Due to uncertainty surrounding the solvency of Social Security and the decreasing number of workers covered by traditional pension plans, effective retirement financial planning has never been more important to employers and employees alike.
Most financial experts agree that the effectiveness of a financial plan is greatly influenced by how financially literate a person is. Being financially literate means having the understanding, knowledge, and skills necessary to make informed and effective financial decisions.
Employers can help improve the financial literacy of their employees by offering financial education programs in the workplace. For employer-focused guidance, see The Importance of Retirement Financial Planning and Employee Benefits.
A financial education program can cover a wide range of topics, such as general information about current economic conditions, financial market basics, the fundamentals of investing, and in-depth information about the company retirement plan.
This educational information can be offered using various formats, including interactive online programs or email correspondence, in-service or enrollment meetings, newsletters, worksheets or paycheck inserts, and seminars.
Just by looking at a few potential financial education areas and presentation options, it is clear that employers can spend a lot or a little on a program. The cost will depend on the extent of the program, but any program will have some cost associated with it.
What research has been done on the subject? Trends suggest higher voluntary retirement plan participation (such as 401(k) plans) and higher contribution rates among employees when their employer provides access to financial education.
One recent study by TIAA-CREF researchers focused on attendees of TIAA-CREF financial education seminars. Those in attendance were surveyed before the seminar, immediately after, and again three months later.
The study suggested people are likely to re-evaluate lifetime consumption, work, savings, and retirement goals after completing a financial education program. For related insights, see The Importance of Financial Planning for Retirement.
Immediately following the seminars, 91% of attendees said they expected to make some change to their retirement planning. Twenty percent expected to raise their goals for retirement income, and 7% expected to raise their planned retirement age.
The anticipated contribution increase among attendees was 15% on average. Of those surveyed without a current supplemental retirement plan, 41% said they planned to open one, and 29% said they would either increase IRA contributions or open an IRA.
The three-month follow-up survey revealed that expected intentions do not always become actions. Of those who expected to open a new retirement account, only 25% actually did so.
Some respondents reported financial constraints prevented them from following through, while about one-third said they simply did not take the necessary steps to complete the expected changes.
To reduce the gap between intention and action, the study suggested employers make it easier for workers to complete their goals by providing necessary paperwork at seminars, sending time-friendly reminders about increasing contributions, and offering enrollment assistance.
Financial education — or a lack of it — extends beyond money and can cause stress that affects workplace performance. Studies suggest financial stress and mismanagement correlate with absenteeism, higher use of health care resources, more accidents, lower morale, and reduced worker commitment.
For more on the intersection of retirement planning and health-care considerations, see Importance of Retirement Financial Planning and Health Insurance Awareness.
In closing, financially secure employees tend to be less stressed, more productive, and better prepared for their financial future, so the positive results of a financial education program often extend well beyond boosting plan participation.
Frequently Asked Questions
What topics are most helpful in a workplace financial education program?
Programs that cover budgeting, basic investing, retirement plan features, and the mechanics of saving tend to deliver the most immediate benefits.
How can employers encourage employees to act on what they learn?
Employers can provide enrollment paperwork at seminars, send timely reminders, and offer brief one-on-one assistance to reduce barriers to action.
Does financial education actually increase retirement savings?
Research shows education often raises intentions to save and can increase contributions, though follow-through depends on removing practical barriers.
What should an employee do after attending a financial education session?
Review current savings and contribution levels, set specific goals, and complete any enrollment or change forms while the intention is fresh.