The methods used for presenting 401(k) retirement savings options are not producing the desired results. Therefore, a change in how participant employees are educated on saving money is the logical solution. We need to not only address the behavior of retiring for the future, but also the way in which many handle their finances today.
Investment and savings vehicles need to be continually maintained, monitored and fueled in order to make the journey trouble-free and rewarding. If ignored, breakdowns can occur, making both the journey and the destination a miserable experience.
“People who fail to plan for retirement have half the wealth of people who do,” says Dr. Olivia S. Mitchell of the Pension Research Council.
According to a 2012 SSgA Participation Survey, only 9 percent of respondents reported being extremely knowledgeable about financial matters, with 3 percent saying they had no knowledge at all and 16 percent having slight knowledge. Only 39 percent said they had a fair knowledge of their financial affairs, while another 33 percent of participants replied that they only possessed some knowledge.1
Financial education can help raise these percentages significantly by increasing worker education concerning financial matters, helping them gain financial relief in their personal lives, and free up extra money that can be invested into savings vehicles for future use.
The breakdowns are not necessarily the vehicles that are faltering, but a lack of knowledge and understanding in the people using them.
“Companies put ‘the cart before the horse’ in emphasizing employee investment education,” adds Mark Nadler, an economist and professor at Ashland University. “What employees first need to do is to straighten out their personal financial mess.”
Traditionally, enrollment training for 401(k) savings plans has been presented along a line of one-way communication that fails to address important everyday financial issues in the lives of those they’re training. These issues are at the heart of savings failures and cause the various stress factors in production. Not only are everyday financial stress issues affecting work performance today, but they are also preventing employees from effectively increasing their overall savings, which includes retirement funding.
Changes need to occur in traditional 401(k) education programs so that conversations are generated that better target the root causes of the problem. As we provide the necessary financial tools, immediate problems are addressed and solved here and now. While the important connection between the employees’ present life situation and their retirement future is more clearly established, and finances are freed to invest in available savings programs.
Mark Singer CFP® is a leader in the world of financial education. Mark is the author of three books, a frequent speaker at events, and is the creator of The Financial Literacy Toolbox, a virtual resource center to help financial advisors, wellness providers, or institutional retirement services firms change the conversation about financial wellness. To receive a free copy of Mark’s newest book “The New Financial Wellness: Changing the Conversation” please contact him at mark@financialliteracytoolbox.com.
1SSgA Participant Survey (2012). Available from www.ssga.com/home.html.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
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