Are Your Clients Financially Literate?

When meeting with a client, some financial advisors are tempted to get right down to business. But there’s one problem with immediately discussing a client’s financial goals: your client is most likely unfamiliar with financial planning terminology and concepts. A recent survey revealed that America is 14th in world rankings of financial literacy, despite being the world's richest country. Because of this, it's important to help your clients understand financial planning terms and basics to ensure you’re both on the same page when it comes to their financial needs.

Going back to school

There are many community initiatives designed to combat financial illiteracy. These may include classes at community colleges or presentations at local libraries. Additionally, there’s a wide selection of online financial education videos available for your clients’ convenience. Make sure you’re aware of educational programs in your client’s local area and compile a collection of helpful online videos for their reference. Once your clients can more easily decode your financial jargon, they can start joining in the conversation.

Emphasize your own role

It may seem self-serving, but it's important to remind clients of the full range of financial matters you are personally able to assist them with. One of the hallmarks of modern financial matters is that your clients typically have more financial responsibilities to grapple with than their parents or grandparents ever did. Instead of relying on a pension, most clients are now asked to take an active part in 401(k) plans that rely on them navigating different interest rates, maturities, and other factors thatand other factors that they simple aren't equipped to deal with.

Because these decisions may impact their ability to do other things, such as buying a home, advancing their education, taking vacations, or retiring on time, it is important to let clients know that you can offer assistance with their retirement plan and many other financial issues. This also helps build trust with the client, as they stop seeing the financial advisor as someone who is operating a business, but as a friend and guide they can rely on throughout their lifetime.

Show them the money

All of the education you provide about financial planning and financial literacy is useless if the client views everything you discuss as abstract. They may not realize the importance of a financial advisor if they believe that most successful retirement plans look the same. It’s important to provide clear and concise data on potential financial outcomes. For example, you could show them the TIAA-CREF study, which highlights how individuals with a higher financial literacy end up with twice the functional wealth of those who neglect to build a financial plan.

Furthermore, those with low financial literacy end up wasting most of their potential wealth on unnecessary fees, such as credit card interest, by relying on money they don't actually have. When clients realize that financial literacy can be the difference between retiring comfortably or living month-to-month, they’ll be more receptive to your financial advice.

For more information about educating different generations of clients, download our free report: The Financial Needs of Gen Y, Gen X, and Boomer Women!