Why Financial Literacy Is More Essential Than Ever

We speak with International Assets Advisory (IAA) CEO Ed Cofrancesco on why financial literacy is more important than ever, along with what topics and trends investors should pay attention to this year. Cofrancesco also shares why investing in equities is a marathon, not a sprint. 

With April being Financial Literacy month, can you tell us why financial literacy is important – especially today? 

America is a nation of financial illiterates at a time when financial literacy is more important than ever before. Everyone has to file an annual income tax return with the IRS, but most people are scared to death of it. And since pensions for all practical purposes no longer exist, we are all left on our own to figure out how to fund retirement. Even if Social Security does remain solvent, the payouts aren’t enough by themselves for most people to live on. 

Americans are drowning in debt because credit has been easy to get and too many people just don’t understand finances. The average American carries a debt balance of more than $96,000, a figure that’s likely to rise with the increase in college costs and young people graduating with tens of thousands of dollars in debt and loans that will take them decades to pay off.

We make kids study algebra in high school, which 99% of them will never use again, but don’t teach them how to make a household budget, or how compounding works to let your money make more money. That’s been a problem in America for years and it’s only gotten worse in recent years.

The financial world has gotten much more complicated at the same time that technology has made it easier than ever for people to get involved.

At this time, only 15 states require high school students to take a course in personal finance to graduate, which is really appalling. We always used to talk about the 3Rs—reading, writing and ‘rithmetic. I think we need to re-focus on that, making sure that the ‘rithmetic includes personal finance.

What topics and trends do you think investors should focus on more this year?

I think at this time, investors should continue to be concerned about inflation and the possibility of recession. In March, we saw turbulence in the banking industry. And in spite of what’s happened, we still think there are some opportunities in the banking sector.

Energy remains a good bet. The current cozy relationship between the Russians and Saudis, with OPEC's decision to cut production, will undoubtedly push prices back up. That’s bound to help Putin continue funding the war with Ukraine.

As always, we look at equities as a long-term proposition. We think there will be at least one major dip this year, possibly as much as 25%, which should present the chance for some opportunistic stock purchases.

How are you assessing the current macro situation? 

At International Assets Advisory (IAA) we believe that the U.S. equity markets are best described by the Beatles song, Helter Skelter. And while going up and down a Helter Skelter slide may be tremendous fun for small children and aggressive day traders, it is not a Strawberry Field for retail investors. We are all begging the markets to give us the answer but unfortunately, it seems likely that we are going to experience this whipsaw action for a while longer. 

We couldn’t account for every risk that was out there, but we expected some sort of shoe to start dropping. We assess the macro situation as not good. Buckle your seatbelts, it’s going to continue to be a very bumpy ride.

What should investors keep in mind during this time? 

Typically, markets like the one we are currently in do not bode well as a future indicator of market direction. At IAA, our experience with this type of market advises us to be cautious. There is so much uncertainty with inflation, rising interest rates, increasing budget deficits, high probability of recession, geopolitical risks, etc., that seeking safe harbors appears to be the best course of action.

Where are the investing opportunities right now?  

We like medium-term bonds (3-5 years) which look attractive, as do energy stocks like Exxon and Chevron. We are reminding our clients that investing in equities is a marathon, not a sprint, and if we do have another major decline this year, that it will present a major buying opportunity.

This interview originally appeared in our TradeTalks newsletter. Sign up here to access exclusive market analysis by a new industry expert each week. We also spotlight must-see TradeTalks videos from the past week.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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