New research from the Center for Retirement Research (CRR) at Boston College indicates that employers may want to ensure their communication strategies take into account the mindset of younger workers, for whom retirement is a vague and distant event. Materials appealing to their abstract way of thinking may be more effective in persuading them to begin saving or to save more, but they may also respond to more concrete guidance if a savings milestone is presented as a short-term goal, such as how much to save each pay period.
The results of CRR’s study showed that the saving intentions of younger workers (ages 18-34) were heavily influenced by the interaction of the communication frame (abstract vs. concrete) with the time frame of the savings goal (long-term vs. short-term). Among the two ads with abstract framing, young employees were more responsive to the one that proposed the long-term savings goal. This ad was associated with both a higher intended likelihood of saving and a higher intended saving rate.
However, younger employees also responded strongly to the concrete ad that proposed a short-term savings goal—a biweekly deduction.
Those who saw the abstract ad with the long-term goal (lifetime savings) reported they intended to save, on average, 17.8% of their salary, well above the 9.5% saving rate for the mismatched abstract, short-term ad.
The ad pairing concrete framing and a short-term goal (a bi-weekly paycheck deduction) was associated with a 20.4% saving rate, compared with just 14.1% for the concrete, long-term ad.
It should be noted that older workers’ (ages 50 to 64) intentions were not significantly influenced by the type of framing or goals presented to them.
For its study, CRR presented one of four ads to four groups of participants. The headline for the two abstract ads said, “Why you should save more now to ensure you are on the right path to retirement. The two concrete ads said, “How you can save more to ensure you are on the right path to retirement.”
Abstract or concrete wording was also embedded in descriptions of what participants could do to save. The two abstract ads gave vague, non-urgent directions: “If you haven’t done so already, you may want to consider setting up a retirement account. … You should consistently contribute an amount of money that you can afford. … ”
In contrast, the two concrete ads advised participants to take four specific steps:
- Set up your 401(k) or IRA through your employer or financial adviser.
- Aim to contribute 15% of your paycheck or consistently contribute what you can and slowly increase the amount if possible.
- Invest in a single balanced fund that automatically adjusts the level of risk as you age.
- Review your account each year to ensure it is meeting your objectives.
The ads also presented each participant with either a short- or a long-term savings goal.
The complete report can be downloaded from http://crr.bc.edu/briefs/how-can-employers-encourage-young-workers-to-save-for-retirement.