Financial advisors say lack of financial literacy across demographics is key factor
The Government Accountability Office (GAO) has released the results of its study into the disparities in the distribution of retirement account balances, revealing a wider gap in retirement savings between low-income and high-income employees.
In the GAO’s separate analysis of data from the University of Michigan’s 2018 Health and Retirement Study, income, job-related factors, and race were “strongly related to disparities in older workers’ retirement account balances.”
Households with higher income, longer job tenure and a college education tended to have larger balances while any change for the other income groups was not statistically significant. Those with a higher balance are mostly White households, exhibiting balances about double the median balance as households of all other races.
Kezia Charles, senior director at WTW, told Plansponsor that employees tend to look to their employers to guide them in making decisions and planning for retirement.
“As employers think of different ways of decision making, one tactic that has been used is employee resource groups or affinity groups to help with financial literacy and financial awareness,” said Charles.
Charles said retirement plan sponsors often partner with a financial planner or a resource person from HR to lead sessions on financial literacy. Another tactic WTW has seen is including families in the financial education offerings.
“We acknowledge and understand that raising [financial] awareness is one approach, but it’s not the only thing organizations are doing,” said Charles.
“You have to look at design, you have to look at participation and look at metrics to understand who’s participating and who’s not participating. Black and Hispanic people generally have less access to retirement plans, and they also participate less even when they have access. So you have to look at ways to increase participation.”
Vidhi Sanders, vice president and head of participant outcomes at Capital Group, noted there is a severe lack of financial literacy across all demographics when it comes to making smart financial decisions and saving for retirement.
Capital Group announced the launch of the ICanRetire program in March 2022 in response to this social issue. Sanders said the program has since grown to more than 400,000 from the time it started with 30,000 participants enrolled.
The program uses five personas that represent different age groups, participation rates, and other psychographic factors. Capital Group plans to announce in September and October new enhancements that would be beneficial to Hispanic participants as they lag significantly behind others in retirement savings. The new enhancements would include adding three new personas.