The retirement industry has spent millions of dollars and countless hours trying to convince employees that they should contribute more to 401(k) and other retirement plans. While 401(k) plans and educating employees on retirement and investment principles are great opportunities to increase engagement with employees, attempting to increase their knowledge in these areas may not be the help they need.
You see, it is not a knowledge problem that we have, we have a behavior problem. Most individuals know they need to be saving more money, but not just more money for retirement. They need to be spending less and saving more in their everyday lives, yet the average U.S. household has over $15,000 in consumer debt.
We tell employees, for example, to save 10% of their income toward retirement. Inherently they know this to be true, but because of their current circumstances they have not been able to adopt it into their financial lives. Human nature would then look for someone or something else to blame. The blame for problems with finances usually ends up falling at the foot of their employer and their resultant compensation being insufficient. So the well-intentioned messaging around a company’s retirement plan of the importance of saving for retirement, not to mention the time and effort that has gone into creating a competitive, beneficial 401(k) plan has now turned into a message of resentment. “My employer is telling me I need to be putting money away for retirement, but does not pay me enough to do it.” In reality, when people have not been given the tools to properly manage their money, they could have their salaries doubled and still have the same money problems.
What employees need is to be shown the path to financial security and employers stand to be the beneficiaries. Gallup research has shown that delivering a clear path to financial security is three times more effective at creating higher employee engagement than increases in pay alone. So this brings us back to knowledge vs. behavior. To cultivate change, we must first change context then initiate small incremental steps that take employees in the right direction.
- Change the starting point: Do not start with retirement savings. Adopt programs that show employees how to get their money under control using an incremental “baby step” approach that is easily digestible and sustainable because it doesn’t require them to immediately turn their lives upside down. Recognize that retirement savings will be a piece of the program that is implemented over time.
- Recognize that financial wellness programs will have a stigma attached to them: Employees worry that attending financial wellness classes might indicate to others that one is not financially fit. The success of your financial wellness program will be determined by how well it is integrated with your employee training program giving the implied message from management that it is a necessary and valued set of skills.
- Targeting expected results and tracking those results will determine the long-term success of the program: Work with an experienced advisor to set realistic long-term goals and implementation strategies that will create maximum benefit for employees and maximum return for the organization.
Please note that these opinions are our own and do not necessarily reflect those of LPL Financial or Global Retirement Partners.