When it comes to financial education, nothing works like one-on-one counseling at the office during work hours, according to a new analysis from The Principal Financial Group. Employees exposed to this kind of program become more engaged in their financial affairs and save more, among other positive outcomes.
Among employees who attended a one-on-one session in 2011, 92% agreed to take certain positive steps and 80% followed through with those steps, according to The Principal. The most common steps were to increase savings now and agree to automatic increases in the future.
Meanwhile, payroll deferral rates were 9% higher among those who attended a one-on-one session; 19% of those who attended chose to automatically increase their retirement plan contribution with pay increases, compared to only 2% of those who did not get one-on-one counseling.
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Research in the area of adult workplace education is relatively sparse and the results have been conflicting. The Cleveland Fed found that workplace programs have little impact. Yet others have found that employer education efforts can make a big difference in retirement planning, especially among lower income workers. Financial literacy expert Annamaria Lusardi writes in her blog:
“Estimated effects are sizable, particularly for the least wealthy, for whom attending seminars appears to increase financial wealth (a measure of retirement savings that excludes housing and business equity) by approximately 18%.”
Even without conclusive data, employers are starting to see workplace financial counseling as an important benefit. The International Foundation of Employee Benefit Plans found that 43% of U.S. companies offer financial education at work. This is not an act of altruism. According to Financial Education and Literacy Advisers, which designs workplace programs:
“American workers spend an average of 28 hours a month researching personal financial issues. This lost productivity across an organization can be translated into real dollars—as much as $5,000 per employee per year. The collective loss across an organization can quickly have a significant negative impact on the financial performance of the company.”
So workplace financial education seems to be a win-win. The Principal found that the higher deferral rate of those who had one-on-one counseling, along with their commitment to keep boosting savings, could translate into an additional $242,000 at retirement for a typical worker. That, in turn, would provide an extra $905 a month in retirement income.
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“We know from face-to-face educational meetings that retirement savers benefit from hearing a person explain how the retirement plan works rather than having to shuffle through documents,” says Barrie Christman, vice president, individual investor services at The Principal. “Take it a step further, with personalized one-on-one meetings on company time, and significantly higher numbers of participants are taking actions that can help get them to the 11% to 15% contribution range that we believe is needed.”
Workplace programs are one of four battlegrounds where the war on financial illiteracy is being waged. The others are schools, community outreach and at the point of sale. These other battlegrounds face daunting obstacles, not least of which is heavy government involvement. So financial education advocates have high hopes that companies, acting on their own and out of self-interest, will fill in some gaps.