Financial literacy awareness programs are topics we address with regularity. Whether people realize it or not, strong financial literacy awareness programs are at the heart of the success of every 401k, 403b, and financial wellness effort. And rightly so. Many Americans are confused about managing their day-to-day finances because they simply fail to comprehend the industry jargon. Even more confusing is the confounding nomenclature that befuddles the plan participant of a retirement savings plan. Efforts to save for retirement can be thwarted when plan participants do not have access to financial literacy awareness programs. Many workers know they should be setting aside enough funds to sustain their lifestyle in their post-work years, and that they are ultimately responsible for much of their financial security in retirement, however, they may have absolutely no idea where to start. The lack of a financial literacy awareness program may be an even bigger obstacle to retirement security than we realize, and if employers are able to help employees obtain the knowledge they need to make informed financial decisions, we could empower them to be more fiscally fit today and tomorrow.
We know that financial literacy awareness programs have a major impact on people’s wealth. Obviously, the more they understand the basics of topics such as saving, investing, mortgage, credit cards, and debt, the better they can manage their way to financial security. However, we have some work to do to help boost financial literacy awareness programs in companies. A Gallup poll from 2014, cited in a recent articlefrom the credit repair firm Lexington Law, found that only one in three adults is “financially literate.” Not much has changed since then as evidenced by a CNBC article published in September 2017. The research presented in the article found that 94% of Americans failed a financial quiz that asked basic questions about money. Clearly, there’s a real need to help Americans to beef-up their financial literacy awareness programs on the fundamentals of finance.
One interesting finding from that Gallup poll is that Millennials know more about finance than we give them credit. Behind those age 65+ (who rank at 63%), Millennials (rank at 61%) as the second-highest percentage of respondents to correctly identify U.S. Treasury Bonds as the safest investment. That said, Gallup discovered 75% of Americans do not understand how bonds work. In addition, nearly half of Americans do not comprehend how financial markets work, or that bull markets are characterized by optimism.
Those of us entrenched in the financial services space (this author included) take for granted that not everyone has the command of financial terms when it comes to money and investments. That’s okay, however, it is even better than we know it! Knowing it just means we may need to slow down and re-allocate resources – time, money and energy – into education and financial literacy awareness programs. It can be helpful to point employees toward tools and worksheets that are universally available online. As an example: loan calculators, investment websites, financial management, expense tracking apps, and credit repair assistance. Of course, if your organization is among the 23% that currently offers one of the many financial literacy awareness programs currently available, you are leading the pack. Such financial literacy awareness programs can make a difference when it comes to improving your employees’ ability to stay on top of their day-to-day finances, learn to prepare a budget that works for their household, and yes, free up or reallocate funds so they can see they are able to “afford” to save for retirement. (Another way to look at this is to help employers realize they can’t afford not to). That also can alleviate some of their employees’ financial stress, making for happier, healthier and more productive employees who are focused on their responsibilities at work and not the shortages in their bank accounts.
And if your retirement plan has a financial advisor partner, encourage your employees to take advantage of the availability of that financial advisor by accessing them as a true employee benefit. In addition, proposed policy changes currently under discussion in Congress, if they come to fruition, may also provide a golden opportunity for America’s workers to improve their retirement readiness.
All that said, financial literacy awareness programs are great, but there does exist an all-important accountability factor. You can bang-the-drum of opportunity and corresponding success into employees’ heads, but if they aren’t held responsible for achieving the goals they set for themselves, many may fail to succeed. Thus, that group defaults into what behavioral finance experts refer to as “inertia.” That is, without accountability, many people will simply not act on their goals, and they will not make any progress in improving their financial situation. So, it can be helpful to have employees track their own progress, either manually or online, and periodically check in with the retirement plan financial advisor who can hold them accountable for reaching their goals. It may also possibly be helpful to “gamify” the process by fostering friendly competition among your workforce while incentivizing them to improve their finances. All these efforts should be augmented by the existence of strong financial literacy awareness programs which can eliminate fiscal confusion and hopefully enable your employees to achieve greater financial security in retirement.