Gaming investments has taken on a bad hue in the time of meme stocks, like Game Stock and Bed, Bath, and Beyond. However, many plan participants learn investing and budgeting basics better when they try using a gamification approach. The elements of game playing include accumulating points, competition with others or your past performance, or creating a system of rules.
Most plan sponsors know that many employees are unlikely to arrive at retirement age adequately prepared financially. However, new research shows that over half of all plan participants can’t pass a basic retirement education quiz. “Plan participants often lack a solid understanding of what drives the success of their retirement savings, and increasingly, their unawareness is leaving them unprepared to leave work. Implementing plan participant education is key.”[1] But where to start? Here are a few suggestions of where to begin with a plan participant education program.
Smart Goals: One of the biggest tricks with saving for retirement is that it is often too general and the deadline too far off the horizon line. This leads to plan participants failing to prioritize these goals. Instead, plan participants can learn to set more effective goals by looking to the SMART goal approach. “The SMART in SMART goals stands for Specific, Measurable, Achievable, Relevant, and Time-Bound.”[2] By defining goals in this way, it helps plan participants track goals and identify when milestones are missed so that they can course correct. An example of a SMART retirement goal would include the age of retirement, an amount of income per year available rather than framing a goal as “retire early” or “retire with enough to live comfortably. Additionally, advisors suggest that plan participants think of attainable not as limiting their options, but in terms of actions that can be taken now: “…if you’re finding that your current goals are totally not attainable, ask yourself what can you do now – immediately – to start to steer you closer towards your [plan]?”[3] Participants should also segregate financial goals, so that they understand how saving for one goal – retirement – might interact with saving for another goal – home ownership. So that they can see interactions between the goals, but also don’t get overwhelmed with actions that might not be relevant for retirement goals. Time bound goals are highly important for younger plan participants – they may want to understand how saving lesser amounts early can help them have more flexibility around saving later due to compound interest.
Mad Money: Plan participants may want to consider the emotional hook towards saving. Emergency savings may provide them with a sense of safety, rather than checking off a box on a financial wellness checklist. Perhaps more emotional, plan participants may also want to consider having a mad money account. A mad money account is not the same thing as an emergency fund, instead, it is an account to allow you to opt out of a job or housing situation that is driving you mad. Many experts suggest that unexpected amounts (like bonuses, gifts, or tax returns) can help fund a mad money account. As noted in another article this month, concerning the lack of effective budgeting skills plan participants might have, some plan participants may want to consider creating a backup budget, a stripped-down version of living expenses based on the bare minimum. Things to consider in backup budgets may include knowing which monthly fees can be cancelled without large cancellation fees. This allows plan participants to understand emergency funds, mad money, and other budgeting tips.
Gamification: Gaming investments has taken on a bad hue in the time of meme stocks, like Game Stock and Bed, Bath, and Beyond. However, many plan participants learn investing and budgeting basics better when they try using a gamification approach. The elements of game playing include accumulating points, competition with others or your past performance, or creating a system of rules. Traditionally, gamification is aimed aid taking an existing method of interacting people and amplifying it by giving the gamer more of a sense of control and interaction. In this space, gamification is not based on investment performance, but on investing behavior, such as saving, budgeting, education, or choice making.
Coaching: Recently, we mentioned the growing trend of financial coaching to our advisor audience. There we said: “growing significantly. In 2020, the Urban Institute noted the growth of financial coaching, noting a growth in coaching programs from 40 in 2007 to more than 453 in 2020. Since 2020, that growth has continued. In fact, some companies are now adding financial coaching to their benefits packages for employees.”[4] What are the common elements of coaching? Most coaches agree that coaching is comprised of goal setting, planning, observation, and reflection. The overall goal of any coaching is for the coach to help the client to develop their own resourcefulness towards accomplishing goals.
Social Security Education Issues: Lastly, one of the most important pieces of plan participant education may be to address misconceptions around Social Security. Commonly, plan participants fail to understand how benefits are calculated, how pensions reduce their benefits, and the impact of retiring early on benefits.
[1] https://planpilot.com/why-plan-participant-education-essential
[2] https://www.atlassian.com/blog/productivity/how-to-write-smart-goals
[3] https://calculatemywealth.com/how-to-make-smart-goals-for-your-financial-future
[4] https://www.bcgbenefits.com/blog/financial-coaching
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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