Why Financial Education Doesn’t Work—Part 5: Considerations For Decision-Makers

There’s no question that employers are taking a more active role in helping employees in their journey to financial well-being. It’s the right thing to do, and it makes good business sense. As more vendors introduce financial wellness offerings into the benefits marketplace, employers and decision-makers need to evaluate these products and services carefully, especially in regard to financial education. In choosing a financial wellness solution to include as part of an employee benefits package, decision-makers should keep the following considerations in mind:

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If financial education is a component, what does that look like and what will work for my organization? We’ve learned that one-size-fits-all approaches to financial education don’t work. Any education component of a solution should be personalized to meet the employee’s current situation and self-determined goals, and allow those goals to change and evolve over the course of a lifetime. A just-in-time approach based on the employee’s goals, financial situation, or life events is a plus. Education should also include information regarding the company’s available employee benefits, because some employees will be unaware of or will not have taken full advantage of them.

Is live access to human coaches or advisors included? Some so-called financial wellness plans offer little more than a breezy listicle and an online calculator. Make sure that access to a financial coach or fiduciary-level advisor, by phone, chat, email, or in-person, is part of the solution. Fiduciary advisors are required to put the best interests of clients first, not just offer ‘suitable’ advice, which can involve selling expensive financial products. The personal connection can aid employees in creating an action plan to meet their self-directed goals and also provides a degree of social accountability.

What problems does the solution address for the employee? Does the solution offer an easy way for the employee to create their own financial goals, track their spending, create a spending and/or saving plan, or pay down debt, in order to monitor their progress towards meeting those goals? Debt is especially important to track because it’s one of the main reasons employees take out ill-advised loans against their 401(k)s. Linking directly to and aggregating financial accounts so that tracking can occur automatically in real time and employees can see all their assets and liabilities in one place can reduce barriers to action, bridging the Intention/Action Gap.

Does the solution offer any accountability? Having some type of reminder or personal accountability feature that can be enabled or disabled as desired is helpful for keeping goals and action steps in the forefront of employees’ minds. If the employee can choose the mode of delivery, via text, email, or a call from the coach/advisor, that’s even better for increasing the likelihood that the employee will respond positively to the reminder.

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Does the solution offer employees a way to estimate how much income they will have in retirement? Some financial companies do offer general online calculators that can give a rough estimate of how much someone will need to save and invest to reach a putative goal. But these numbers are very abstract to most people who are not financial professionals. A relatable solution will provide a personalized estimate of an employee’s monthly or yearly income in retirement—making the abstract concrete and helping to overcome the cognitive bias of discounting the future.

Summary

Most employees are simply not adequately prepared to make the major financial decisions that will affect their lives and those of their families. Based on this necessity, financial wellness is rapidly becoming a standard part of a complete benefits package, one that provides peace of mind for employees and boosts the employer’s bottom line. While financial education in the workplace seems like a good idea, research has demonstrated that its effectiveness is almost nonexistent when it comes to actually changing financial behaviors and improving outcomes. Interventions that do appear to work consider common cognitive biases, provide accountability, and work collaboratively to engage and encourage employees’ intrinsic motivation to change. Personal financial coaching appears to be one of the more effective approaches for influencing behavioral change and promoting positive financial outcomes, especially for those with low to moderate incomes, and is a component employers should look for in a well-designed financial wellness solution. According to Richard Cordray, the former director of the CFPB: “Forward-looking employers are already playing an important role in shaping a better future for their employees and our country.”

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