The numbers are in and it seems clear defined contribution plan participants need a better base of financial literacy and knowledge.
But how best to educate them?
Spectrem’s new defined contribution study Educating Defined Contribution Participants displays a lack of financial and investment knowledge among the average defined contribution plan participant. They even admit it: 52 percent of plan participants claim to be not at all knowledgeable or not very knowledgeable about investing and financial matters.
They certainly would benefit from knowing more than they do. Not only would they better understand their DC plan investing strategies and how to profit from that investment plan, they would likely make better decisions about their personal finances outside of the defined contribution plan.
After identifying that the problem exists, the next step is to determine how best to approach a solution. The plan participants who took part in the Spectrem study responded to questions about how they would want to receive the education they need to make better financial and investment choices.
Asked directly what they consider to be the best methods for personal education regarding financial information, 46 percent said they would prefer to do personal study on their own. The problem with that answer is that if they were interested in a better education and wanted to do it on their own, they would have already done it. That is justified by the fact that 52 percent of Baby Boomers and World War II investors say they want to educate themselves. What are they waiting for?
The next most popular answer was to get an education in a one-on-one session with their financial advisor (45 percent). That would likely come from a program installed by the advisor’s firm, but the advisor could provide some educational materials or suggest online classes.
One problem with educating investors is that investors might be embarrassed by their lackof knowledge and not want to prove just how much they don’t know about investing and personal finances. To get over that hump, advisors can easily ask investors if they want or need a better base on knowledge in order to make better choices and have a better understanding of their conversations with advisors.
That might explain the difference between male and female participants and their desire to educate themselves. Only 39 percent of females suggested they could create their own lesson plan, while 50 percent of men said they want to educate themselves.
And what topic do plan participants most want greater education on? Thirty-five percent said they need a better understanding of retirement planning, and 31 percent said they need more information on estate planning. The only other topic to be selected by at least one-quarter of respondents was tax planning information, which participants can get from either their advisor or their accountant.
Top Takeaways for Advisors
Nobody likes to be considered unintelligent, and that includes defined contribution plan participants. The research shows they are interested in educating themselves rather than admit to someone that they need a better educational background on matters of finance and investing. But advisors can provide educational material and suggestions of websites, blogs and webinars that can provide education to those investors who want to be educated.
©2018 Spectrem Group