Three ways financial advisors can educate retirement plan participants

Three ways financial advisors can educate retirement plan participants


In today’s retirement landscape, financial education is a hot topic—and for good reason. Financial education is necessary to foster responsible fiscal decisions, healthy savings habits, and overall retirement readiness among today’s consumers. And as a financial advisor, you understand this more than anyone. Yet, despite its crucial importance, American workers seem reluctant to approach the intimidating topic of financial literacy.

Just how bad are the financial literacy rates among today’s workforce? We’ve seen the stats, and they don’t look good. For starters, almost a third of Millennials don’t know how their credit score is determined. Fewer than one in five adults feel very confident that they’re saving enough for retirement, and eight in ten agree that they could benefit from advice and answers to everyday financial questions from a professional [1]. So, if the need for financial education from a professional is clear, what can financial advisors do to solve the literacy gap?

Teaching financial literacy to clients

With so many of today’s workers feeling like they are behind in retirement saving, financial advisors and retirement plan sponsors alike can help ease some of participants’ anxiety. Providing education on saving for retirement is a major key in helping today’s workers reach financial independence and retirement readiness, but it’s often easier said than done. Today’s employees are constantly reminded of the importance of socking away money for the future—yet many haven’t changed their saving behaviors. So what gives? How can we cut through the clutter and have our message actually set in? These three tactics may help.

· Don’t assume they know everything

While it may seem like second nature to financial professionals to know how a checking account works, how debt can be avoided, and how credit scores are calculated, many members of today’s workforce don’t have the knowledge base that’s needed to make responsible daily financial decisions. When meeting with a new client or plan participant for the first time, evaluate where their financial literacy efforts currently stand. Do they have debt? If so, what are they doing to pay off that debt? Do they know how to budget? Are they already saving for retirement? Analyzing their current understanding of everyday financial decisions will give you a starting point to work from.

· Appeal to clients’ emotions

When teaching financial literacy, it’s important to do more than rattle off anxiety-inducing retirement statistics, specifically designed to scare participants into saving for their future. Changing the conversation is important—or participants may never fully listen to your message. We have to convince workers that it’s imperative to their long-term wellness to begin saving for their future, and one of the best ways to do that is to play to their emotions and find out what’s really important to them. For young people, priorities often include having time to focus on passions and achieving a lifestyle that allows them to feel secure and comfortable [2].

Following this train of thought, reminding young clients that debt from student loans or credit cards will realistically limit their ability to enjoy their passions in the future is likely a more powerful message than mindlessly reciting the benefits of budgeting. Additionally, if they don’t begin saving for retirement at an early age, the lifestyle security that they crave may not become a reality when they reach their golden years.

· Preach the benefits of advancing financial literacy rates

As a financial professional, you’re already aware of the vast benefits of financial literacy. Like the fact that “financial literacy is positively and significantly associated with total net wealth and each of its components” [3]. Or that people with high levels of financial literacy are more likely to plan for retirement than those with low financial literacy, and those who plan for retirement have, on average, more than double the wealth of those who don’t [4].

Many workers aren’t aware of just how beneficial it is to increase financial literacy efforts, so explaining the benefits clearly and concisely may open up a client’s eyes as to why they actually need to care and adjust their financial behaviors.

Financial illiteracy is widespread, so holding a single educational session likely won’t yield long-lasting, successful results. The cure needs to fit the disease, right? With such an extensive problem, financial professionals, retirement plan sponsors, and retirement plan administrators alike must unite to enhance financial literacy rates and convince today’s workers to make financially responsible decisions today to benefit them tomorrow. It won’t be easy, but advancing financially literacy among clients and retirement plan participants is the first step to a financially independent future and overall retirement readiness. And we think the trouble is worth it, don’t you?