NEW YORK (CNN/Money) - Should the average American control his or her retirement?
No.
Why would I speak such sacrilege in the House of CNN/Money, an organization that essentially makes its living off helping people keep an eye on their investments? I just reviewed a quiz on the National Association of Securities Dealers Web site. It was a quiz they gave to 1,086 investors.
The results were frightening. Among the more disturbing ....
-- Only 35 percent passed.
-- 62 percent thought they were insured or didn't know they weren't insured for stock market losses.
-- Only 24 percent of those in their 20s passed.
-- 79 percent didn't know what a "no-load" mutual fund is.
-- Only 45 percent over 50 years old passed.
There was some good news, I guess.
-- 79 percent knew what a stock is.
-- 70 percent knew what a bond is.
-- 97 percent thought they needed to be better informed (whew!).
For me, the capper is that first stat ... only 35 percent passed. If our schools reported such a rate for any subject or standardized exam, you'd hear howling from your local board to Congress. And in this vein NASD is using the quiz results to fortify its establishment of a $10 million educational fund.
Bravo.
There are roughly 43 million people invested in 401(k)s. I don't think you can educate that many people, not to mention those who invest through other mechanisms. Yet they have the keys to the mainstream retirement vehicle. And if the NASD quiz is any indication, at least 27.9 million can't pass the driver's exam.
But there is no driver's exam for investing, is there? A shame considering that retirement planning -- just like driving -- can pose a threat to you and to others.
Why? Because if enough people see their retirement money disappear (think Enron and WorldCom here) the rest of us will have to pick up the tab through taxes for aid and bailout programs. Who wants to see 27.9 million folks out on the street asking for change?
Now, of course, some people will get lucky. And some will get by. OK, we won't see 27.9 million out on the street.
But given the quiz numbers, the risk that a large part of the population may need help ... or won't get the retirement they deserve, is substantial. Sure, you can argue with the test's sample and its phraseology (OK, I got a question wrong), but the basic message is there.
Now should people be punished just because they didn't have the time or inclination to study the investment world? They worked, earned and contributed.
Is a return to a wide-based pension system the answer? It certainly isn't ideal. Today some companies are wrestling with under-funded pension funds and other issues. But there is something to be said for owed benefits that you can reasonably count on in the future. And professionals -- non-criminal ones we hope -- keeping an eye on the money should be a good thing.
Should everyone get on the pension bus? Probably not. Some people can do quite well by the 401(k) through investment decisions, company contributions, and tax benefits. They could no doubt drive themselves.
But there needs to be a driver's exam first.
Allen Wastler is Managing Editor of CNN/Money and a commentator on CNNfn.
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