Relation Between Investments and Education

NB: We do not resell your papers. Upon ordering, we do an original paper exclusively for you.

NB: All your data is kept safe from the public.

Table of Contents

Introduction
Defining Investment
Major Peculiarities of Retirement Investment
Factors Affecting the Decision-Making Process
Benefits of Formal Education
Conclusion
References

Introduction

Education has been seen as the key to the success of individuals and the development of the entire society. Young generations have been educated in the spheres that are critical for integrating successfully into the society. For instance, languages help people communicate effectively while sciences help them understand the world around them. Modern students know a lot about information technologies, but they lack knowledge in a very important aspect. Investment is commonly studied in the post-secondary education, which is a significant flaw of the educational system that can result in major losses for people and the nation in the future (Aren & Zengin, 2016). It has been acknowledged that investment literacy is one of the most potent factors affecting people’s decision-making in this area (Larson, Eastman, & Bock, 2016). Investments have been regarded as some speculations carried out by financial sharks, but this view is changing due to the transformations taking place in the contemporary US society. At present, people have to make investment-related decisions when they consider their retirement plans as these plans are no longer made by employers. At that, school graduates and even those having higher education lack the necessary knowledge and skills. Research shows that individuals and organizations must be educated in investments because it helps them make comfortable and sound decisions, avoid costly mistakes, and ultimately help grow their wealth at a fast pace if they are educated in investments.

Defining Investment

People can make various investment decisions in their life. However, retirement investment is one of the major financial decision the vast majority of Americans will have to make in the near future (Bajtelsmit, Foster, & Rappaport, 2013). This paper will focus on this type of investment. First, it is necessary to provide a broad meaning of the word. Investment means the allocation of funds aimed at receiving certain gains in the future. In simple terms, increasing wealth is the primary goal of investment (Kannadhasan, 2015). When it comes to retirement investment, the stakes are higher as the outcome can have an impact on the individual’s living standards in the future. This type of investment is not merely associated with some gains but tends to be the only subsistence. This peculiarity of retirement investment places an additional psychological burden on investors who have to make difficult decisions.

Major Peculiarities of Retirement Investment

Callahan, Finefrock, and Lahey (2012) identify one of the central peculiarities of retirement investment that makes it stand out against other types of investment. The primary goal of any investment, as has been noted earlier, is gaining profit while retirement investment aims at having a certain minimum of funds that could be enough for a long period of time. In simple words, it is not sufficient to receive certain gain, but it is essential to make sure that the funds will suffice to live the rest of the life of the retired person.

It is necessary to add that the debate on the most effective strategies for retirement investment is still ongoing. Collins, Lam, and Stampfli (2015) examine the efficiency of certain risk assessment models and approaches to retirement investment. The major finding of their research is that past performance does not necessarily translate into future gains so complex approaches to risk analysis should be employed. Forsey and Sortino (2016) argue that the major focus should be on the desired return rate when developing retirement plans. Nevins (2004) also concentrates on the benefits of the goal-based approach to investment. Grable and Carr (2014) state that the use of goal-based methods should comply with investors’ capacity to take risks.

Factors Affecting the Decision-Making Process

One of the primary factors affecting the decision-making process is associated with risk assessment. Finke, Brayman, Grable, and Griffin (2017) claim that such concepts as risk tolerance, risk capacity, risk preference, risk perception, risk need, and risk composure influence investors’ (or investment advisors’) decisions. For instance, many people tend to be reluctant to take risks and prefer gaining less but securing their funds. Some people do not have enough resources to take risky decisions, but some of them still exhibit a high level of risk tolerance.

The decisions also vary depending on the time they are made. Bajtelsmit et al. (2013) note that investment decisions can be made before or during retirement. In many cases, people are ready to take more risks when investing during their retirement as their decisions are backed up by valuable data. For instance, when developing retirement plans long before the retirement, it can be difficult to estimate such factors as healthcare costs, health conditions, and so on.

Aren and Zengin (2016) explore such variables as risk perception, personality traits, and financial literacy. The researchers note that personality traits do not affect investment decisions. However, risk perception and financial literacy played an important role in the process of decision-making. People often consider the risk to be a negative concept associated with losses. Others are ready to take risks as they see the risk as an opportunity to achieve gains. Aren and Zengin (2016) stress that financial literacy has proved to be one of the most important factors affecting the way investment is made.

Kannadhasan (2015) examines retail investors risk tolerance and risk behaviors in terms of different demographic factors. This research may provide valuable insights into retirement investors’ behaviors as well. The author claims that demographic variables have proved to be influential in shaping investors’ decisions. Importantly, gender and age have a considerable impact on people’s decision-making. Females and older investors tend to have a lower level of risk tolerance and can be characterized by less risky behaviors. Interestingly, income appears to have an insignificant effect on investors’ decisions. Formal education is the factor that has a considerable influence on the process of decision-making. This correlation will be discussed below.

Benefits of Formal Education

The majority of people do not have formal education in investment as it is not included in the K-12 education or many college courses. People having an economic education are likely to have the necessary knowledge to make investment decisions. The rest of people can largely be divided into two groups. Some people tend to take risks and often lose significant funds due to the lack of knowledge. Others are too afraid of losing their money and take almost no risks, which, ironically, also leads to losses due to inflation and market fluctuations (Bajtelsmit et al., 2013). The majority of baby boomers could have little influence on the development of their retirement plans as the employer was responsible for that type of investment decisions. Moreover, people had almost no knowledge or skills that could help them make these decisions properly. This practice resulted in the development of quite a specific view of investment, even retirement investment. Many people still associate it with some kind of speculation. However, the change in some policies will bring major shifts in the society as well since people will be responsible for their retirement plans (Finke et al., 2017). Millennials will have to take such decisions as employers are no longer responsible for their employees’ retirement investment.

At that, young adults seem to be less concerned about their future as they tend to postpone making this kind of investment. One of the most influential reasons for that is not even the lack of knowledge concerning the matter (Bajtelsmit et al., 2013). There are various professionals including investment advisors who can help people to make sound decisions. The major problem is the lack of understanding of the need to make retirement investment. People start thinking about their retirement when they get older, which is often associated with many lost opportunities. At that, even addressing investment professionals may need some basic knowledge in investing as investors having the corresponding knowledge and skills increase their chances of having successful retirement plans.

Having the necessary skills to invest successfully is essential. People should be aware of the peculiarities of investing, factors affecting the outcomes, possible risks, risk assessment strategies, and so on. A brief course during a high school or even in the middle school could equip people with some basic knowledge of what retirement is, how to manage it, and why it is necessary. The inclusion of a brief course in essential economics in the school curriculum can reach a wide audience from the first months of its launch. Students will start gaining the necessary knowledge. Their parents will also be involved in a certain kind of discussion as they are likely to think of their retirement plans when discussing the need to have the course in their children’s school. Besides, educators will also have a chance to obtain some knowledge and skills that will enable them to make sound retirement investment decisions. Finally, it is essential to mention that the launch of this kind of educational program requires certain preparation. It is important to develop the course that will include such information as different approaches to investment, factors affecting the decision-making process, and the like. It is also essential to provide the data concerning the importance of making retirement investment.

Conclusion

In conclusion, it is necessary to state that retirement investment is quite a specific type of financial activity that is still overlooked. Baby boomers relied on their employers, while millennials do not pay attention to the matter due to the lack of knowledge. However, this population risks having serious issues in several decades when they face their retirement. To avoid the epidemic of failed retirement plans, it can be beneficial to introduce a brief course in economics in American schools. The course will focus on retirement investment and address several major areas. Students will learn about different approaches to making investment and major factors affecting the decision-making process. They will also be informed about the benefits of timely retirement investment decisions. Young people should be ready to think about their retirement and have the necessary knowledge to invest wisely. The inclusion of retirement investment education in American schools will ensure the future of the nation in the long run.

References

Aren, S., & Zengin, A. N. (2016). Influence of financial literacy and risk perception on choice of investment. In 12th International Strategic Management Conference (859-865). Podgorica, Montenegro: The International Strategic Management and Managers Association.

Bajtelsmit, V., Foster, L. O., & Rappaport, A. (2013). Strategies for mitigating the risk of outliving retirement wealth. Financial Services Review, 22(4), 311-329.

Callahan, C. J., Finefrock, C. J., & Lahey, K. E. (2012). Reaching the summit and returning safely in retirement. Journal of Financial Service Professionals, 66(1), 64-74.

Collins, P. J., Lam, H., & Stampfli, J. (2015). How risky is your retirement income risk model? Financial Services Review, 24(3), 193-216.

Finke, M., Brayman, S., Grable, J. E., & Griffin, P. (2017). Assessing a client’s risk profile: A review of solution providers. Journal of Financial Service Professionals, 71(1), 71-81.

Forsey, H., & Sortino, F. (2016). On measuring performance toward retirement. Journal of Performance Measurement, 20(4), 6-42.

Grable, J. E., & Carr, N. A. (2014). Risk tolerance and goal-based financial planning. Journal of Financial Service Professionals, 68(1), 12-14.

Kannadhasan, M. (2015). Retail investors’ financial risk tolerance and their risk-taking behaviour: The role of demographics as differentiating and classifying factors. IIMB Management Review, 27, 175-184.

Larson, L. R., Eastman, J. K., & Bock, D. E. (2016). A multi-method exploration of the relationship between knowledge and risk: The impact on millennials’ retirement investment decisions. Journal of Marketing Theory & Practice, 24(1), 72-90.

Nevins, D. (2004). Goals-based investing: Integrated traditional and behavioral finance. Journal of Wealth Management, 6(4), 8-23.

Click Here To Order Now!