The importance of financial literacy, understated

This is all important stuff, because those who don’t understand basic financial concepts, such as how money grows, how inflation affects us, and how diversification can reduce risk, are likely to make suboptimal financial decisions throughout their lives, ending up with poorer results as they approach and enter retirement. Consider the inflation issue, for example: If you don’t appreciate how inflation shrinks the value of money over time, you might be thinking that your expected income stream in retirement, from Social Security and/or a pension, will be enough to live on. Factoring in inflation, though, you might understand that your expected $30,000 per year could have the purchasing power of only $14,000 in 25 years. (emphasis added)

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