Why American Workers Aren’t Preparing for Their Financial Futures

401k, financial wellness, education, enrollment, retirement

How do we address behavior to reduce stress?

In 2015, HSBC Bank released a document entitled A Balancing Act. They had begun collecting data a decade earlier from a global pool of over 140,000 people about the future of retirement.

Their findings showed that Americans were some of the most ill-prepared people when it came to retirement savings. The reasons for the HSBC poll participants lack of adequate retirement preparation were twofold.

First, workers do not begin developing and initiating savings plans early enough in life, which equates to them needing to set aside more as they age.

Second, younger generations are accumulating much more debt today, which is consuming more funds that would normally be available for saving. Fully 76 percent of those in the workforce admitted that major life events have significantly impacted their savings efforts. Such events included unemployment, major illness, divorce, or the purchase of a home.

In a society of instant gratification, it’s challenging to both comprehend and apply long-term financial strategies for acquiring adequate and comfortable retirement savings.

If workers feel overwhelmed with their present financial problems and are being offered solutions to their immediate financial needs, then they tend to postpone any attempts at saving for the future in lieu of surviving their current financial conditions.

Building a satisfactory retirement nest egg takes time, consistency, and patience, which are areas that seem to be stumbling blocks for the majority of American workers. The failure at prompting Americans to save for retirement is not due to insufficiency in providing effective tools, but an inadequacy in making people aware of the underlying reasons for poor savings habits.

The “go and save” approach must be altered to better educate employees on how to change saving habits effectively.

Current methods to encourage higher participation rates are not effectively connecting with the majority of employees. This especially applies to workers who are 35 years old and younger (Millennial generation), which is the lowest group to participate in 401k and other retirement savings vehicles (41 percent), compared to workers aged 45 years and older (71 percent). (1)

What’s needed is a connection with employees at the point where they are now by talking about solutions for current financial problems. The focus should shift to identifying causes for not saving sufficiently, and then implement effective strategies to correct those faults.

If we provide them the tools to boost their financial literacy and make better informed financial decisions along the journey, then immediate stress is alleviated. This allows them to better understand how to save more for the future by utilizing available vehicles as well as to provide more income flow to place within them.

The conversation needs to move away from a focus on savings calculators and future goals, and towards financial wellness methods that solve current employee personal financial problems. This is an important part of the formula that provides them with a means for tactical execution of immediate issues, allowing for them to achieve greater degrees of success. This type of “here and now” approach is particularly useful for the younger workforce, which tends to be more focused on current problems and issues, instead of simply telling them how to plan for some distant, faraway retirement.

Simply providing 401k savings programs to employees does not encourage them to participate, and it certainly doesn’t help to solve immediate personal financial problems. In the majority of cases, the root of the problem of low participation rates stems from poor financial literacy.

If financial education programs are not offered, financial literacy remains low, and stress continues, resulting in prolonged problems with focus and productivity at work.

By making this full circle connection with employees, they will see the small steps they can take now to give them the resources needed to participate in retirement plans and preparing for their future.  We have to provide them with the tools to make these changes, rather than just providing them with the plan options without educating them.

  1. Montgomery, Nicole, Szykman, Lisa, Agnew, Julie (2012). How Can Employers Encourage Young Workers to Save for Retirement?
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