Does Financial Education Really Work?
Question: Does financial education really work? We have heard conflicting messages about it but are considering a financial education program, primarily to boost retirement plan participation.
Answer: We believe that financial education is one way to boost retirement plan participation by showing employees how to find more money to save for retirement. Financial education can also help improve the way employees allocate their retirement plan accounts, which can bring people closer to achieving their dream of retirement. Of the clients we have worked with, over 90% of employees said they would change their asset allocation after attending financial education workshops on retirement. Many employees had been defaulting into the money market or stable asset account, and were not clear on the benefits of diversification and the need to grow their retirement money over time.
Other goals that can be achieved through financial education may be less tangible but are still important to an employee's overall financial health. Financial education can inspire employees to take action and to make positive changes in their behavior. In addition, you can also expect positive anecdotal results and testimonials from employees who have used financial education to solve their financial problems and take action.
In our experience, we have seen increases in deferral rates by 3-5% over the course of a year. Through financial education, employees can better understand the need to save for retirement. Your plan provider may already be doing some education around saving for retirement, and your financial education provider can work closely with them to help employees understand how much they should be saving in order to reach their retirement goals.
Financial education can also help employees find more money to save for retirement by providing support and tools to help them create a budget. Employees can also better understand how saving more for retirement can mean that they pay less in taxes, which may mean that they can save even more for retirement.
We have also seen increases in plan participation in the 15-20% range. Financial education can heighten awareness about the retirement plan and if employees are motivated by the education, they are more likely to join the plan. In our experience, having enrollment forms available during retirement planning workshops definitely increases participation in the plan.
Employees do seem to appreciate the financial education benefits provided to them, especially if they are able to take immediate action to improve their financial future as a result.
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About Financial Finesse: Financial Finesse is a full-service unbiased financial education company that works with Plan Sponsors and Plan Advisors to design company and plan-specific financial education programs that address the gamut of plan participant and business needs. Our award winning financial content is delivered in multiple formats: live, online, telephone, and through financial planning kits. If you are interested in learning more about workplace financial education programs, contact one of our education consultants at AskFF@financialfinesse.com.
The Ask Financial Finesse Q&A service is designed to provide general information on trends and developments in workplace financial education programs and participant education strategies. Due to the complex nature of financial benefits and/or workplace financial issues, the information contained in this document is not to be construed as advice. If you have questions about your specific situation, you, may want to contact a financial education consultant. Due to volume, Financial Finesse will be unable to answer all submitted questions.
