People think they know more about money than they actually do, according to a new survey highlighting common money myths and attitudes about finances.
Charles Schwab & Co.’s Money Myths survey asked people, ages 30 to 79, a series of questions about financial planning, with a focus on preparing for retirement.
Although 52% of respondents indicated they were either “very” or “extremely” savvy about personal finance, many of them fell for several common financial fallacies when answering the survey.
Wills, retirement, debt and life insurance subject to misunderstanding
For example, 91% believed that having a will was the best way to ensure that their wishes would be carried out according to their intentions after their deaths. But in fact, if there is a conflict between beneficiaries named on financial accounts and persons named in the will, the designees on the financial accounts will get the money—not the people named in the will.
Eighty-eight percent believed that it is vital for folks to eliminate all debt before they retire. This is also false, as there is “good debt” and “bad debt,” and carrying good debt into retirement isn’t necessarily a problem. Good debts are things like mortgages, with low interest and tax-deductible debt. Bad debt, like high-interest credit cards, is smart to avoid whether or not you are approaching retirement.
If cash flow proves to be a problem after retirement, 79% of people think it will be easy to pick up a part time job to supplement their income. In reality, currently only 4% of retired people are making money from a part-time job.
And 78% of respondents believed that life insurance is necessary for everyone to have, when financial planners advise that people who do not have dependents—either minor children or businesses—may not need life insurance.
Making decisions solo not the best idea
When it came to asking for input about financial decisions, about one-third of respondents said they don’t ask for anyone else’s opinion when making money decisions. And 43% thought it was preferable for only one adult per household to be the primary decision-maker about financial matters. Twenty percent of adults said that they do not need to think about money at all, since someone else in their family is in charge of finances.
More women than men said they have no say in financial decisions—13% of women as opposed to 5% of men. Carrie Schwab-Pomerantz, certified financial planner and author of The Charles Schwab Guide to Finances After Fifty, emphasized the importance of both partners having financial responsibility in a relationship. “In far too many marriages, one spouse shoulders the primary responsibility and the other spouse has minimal involvement. In the event of death or divorce, the ramifications of this can be devastating.”
The Money Myths survey was conducted online in January 2014 and included responses from 998 adults nationwide with minimum annual household incomes of $35,000.