Huh? Workers Want Better Financial Education to go with Their 401(k)s
By Dan Kadlec
December 13, 2016
Financial education by itself can only accomplish so much in the context of retirement saving, a new report from asset manager BlackRock concludes. Timely, simple, actionable messaging is equally important—and is the critical missing piece of most corporate financial wellness plans, researchers found.
Nearly half of retirement-plan participants say the communications they receive about their 401(k) do nothing to help them make decisions, according to the report, written in partnership with the nonprofit National Association of Retirement Plan Participants (NARPP). This may come as a surprise to employers that send out all those disclosure documents, plan updates and supporting materials.
Despite all the paperwork—or perhaps because of it—most employees glaze over at the “dense, overwhelming and confusing” presentation of choices and other material, BlackRock found. This leads to mistrust. Less than half of participants believe the information they receive is always in their best interest. So they may freeze—and, say, miss out on part of the company match. Or they may overreact—and, say, grossly over- or under-weight exposure to an asset class.
The report shines a light on the limits of legal requirements and dutiful disclosure. These materials offer a wealth of information. But this material is a poor substitute for clear guidance that raises a worker’s level of financial literacy and leads to wiser money decisions.
The NARPP tested a different approach, and it helped boost enrollment by 25% in just six months at a state 457 supplemental savings plan. Workers were offered regular, easily digestible advice at key moments. Hallmarks of this guidance:
Keep it simple Clear, direct language and a jargon-free optimistic conversational tone boosts trust, which leads to engagement and better outcomes.
Show you care Employees want to know you understand their struggles and issues and that the advice you offer is always in their best interest. Cover the basics and demonstrate concern for long-term goals.
Offer real guidance Provide a clear, easy path through simple, connected messages. Show participants the path from decision to action to results. You might label the steps 1, 2, 3.
Don’t overwhelm Offer the right information at the right time—don’t flood people with large amounts of information at isolated touch points, such as the enrollment period.
Be concise Use a minimum of text. Include simple graphics. Each communication should have only essential information needed to make a specific decision.
These guidelines may seem obvious. But with employers so focused on limiting their liabilities and costs the obvious approach often gets lost. That’s one reason financial education is so important in the first place—so that individuals don’t have to rely on guidance that can leave them tearing out their hair. Employers can do better. Part of financial education at work is reinforcing good financial behaviors through the right kind of messaging.