Jul 18, 2012 --- Financial education improves plan participants’ knowledge and awareness about saving for retirement. ---
A financial management course
changed the retirement savings behavior of Army members, Harvard University
John F. Kennedy School of Government Professor Brigitte C. Madrian said during
a State Street Global Advisors (SSgA) media event detailing SSgA's Defined
Contribution Investor Survey. (See “DC
Participants Want to Save More, Need Education and Help.”)
Before the course, participants had
an 11% participation rate in the Federal Thrift Savings Plans during year
one and 17% in year two. After the course, participants had a 27%
participation rate in year one and 47% in year two.
Participants’ monthly contributions
also increased following education. Before the course, participants set aside
$15 in year one and $22 in year two. After the course, participants set aside
$32 in year one and $56 in year two.
When teaching participants, Madrian
said plan sponsors should use rule-of-thumb-based education. An example lesson
could be on the appropriate amount of money to set aside for retirement. Using
the rule-of-thumb approach, Madrian suggests that plan sponsors tell
participants what percentage of their income they should save for retirement
(she used 10% of income as an example).
Madrian said employers should offer
classes during paid work hours to encourage employees to attend them.