Financial Knowledge Returns

Encouraging education for group members is the cure to their financial ills – or is it?

Financial Knowledge Returns

The 2022 CPBI Atlantic Regional Conference session was on ‘Retirement Planning: Now or Later?’ The presenters – Michelle Loder, vice-president, DC consulting, at LifeWorks; and Mark-Antoine Morin, assistant vice-president and chief product owner, at Manulife, focused on the financial stress ‒ and potential mental health problems as a result – caused by the current economic unrest which is prompting rising demand from plan members for financial wellness benefits. In other words, employees want help, supposedly, with managing their finances.

The question (comment?) from the member of the audience was why aren’t we teaching personal financial management in the schools. Their child could choose from options like yoga, but not how to manage their money. As an aside, with rising financial stress, wouldn’t yoga help relieve that stress? Just a thought.

This financial management education in the schools isn’t new. It used to crop up back at the turn of century during the debate over plan member education with defined contribution plans.

Member Education

Expert after expert at events like this one would pontificate about how member education was the key to better retirement outcomes. I didn’t agree then; I don’t agree now. Ask any accountant. They will admit that most of the people in their organization get a glazed look when you start talking budgets and numbers.

And sure enough, within a few years, the debate switched and the industry moved to target-date funds. These offered the professionally managed benefits of defined benefit plans without the member having to do anything.

Well, maybe the solution is moving away from employer sponsored ‘retirement’ saving to employer sponsored ‘savings’ plans. It seems like a good idea. It’s a better idea if offered in conjunction with an employer sponsored retirement saving plan.

However, consider tax-free savings accounts and registered retirement pension plans. One is a savings plan that you can tap into at any time. The other is a retirement savings plan that you can use ‒ barring unforeseen circumstances ‒ only when you retire.

If we remove the obligation to save for retirement, what outcome can we expect? In a perfect world, every employee would share all their financial information with their employer who would allocate funds for retirement, paying off the mortgage, savings for kids’ college, groceries (only healthy stuff so we are healthy and physically well).

Float that idea and see how many employees would buy into it. And if they did, they’d just find new things to stress over at the expense of their mental health.

Inadequate Plan

Instead of getting rid of retirement savings, we need to encourage more employers to offer plans. Even an inadequate plan is better than nothing and most plan sponsors really have no idea what their members are doing with the personal saving pillar for retirement.

If we go back to the great DC discussion over financial knowledge and education, is it fair to say maybe these employees don’t necessarily want to learn how to manage their finances – they want it done for them, just like with their DC plans?

Do we really expect (or want) employers to go down that road?