Educating Our Way Out of America’s Undersaving Problem

By John Iekel • May 13, 2016 • 0 Comments
America faces “a huge undersaving problem that will catch up with us,” warned participants at a recent panel discussion of financial literacy and retirement readiness.

The May 6 session at LIMRA’s 2016 Retirement Industry Conference included Angela Dicastri, Director, Retirement Market, at Northwestern Mutual; Stig Nybo, Retirement Industry Strategist and Principal for the Nybo Group; and Donna MacFarland, Founder and President of Symphonic Marketing, LLC.

Dicastri painted a stark picture of the consequences of failure to educate employees. “What’s going to happen when people retire who didn’t save? That’s the vison we need to get into people’s heads. This is the next mortgage crisis.”

More to Do

Nybo said that while he thinks “we’ve made a lot of progress in the context of a voluntary program,” it still is “clear that it’s time to take it to the next level.”

Among the questions raised by session attendees: Why haven’t employers done more?

Dicastri blamed employers’ reluctance to shoulder the cost of starting a program, citing cases in which employees do not want one, or in which employers think employees don’t. Nybo agreed, adding that stagnant wages and increasing co-pays for health services also are important factors. To some employers, he said, “now is not the time to tell employees to increase retirement saving.”

What about automatic features? Nybo suggested auto features have not only financial, but also instructional, value, noting that there is a “perception that there is one pool of money” and that “auto enrollment flies in the face of that.” MacFarland said that once auto features are implemented, “smart design is critical,” such as adding automatic escalation.

One attendee said she perceived a lack of understanding among employees about retirement saving, and asked whether it would be worthwhile to require employees to attend education sessions. While not addressing compulsory meetings, Nybo did say that it takes more effort — and money — to make employees more financially literate.

But would employers be willing to spend more to educate employees? The panel was optimistic. Dicastri called it “a new employee benefit” that she thinks we’ll see more of; MacFarland said she agrees, but to her the question is what form that education takes — in-person or virtual.

Changing Behavior

Increasing financial literacy and retirement saving confronts the reality of societal trends, to Dicastri and Nybo, and the answer is to work with employees where they are right now.

“People change jobs multiple times,” noted Nybo, which he said requires that people make decisions about what to do with retirement funds accumulated in different employers’ plans.

“We’re an immediate gratification society. Saving for 40 years is not the mindset,” said Dicastri. Humans ask, “Why should I care?” she said, suggesting that the missing element is why employees should care now.

What to do? Dicastri suggested that gamification may help, as well as helping employees see what life will be like in retirement and what they will be able to afford under various financial scenarios. The key, she said, is immediacy and providing a reward right away.

Nybo argued that the answer lies much earlier, saying that “baseline knowledge has to start in school.” Dicastri concurred that it is necessary to start financial education at younger ages.

The hard part of educating employees, said Nybo, is if they’ve never been presented with material before. “It’s an ‘everything’ effort,” he said, suggesting that behavioral finance is key.