons of capitalism often fail to include one, simple element that can make it work beautifully for scores more people than it does now. That element is simply this, but for an understanding of how capital markets work, I believe far more people would be far better off than they are now.
Capital markets are at the core of the system. They are where individuals can harness the sheer power of the nation’s economic engine and use it to propel them beyond their current financial circumstances. The problem is, too few understand how those markets work, consequently the system itself is subject to criticism that is potentially unwarranted.
Most Americans have been left on their own to try to figure out how to transform what they earn to wealth that can last a lifetime and even extend to their families for generations. The genesis of this notion emerged when the vast majority of American firms stopped offering pensions to retirees. It used to be that when you finished working, the company that employed you provided income to you and maybe even your spouse for life. Pensions still exist in the public sector, but private firms now rarely offer workers the opportunity to receive some form of pay once they retire.
That phenomenon compelled people to figure-it-out by themselves, an incredibly tall task that requires skills that many people do not possess. Simple concepts such as the definition of a stock or bond escape more than just a few individuals. It’s not a criticism, it’s just the reality because there is a dearth of financial literacy education in the U.S.
Think about it – how can anyone plan a retirement, if individuals do not receive in-depth education about how markets work and how to make them work to your advantage?
Employees hear that a 401(k) plan is something that they should consider, but who’s giving them guidance about how to select their investments. I remember my experience before I became a financial planner. The plan sponsor opened an account and gave me a list of ways to invest, but I did not have the first clue about what to choose. Had I only received instruction about financial planning or knowledge about how to find a competent financial planner, I’d be far better off than I am today.
It's easy enough to include financial literacy in curriculum in secondary schools or colleges. What’s lacking is the will of educators to do it. That places too many people at a disadvantage and opens capitalism to critics who blame it for the nation’s inequities.
If handled correctly, the money you accumulate can enable you to stop working one day and live comfortably in retirement, maybe even leave a financial legacy for your children. The point is this, stop blaming the system. It can work wonderfully well. Instead consider the lack of willingness on the part of educators, who fail to equip individuals for what awaits them.