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The robot revolution, which has automated industries as far apart as automobiles and law, threatens to put more than half of today’s jobs into metal, not human, hands. And if the jobs vanish, so too does the cash needed to plan, save, invest, and thrive during retirement — although, can it really be called retirement if someone doesn’t work beforehand?

Financial advisors interviewed by “The Suit” magazine over the past year repeatedly have raised concerns over two emerging problems facing the financial services industry — automated tools such as robo-advisors, and widespread financial illiteracy. Taken together, these two trends — automation of financial planning tasks, and the inability of consumers to make educated decisions about their financial futures — threaten to leave future retirees, workers, and consumers hard-pressed for money as the income streams they rely on are automated away, and their savings fail to produce results because of poor allocation.

The Robots are Coming

Most discussions of automation evoke ideas of neat, shiny lines of metallic arms assembling cars in some well-lit factory. But, that’s only a part of the story, automated programs can do simple legal document review — a tedious task usually done by new, inexperienced attorneys — and even write straightforward news articles. The rapid pace of automation threatens to push humans farther and farther up into jobs strictly based on critical thinking and human interaction, but will there be enough of those to go around?

Probably not, said Edward D. Hess, professor of business administration and Batten Executive-in-Residence at the University of Virginia Darden School of Business. Hess’s new book, co-written with Katherine Ludwig, “Humility is the New Smart: Rethinking Human Excellence in the Smart Machine Age,” describes a future in which humans relegate jobs based on a finite number of tasks to machines — think call centers, manual labor, and driving — while people work mostly in creative fields or those requiring intense, personalized human interaction.

“The magnitude of predicted job losses globally is huge,” Hess said. “The best research today from Oxford University predicts that there is a high probability of automation of 47 percent of the jobs in the United States; 54 percent in the OECD [Organization for Economic Co-operation and Development countries]; 69 percent in India; and higher in countries in Africa.”

Many techno-optimists think that talk of massive job losses and idle people are overblown, however. Writing in “The Washington Post,” Morgan-Stanley Investment Management chief global strategist Ruchir Sharma said, “After the introduction of supermarket scanners, the number of cashiers grew. Though legal-discovery software appeared to threaten the jobs of paralegals, their ranks increased, too.”

Sharma goes on to point out that working age populations have peaked in several countries such as South Korea, Japan, Germany, and even China, and that the machines may come just in time to save some economies from stagnation or decline.

Looking back at the industrial revolution, some point out that it produced many more jobs than it destroyed. But, is history going to repeat itself? And even if it does, will the average worker benefit?

“… If you study the aftermath of the Industrial Revolution in the [United Kingdom], you will find that it took between 60 and 80 years for that society to adapt and broadly alleviate human misery created by the [it],” Hess told “The Suit” magazine by email. “My best guess is that it is unlikely that history will repeat itself. Technology will call into question our entire economic focus on growth since growth as currently defined relies on consumers buying stuff, and how will consumers globally buy stuff if many are not working?”

The investment management industry already is feeling the effects of automated tools, often called “robo-advisors.” Most advisors interviewed by “The Suit” feel that these tools are not yet ready for primetime and cannot match an experienced financial planner or wealth manager. Some, however, do credit the new tools with removing emotion from investing since emotional responses to the market often are responsible for getting investors in trouble.

Hess describes in his book the essential skills humans will need to compete in a new world run, in large part, by machines. The key to this new paradigm is humility, which he describes as accurate self-appraisal and an acknowledgement that no one person has all of the answers.

In other words, if people want to survive the robot revolution, they’ll need to keep learning until the day they die. 

Financial Literacy and the Future of Work

But learning is something that some of our American youth struggle with now. The age of distraction —with youngsters, teens, and college students glued to their phones and tablets around the clock — is riding the same wave of innovation as automation, and if young people don’t look up, they will probably be left behind.

“As a business owner, universities ask me to put square pegs into round holes daily,” said Joe Eppy, founder of The Eppy Group, a comprehensive wealth management firm based in Fort Lauderdale, Florida. “These kids can’t even tie their shoes and I’m supposed to hire them?”

Eppy recently became a crusader for increased financial literacy and life skills education in schools and universities. While other parts of the education system are struggling to teach everything from English to biology, the lack of financial literacy among youth is going to cripple them no matter what path they pursue, he said.

Eppy told “The Suit” magazine that the lack of financial literacy among young people will eventually become an entire generation of clients and investors with zero ability to understand their own portfolios and financial decisions — which is by design, he added.

“We have financial illiteracy in this country, and it’s because Wall Street, the Wall Street banks, and the federal government are clearly, clearly in business together,” Eppy said, adding that financial literacy was the key to unraveling what he described as unethical practices on Wall Street and poorly designed investment products aimed at consumers who don’t know any better.  
Eppy plans to launch a program in public schools nationwide aimed at addressing financial life skills such as how to choose insurance plans, why a 401(k) might not be a wise decision, and “everything under the sun” involving money, he said. The Eppy plan also calls for educating youth on how cash flow works, something Eppy believes most Americans do not understand.

“Most people allocate 100 percent of every paycheck,” Eppy said. “What that means is that everyone has choices between different allocations only … If I can solve all your problems for $2 of allocation, it has to come from somewhere else – that’s the first flaw of financial planning.”

Americans become stuck in financial plans that are poorly designed or fail to meet their goals because of this allocation and cash flow problem, he added. By impressing on young people the need to manage cash flow as the starting point to their financial future, Eppy hopes that the wealth management industry will see the need to shape up and begin offering more equitable products that, in his view, are less exploitative.

Automatic money

Some hope that automation in the financial services industry might come with a strong upside in that younger investors, particularly millennials, might begin to learn basic financial literacy while glued to their phones. Whether that is too much to hope for remains to be seen given the lack of support for financial literacy programs in our current educational system.

And it’s not just the U.S., other countries face the same struggle.

Around one in four students were unable to make even simple decisions on everyday spending in the 15 countries that took part in the latest Programme for International Student Assessment (PISA) test of financial literacy conducted by the Organization for Economic Co-operation and Development (OECD) (some countries, such as China and Canada, only include certain regions or provinces). Additionally, only one in ten students can understand complex issues such as income tax.

Some 48,000 15-year-olds took part in the test, which evaluated the knowledge and skills of teenagers around money matters and personal finance, such as dealing with bank accounts and debit cards, or understanding interest rates on a loan or mobile payment plan. This is the second time PISA has been used to assess students’ ability to face real-life situations involving financial issues and decisions, an OECD news release stated.

“Young people today face more challenging financial choices and more uncertain economic and job prospects given rapid socioeconomic transformation, digitalization and technological change; however, they often lack the education, training and tools to make informed decisions on matters affecting their financial well-being,” said OECD Secretary-General Angel Gurría, launching the report in Paris with H.M. Queen Máxima of the Netherlands, the UN Secretary‑General’s Special Advocate for Inclusive Finance for Development and Honorary Patron of the G20 Global Partnership for Financial Inclusion. “This makes it even more important that we step up our global efforts to help improve the essential life skill of financial literacy.”

Eppy framed the problem in simpler terms.

“We have to start producing people we can hire,” he said.

Several financial advisors that “The Suit” has interviewed over the past year have described new, automated financial tools as possibly being a means to more effectively reach younger investors. But, if the robots are coming, then whose money will the other robots invest?

“Many, many people won’t work; some will find part-time jobs and some will render the services that are emotion-based,” Hess said. “Some very skilled people will have high-paying jobs.”
What does financial literacy mean, then, in a world where eyes remain firmly stuck to phone screens and labor is reserved primarily for machines?

“Financial literacy … is relevant when you have excess finances to invest,” Hess said. “I am not sure it will take on greater importance because the growth in the number of people who will have excess finances will likely stop, or even decline.”
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