Education Builds Trust & Engagement with Retirement Savings

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

I have seen, first hand, that retirement planning education can alter behaviors such as enrolling in a retirement savings 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 retirement savings behavior. Unfortunately, the retirement planning 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 across large and small business retirement plans 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 payroll deduction IRA and 401k 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 retirement plan 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 retirement savings goals
  • Makes the participant want to interact frequently with the provider
  • Speaks in a way that feels more like financial advice and less like product advertising or sales
  • Cares more about people than profits

Interestingly, similar factors emerged when determining the key drivers of large and small business 401k and individual retirement account participants’ satisfaction with the educational experience itself:

  • The information is presented to me is always in my best interest
  • The information helps me understand the basics of investing in retirement funds
  • Fee information is presented in a way that is easy to understand
  • Is effective in helping me meet my retirement savings goals
  • Instills confidence that I will have enough money to retire at the age I plan to
  • Makes me confident that I can make the right investment decisions 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 savings
  • Always feels like holistic financial support and not like product advertising or sales

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

  • Helps employees to envision a more financially secure future
  • Materials reflect empathy for employees and their needs
  • Enhances employee understanding of the value and benefits of the retirement savings plan
  • Captures participants’ attention and engages them with the retirement 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 educational 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 personal finance 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”.