4-minute video

Encouraging financial literacy to build client confidence

Promoting informed financial decisions and saving habits is an important part of your job as a financial professional. Unfortunately, many people may lack the basic math skills and financial know-how to not only make decisions but feel comfortable joining the conversation.

Many Americans demonstrate relatively low levels of financial literacy and have difficulty applying financial decision-making skills to real-life situations. In FINRA’s National Financial Capability Study, 66 percent of participants were unable to correctly answer more than three of the five questions covering economics and finances encountered in everyday life. The test asked simple questions involving interest rates and inflation calculations, principles relating to risk and diversification and the relationship between bond prices and interest rates.

Lack of financial understanding affects all ages and socioeconomic levels. The result is those who fall into the limited financial literacy category may not manage their financial resources effectively and may feel intimidated by topics such as retirement, budgeting, tax planning and Social Security.

One way to help your clients become more confident — address financial topics in simpler terms.

Breaking down the language into less complicated terms and focusing on a client’s emotional priorities may help less confident clients be more open to the discussion and choices available to them.


Financial literacy in retirement planning
The tendency for people to feel more subjectively knowledgeable about investments that are described in an easier-to-understand way is known as the “fluency bias.” People with high levels of financial literacy are more likely to plan for retirement than those with low financial literacy and are much more likely to seek guidance from a financial professional. As you talk with a client, start by evaluating his or her financial literacy by asking a few questions. “Are you already saving for retirement?” “What about retirement or your finances concerns you most?” “What are your long-term goals?” This can give you a baseline to help further customize the conversation.

When it comes time to discuss product solutions, remember that the complexities of some financial vehicles can seem overwhelming and cause your less financially savvy clients to feel uneasy. Add the numbers and statistics on top of that and some clients may get lost before the conversation even begins. Change the perspective by focusing on their emotional concerns and streamline the overall conversation by simplifying options and language.

Simplifying the conversation
Help clients with less financial knowledge stay engaged by discussing their options in terms they can easily understand and process. Remove industry jargon and use relatable examples to help them understand the concept and the benefits.

For example, when discussing fixed annuities, show clients how these retirement solutions provide insurance against the risk of outliving their money after they retire and protection from potential market downturns in the future. If an income rider is elected, clearly show what the guaranteed monthly withdrawal amount could be for the rest of their lives.

You can also make annuities more relatable by using infographics or other visual aids. Real-world scenarios can help improve your clients’ understanding and retention, especially when your examples are customized to their personal objectives.

When you inform your clients without spotlighting their lack of financial understanding, you cultivate trust and they may be more open to your guidance and expertise. In order for clients to make sound financial decisions they feel good about, they need to be equipped with the knowledge to apply them to their own personal situations.

When they can count on you to speak their language, they may feel more confident returning to you as their needs change. By empowering your clients to build their financial literacy, you help boost their retirement readiness and equip them with valuable financial skills to use for a lifetime.

The fluency bias is just one of 10 biases that can create roadblocks to smarter financial decision-making. For more insight, Athene commissioned a review of biases from two experts in judgment and decision making from the UCLA Anderson School of Management. In reviewing these biases, they uncovered important behavioral tendencies and provided solutions to help overcome them.

Alternatively, consider the related articles to discover more details about these biases that may help put you and your clients on the path toward making smarter financial decisions together.


Additional resources
Discover more details about these biases that may help put you and your clients on the path toward making smarter financial decisions together with these related articles.


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