Financial Literacy Key to Retirement Security
Financial literacy is essential to improving retirement readiness and helping employees to prepare. That was the core message of an April 27 webinar on retirement security and the role states and employers play in bringing it about.
In “Retirement Security: States, Financial Literacy and the Workplace,” a webinar held by the Georgetown University Center for Retirement Initiatives, a panel discussed the role of the public and private sectors in providing financial education and tools to help individuals to save and make better financial decisions. The panel members included:
- Lisa Massena, Executive Director of the Oregon Retirement Savings Plan;
- Daniel Garcia-Diaz, Director of the Government Accountability Office’s Financial Markets and Community Investment group; and
- Annamaria Lusardi, Denit Trust Chair of Economics and Academic Director at George Washington University’s Global Financial Literacy Excellence Center.
All three cited studies showing that there is work to do in building fiancial literacy. “Financial literacy is a paticular concern” for the GAO, said Garcia-Diaz, based on its findings in “Financial Literacy: The Role of the Workplace,” a study the GAO released in March 2015. According to Massena, a working group on financial literacy that looked at 75 retirement programs in Oregon found that a mere 9% of respondents said that they had at least some understanding of finances. That’s not very different from the results of national financial capability studies conducted in 2009 and 2012, which Lusardi said showed “very low levels of financial literacy.” Particularly vulnerable, she said, are women and Millennials, whom she said show very limited use of financial advice.
Garcia-Diaz reported that participants in a GAO forum on the role of the employer embraced employers’ involvement. “Employers are particularly well-suited to provide financial education,” was among their remarks, according to Garcia-Diaz, who added that they said employer programs should go beyond retirement plans and benefits, and include education on financial management.
Participants suggested that effective practices employers could pursue include:
- financial health checks; and
- individualized financial coaching.
Furthermore, participants said, employers should consider the needs of underserved populations, and that strategies to accomplish that can include:
- tailor content provided to employees;
- partner with other parties, such as churches and groups.
And don’t forget the importance of demonstrating to corporate executives the return on investment of offering financial wellness programs, they added.
The GAO suggests that employers can help increase employees’ financial literacy by taking the following steps:
- understand who is trying to save;
- challenge employees to save, but also to set realistic objectives;
- make sure programs are up to date;
- make sure programs reach the target population; and
- explore ways to track progress.
Starting early is another way to improve financial literacy, argued Massena and Lusardi. Messena noted that Oregon includes financial literacy in school curricula, but that the Oregon Task Force on Retirement Savings in a study it conducted in 2014 showed “a mixed bag of results” from that effort. Lusardi advocated starting early in schools as well.
The Long View
It is necessary to look beyond saving rates and to address impediments to saving as well, argued Lusardi. “Don’t focus just on retirement savings,” she said, and notes that many individuals have loans and debt to handle, and suggested that providing information on debt management will be helpful.
“You can’t solve a long-term problem with a short-term solution,” said Lusardi.