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You can rely on the old man's money?

Don't you know that money can't grow unless you've saved and invested. But if you're like most Americans, you're financially unprepared for the future. Unless you're a rich girl, your money won't get you too far.

It seems that every week we're hit with another set of statistics showing the dismal state of financial preparedness in the U.S.

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  • Earlier this year, insurance industry research group LIMRA reported that nearly half of Americans are not contributing to retirement plans.
  • A 2010 study from LIMRA found that American families are unprepared for the death of a primary provider. The study found that only 44 percent of households have individual life insurance, a 50-year low.
  • Americans are forgoing other forms of insurance as well. A 2011 study by the Insurance Research Council (IRC) finds that one in seven drivers is uninsured.
  • Only 45 percent of renters have renters insurance, according to a recent Allstate study.
  • In California, a state that lies on a major fault line and has suffered billions of dollars in damages from earthquakes, less than 12 percent of households have purchased earthquake insurance.

While Americans seem to be getting worse at preparing for their financial futures, experts say that the ongoing recession is partly to blame.

So far gone

personal finance studies"I think we're seeing many people responding to the urgent before the important," says Eleanor Blayney, a certified financial planner and consumer advocate for the nonprofit Certified Financial Planner Board of Standards. "We've had a tough economy, and when it comes down to things like preparing for the future versus getting the bills paid today, many people are having to opt to do the things that need to be done now."

The impact of the economy can be seen in year-to-year records of insurance rates. The IRC notes that the percentage of uninsured motorists had fallen four straight years before jumping up to 14.3 percent in 2008. The organization says that uninsured rates tend to rise and fall with the unemployment rate.

Many workers contribute to a retirement plan and get health insurance coverage through their employers. As the unemployment rate has risen, workers who have lost their jobs aren't always focused on maintaining their insurance and retirement contributions.

"The precipitous drop [in insurance coverage] from 2004 to 2010 was affected by the economy, but also attributed to more people relying on group coverage," says Catherine Theroux, a spokesperson for LIMRA. "A lot of people may have been relying solely on employer-sponsored benefits, and the likelihood of someone buying an insurance policy right after they lost their job is not that great."

We've also shifted away from defined-benefit pension plans to defined-contribution plans, like 401(k)s, that make workers responsible for their own retirement savings. Some people haven't adjusted their saving habits accordingly.

You know it don't matter anyway

"When you look at the savings rate in the '80s, it doesn't seem that much higher, but the reality is that you had defined-benefit plans back then," points out Dave Evans, senior vice president at the Independent Insurance Agents & Brokers of America. Employers with defined-benefit plans provide a fixed pension to retired employees, rather than leaving it up to workers to contribute to a retirement account.

The present decline in insurance coverage and retirement savings isn't surprising. But that doesn't mean it's advisable.

In the 2010 LIMRA survey that looked at life insurance ownership, four in 10 households with at least one child under 18 admitted that they would have immediate trouble paying the bills if the primary caregiver died -- a fact that hammers home the risks that Americans are taking by declining to buy protection from life insurance companies. And there's little doubt that low savings rates among Americans are a disaster waiting to happen, especially considering that longer life expectancies mean there are more retirement years to save for.

"People do not plan to live 20 or more years in retirement, but that's more than likely to happen," says Theroux.

Perhaps lack of financial planning stems from overconfidence. A recent USA TODAY/Gallup Poll found that Americans are increasingly optimistic that things are about to get better for themselves and the country.

High and dry, out of the rain

So what are the options for someone with a limited budget who wants to plan for the future?

One possibility is term life insurance, which typically has much lower premiums than permanent life insurance and can manage your risk for a set period of time. Insure.com's basics of term life insurance offers an explanation of term life products.

"Term life is as affordable as ever and the cost is coming down, but there doesn't seem to be an uptick in sales," says Evans.

He notes that ownership of permanent life insurance has increased in the last couple years. That may be due to the fact that such policies tend to have a cash value component that lets them double as retirement funds, allowing people on a tight budget to kill two birds with one stone. And it also lets skittish investors avoid market exposure.

"It's more a reflection of a flight to safety," says Evans. "People that have been scared by the volatility of the stock market look to it as something more secure."

Insure.com's basics of permanent life insurance provides an overview of policy choices.

Money won't get you too far

If you can't save for retirement dollars now, you're probably going to have to find a way to make it up on the back end when you hit retirement age.

"Certainly, extending work longer makes a lot of sense because we are living longer and healthier," says Blayney. "That is a pretty robust strategy for those who can do it, and people not in that position have to be thinking of part-time work."

Or rely on the old man's money and wait for an inheritance.

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