What the experts say

Our financial illiteracy

Americans get failing grades for financial literacy, said Kevin Roose in NYMag.com. The Securities and Exchange Commission has just released a study of how much the average American investor knows about basic financial products, and it makes for “amazing and depressing” reading. U.S. investors, the SEC found, “have a weak grasp of elementary financial concepts” like compound interest and inflation. Most participants couldn’t calculate basic fees or understand financial documents, despite insisting that they could, and many “lack critical knowledge of ways to avoid investment fraud.” Perhaps it’s “time for regulators to step in and force retail investors to close their E-Trade accounts, step away from CNBC, put all their money in passive index funds, and go mow the lawn instead.”

The gift of college

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The best gift you can give sleep-deprived parents of a newborn is a little seed money in a 529 college savings plan, said Ron Lieber in The New York Times. In order to pay just half of the tuition required for a four-year degree at a school that costs $40,000 a year today, new parents need to sock away $444 a month starting when their child is born (assuming 4 percent annual tuition increases and a 6 percent return on their investment). State-sponsored 529 plans, where money grows tax-free, are popular, but contributing a gift to such a plan “is not as easy as it could, or should, be.” Some states won’t allow donations over the phone without a child’s account information. It’s often easier online, particularly via sites like Gradsave, FiPath, and GiveCollege, which “allow anyone to give money to anyone else’s plan.”

Avoiding panic over 401(k) fees

“Don’t make any rash decisions” after seeing your 401(k) fees, said Robert Powell in MarketWatch.com. Thanks to new disclosure rules, many 401(k) participants are getting their first glimpse of their plans’ costs, and some may be tempted to dump high-fee funds. But before you run for the exits, reassess whether your asset allocation matches your ideal retirement time and risk tolerance, and then compare costs. Say, for instance, you need an emerging growth fund to meet your goals; they often have higher expenses. “It’s important to understand the fees you are paying,” said financial planner Sean Deviney, but they “should not be the sole determining factor when selecting your investments.”