A Case For Education

Effective Education Builds Trust And Increases Engagement With Retirement Savings

People ask me all the time if I feel retirement education even “works”. The question usually starts with, “Why bother? Why not just go robotic on all plan participant decision points?” My response to this question is always, “without a doubt, education, when done correctly, works!”

I have been an educator all of my adult life. And I have seen, first hand, that retirement education can alter behaviors such as enrolling in a plan that had been passed up, adopting SMaRT, not cashing out, and virtually all other choices around financial decision making.

But this is only half of the story about education. Education has the power to build trust, and trust is the key to engagement. Which means, we have to get education right, or we are never going to see significant improvements in financial and savings behavior. Unfortunately, the retirement industry in general, has not been getting it right for years. We have a lot of data that highlights the undeniable fact that — employers, employees, and advisors are not happy with the current state of participant education and communications programs.

Education is the foundation upon which trust is established. From a participant perspective, here is how it works. Education and communications build the necessary trust that encourages people to take trust-dependent actions like increasing deferral rates, and adopting new products. In fact, education messages from a trusted source result in a higher level of engagement or action. And right now, trust in financial institutions is at an all time low (11%). Building trust should be a key goal of any communications or education program.

We know through media richness theory that the clearer, simpler, and more an educational message is, the greater the perceived trustworthiness of the educator will be. In a recent NARPP study of 5,000 participants, we found that perceived quality of education substantially drives up trust levels.

The study also identifies the factors that are trust-building with participants. Including:

  • Demonstrably cares about the long-term financial security of the participant
  • Presents the information in a way that appears to be in the participant’s best interest
  • Is effective in helping the participant succeed in meeting his/her savings goals
  • Makes the participant want to interact frequently with the provider
  • Speaks in a way that feels more like financial education and less like product advertising or sales
  • Cares more about people than profits

Interestingly, similar factors emerged when determining the key drivers of participants’ satisfaction with the education experience itself:

  • The information is presented to me is always in my best interest
  • The information helps me understand the basics of investing
  • Fee information is presented in a way that is easy to understand
  • Is effective in helping me meet my savings goals
  • Instills confident that I will have enough money to retire at the age I plan to
  • Makes me confident that I can make the right investment choices without professional help
  • Cares about my long-term financial security
  • Makes me want to connect with my provider by calling or visiting their website
  • Helps to assure me about having enough money for retirement
  • Always feels like financial education and not like product advertising or sales

It is fascinating to note that the factors that drive employers’ satisfaction with participant education are quite parallel with the participants’ key drivers.

  • Helps employees to envision a more financially secure future
  • Materials reflect an empathy for employees and their needs
  • Enhances employee understanding of the value and benefits of the savings plan
  • Captures participants’ attention and engages them with the plan
  • Materials do not use confusing bar charts and industry jargon
  • The information highlights the consequences of optimal and sub-optimal decisions

What can we draw from all this? Primarily, an education experience that is long on information and short on emotional factors is not seen as being trustworthy or satisfying. Or more simply put: disengaging.

In a world where financial instruments have become increasingly complex, we see that people are falling behind in every area of sound financial decision-making. Individuals and families are in the position of having to make sophisticated, and sometimes irreversible, economic decisions.

So the question people should be asking me, is “how do we increase trust with participants”? Once trust has been established, the education will start to “work”.