Saturday, April 28, 2012

Will I have Enough Money to Retire? A Question for 4.9 Billion World Citizens

Will I have enough money to retire? This is the question millions of future retirees keep asking themselves. How do I know if my nest-egg of x dollars is enough? How can I be sure that I won’t run out of money before I die?

For most of my 5o-something friends, they have only one answer. I will just keep working. Fortunately they work in temperature-controlled offices that keep their working spaces cool in summer and warm in winter. Their idea of heavy lifting is writing a memo arguing against a new expenditure by their homeowner’s association. Their concept of an exhausting day is sitting on an airplane that covers six time zones between stops. For my friends, working until age 7o or 75 is a realistic possibility. However for anyone with a more physically exhausting job, working beyond 7o is a grind rather than an emotionally fulfilling mission.

But even for my friends I ask, what happens then? Will you have saved enough?

Writing in The New York Times, Joe Nocera explores the dilemma. This month he is turning 6o years of age, finding that his physical strengths are waning and wondering what to do. He considered himself a smart investor because he invested in the technology bubble of the 199os and made money—or at least paper profits—for many years. A stock market crash and a divorce later depleted his retirement savings. Then he joined the housing mania and invested in renovation of his home, hoping to make his money back many times over. As a New York Times columnist covering business and finance issues, Mr. Nocera is among the most articulate and literate of consumers worldwide. Yet even he worries about his personal finances.

However Mr. Nocera's problems are those shared by many in the rising global middle class that earns between $1o and $1oo a day. That global middle class is estimated to increase from its current level of 2 billion today to 3.2 billion by 2020 and 4.9 billion in 2030. As noted by the Financial Times, according to the Paris-based Institute for Security Studies in its report Global Trends 2030, within two decades the almost 5 billion in middle class citizens will constitute more than half of the world’s population. By 2o3o, more people will be middle class than poor.

This is encouraging but also rather frightening. The poor suffer from reliance on informal financial service providers, such as loan sharks, and they have no safe way of setting aside their savings for a rainy day. But their biggest problem is in earning enough money to start with.

However it is the new middle class that is most vulnerable to weaknesses in consumer protection for financial services. They are first-time consumers who sign contracts for formal financial services on a hope and a prayer. For such consumers, they are often the first among their family or friends who have entered into a long-term contract with a financial institution. They are the forerunners of others in their family and social groups who need financial services. They need long-term financing to buy their houses and apartments. They need short-term financing between pay-checks. They need a safe and secure place for their savings for a rainy day. They need safe and inexpensive ways to send money home to relatives. They need insurance against catastrophic events. They need to learn the basics of how to use financial services—the risks and rewards of using financial services, their legal rights and obligations when they do so. But financial education will not be enough, any more than it was enough for Mr. Nocera.

It is for all these people that Safe and Fair Finance Blog is written—to help government policy-makers, industry leaders, heads of consumer organizations, members of the academia find ways to help financial consumers. All of their efforts will be needed.
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