There is an illness abiding within the United States that is affecting a significant percentage of both individuals and families, but it doesn’t have anything to do with physical health. In terms of financial savings, Americans are sick and there is the data prove it. The results of a December 2014 poll conducted by Bankrate revealed that a staggering 62% of respondents did not have sufficient savings to cover large, unexpected expenses such as car repairs or emergency visits to the hospital. It stands to reason that if a majority of Americans don’t have enough savings accrued to cover unexpected life events, then they also do not have adequate savings set aside for retirement.
Americans have been declining in their savings efforts over the past several decades, but the financial crisis that occurred in 2007–2008 compounded an already serious problem. The tough economic environment has made it more difficult for working Americans to afford even basic necessities, let alone save for retirement. Although around half of U.S. businesses are spending both money and time in efforts to address retirement savings issues with their employees, only a relative handful of those employees are taking advantage of the tools made available to them. Those who do maintain retirement savings plans often take out loans against them to pay for bills, emergencies, or desired material upgrades that are not as readily affordable.
Improving communications
Another reason for such a poor showing for retirement savings lies in companies missing the mark when it comes to delivering effective communications concerning their 401(k) and other types of retirement savings plans. As much as these companies try to provide good information about how to invest for the future, studies show that employees are not actually hearing the message. We need to address the journey as much as the destination, and that means delivering more effective financial literacy tools to employees.
“Enrollment meetings can be more engaging and effective if employees bring personal documentation like pay stubs, Social Security statements, old statements from their plan, a past or present GAP analysis, anything to have a more meaningful discussion with an adviser,” says Charlie Epstein, The 401k Coach.
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According to the June 2014 SSgA DC Investor Survey, 75% of employees attending retirement savings meetings are not being influenced to participate at acceptable levels. That represents three quarters of the workforce that admit to not being adequately prepared for retirement, which is quite alarming.
What is being missed in the current retirement savings conversation is a connection with the emotional side of employees. They need to not only think about retirement at a future date that can be completely segregated from life today, but they need to also understand today how savings, or the lack thereof, will affect their lives in the future.
“There is a difference between financial literacy and saving money. We have to all remember that financial literacy does not automatically translate into increased contributions. There are people who don’t want to save and there are people who can’t save. There is a huge difference between the two groups. There is a difference in how they think and view their financial realities and how they view retirement,” says Epstein.
If people are expected to increase their contributions and savings they need to be motivated to do so — inspired almost. It is a tough reality and one that will hit sooner rather than later.
Singer, CFP, is the author of three books, a frequent speaker at events, and the creator of The Financial Literacy Toolbox, a virtual resource center to help financial advisers, wellness providers, or institutional retirement services firms change the conversation about financial wellness. To receive a free copy of his newest book, The New Financial Wellness: Changing the Conversation, reach him at mark@financialliteracytoolbox.com.
