When discussing the Fed, leave the dinner party discussion of federal regulation, Adam Smith and Alexander Hamilton out of it. Instead focus on the Fed’s three basic charges: to maximize employment, to stabilize prices, and to moderate inflation. Each of those three things impacts aspects of your employees’ budgets.
Open the financial section of any newspaper (or your YouTube Feed) and it’s bound to mention something about the Federal Reserve (“the Fed”). Headlines might catch your eye on recent changes in Fed leadership or new actions they’ve taken. While everyone may seem like they are singing the same sad tune, there could be one key group left out of the chorus: your Employees. They may be asking how these changes impact them, and more specifically, their retirement investing. If they aren’t asking, they may want to start. Here are a few considerations for Plan Sponsors in how they might orchestrate a discussion on the Fed with employees.
It's not that fascinating, but it is important. A great newspaper editor once said that good writers make important information seem fascinating. There’s a wide amount of space between the two concepts. The Fed’s financial decisions impact everyday American’s financial decisions, especially when it comes to how they invest. The best way to answer questions about the Fed is to focus on those aspects of the Fed’s work that impact employees.[1] If you stick to the basics, and not introduce the theory behind a lot of the discussions, employees may feel more empowered about investing. Empowerment in investing is one of the keys to ensuring employees enroll in retirement savings plans, like 401(k)s and 403(b)s. The goal of filtering out the fascinating, and increasing employee empowerment, is to keep those employees investing in their retirement.
Stick to the basics. How the Fed works, who leads it and how those individuals are appointed is a fascinating subject for analysts and financial scholars alike. An entire opera could be written about the drama and side actions involved with the Fed. And that’s the issue: much of the discussion about the Fed is fascinating but not necessarily important. Instead, when discussing the Fed, leave the dinner party discussion of federal regulation, Adam Smith and Alexander Hamilton out of it. Instead focus on the Fed’s three basic charges: to maximize employment, to stabilize prices, and to moderate inflation.[2] Each of those three things impacts aspects of your employees’ budgets. By focusing on those basics, your employees can tune into the parts of the discussion on the Fed that impacts them and tune out the other parts that don’t, like setting price trajectory curves.
Include the Impact on Investing. Recent news articles discussing the Fed seem to play only one note: the discordant sad elephant trumpet of inflation. And while inflation has a massive potential impact on employees’ budgets, especially when it comes to finding income to put towards saving for retirement, that isn’t the only thing to hear. The Fed’s interest rate modulation to impact inflation influences two important rate setters: stock traders and mortgage lenders. Those two groups have the highest impact on your employee’s retirement investing. Employees need to know how stock traders base their trading decisions on prices for assets they are willing to buy based on the Fed’s actions (or predicted actions). Specifically, they need to know how that in turn impacts how much (or how little) employees may be able to gain in their investing. Similarly, employees need to understand how those who set rates on loans (mortgage lenders or auto lenders, for example) look to the Fed’s actions for how low (or high) they will set their rates. Those rates then impact the fixed costs employees must cover each month, and in turn, how much (or how little) they have to set aside for savings and investing.
Leave Room for the Quiet Ones. Silence about the Fed, both before or importantly after, an education session on how the Fed works doesn’t necessarily mean that employees aren’t interested. Just as John Cages’ four minutes and thirty seconds of silence was less about the players and more about the environment.[3] Plan Sponsors may want to leave room for lingering questions that take longer to formulate than a workshop or Zoom session may allow. Leaving room for silence may include making a list of resources, like articles, webinars and other self-paced education options, available online for your employees.
[1] https://usafacts.org/articles/the-federal-reserve-explained
[2] We realize that this is a simplification of the Fed’s role, but the goal is to simplify for enhanced understanding for employees. https://www.cambridge-credit.org/federal-reserve.html
[3] https://en.wikipedia.org/wiki/4%E2%80%B233%E2%80%B3
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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