Thursday, February 5, 2009

401(k) bootcamp

Yesterday I got another example of why financial literacy should be mandatory in schools and provided as part of a benefits package from employers. A woman in her early 20s found me online yesterday and had a line of questions a mile long about 401(k)s.

The questions were riddled with clues about her lack of knowledge of basic investing principles: What's the difference between a 401(k) and an employee stock purchase plan? Does the value of my 401(k) drop if my company isn't doing well? (Not unless all you have in your 401(k) is shares of your company's stock). The market's bad; shouldn't I be taking money out of my 401(k) and putting it into a regular savings account? (No, that'd be one of the worst things you could do.)

Beyond that, she wasn't sure what investments she had chosen for her 401(k), whether they were appropriate for her age and risk tolerance or even how the money she put in translated into shares in funds or stocks.

I'm glad she reached out and I'm not in any way belittling her for having the questions she had. But what's frustrating is that at a time when the country can ill-afford to have it's educated, employed, high-income potential young people financially unawares, our educational system and employers continue to do students and workers a disservice by equipping them to make money but not educating them on what to do with it next.

So all next week I'm doing a 401(k) bootcamp on the blog, going over basic terms and principles of a 401(k) plan, and answering any questions you might have. Now's your chance to learn if you're not sure, so don't be afraid to speak up.

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