Employers Can Assist with Financial Literacy

The thought of planning for retirement strikes fear in the hearts of many people. They worry about not saving enough and are often baffled by available financial options. Procrastination only adds to the pressure over time. “As you approach retirement, you face a series of choices about how to handle your finances, many of which are irreversible,” says Dr. Robert Clark, professor of economics and professor of management, innovation, and entrepreneurship in the College of Management (COM). He says employers can help set people on the road to a sound retirement financially with a little basic education.

Working with Dr. Melinda Morrill, a research assistant professor of economics, and Dr. Steve Allen, COM’s associate dean for graduate programs and research, Clark has studied financial literacy programs offered by several major corporations that target employees age 50 or older. Companies like Raleigh-based utility Progress Energy and timber giant Weyerhaeuser offer such classes, Clark says, because they feel the added information will make workers value the benefits more. “The best place for adults to learn financial literacy is in the workplace,” he says.

Retirement planning has become more critical in recent years with the switch to 401(k) plans and the past year’s stock market chaos. A few generations ago, when many large employers offered pension plans, workers received a set monthly benefit after retirement. The advent of 401(k) plans in the 1980s means that employees are now primarily responsible for funding their own retirement accounts. Clark notes that, although the plans offer more flexibility, they also pose more financial risk to employees because they can fluctuate wildly with the stock market. Poor decisions by a worker today could mean a poorer retirement tomorrow.

“As you approach retirement, you face a series of choices about how to handle your finances, many of which are irreversible.”

The company-sponsored classes the NC State researchers studied range from lunch-hour seminars to three-day, off-site programs that cover financial knowledge, retirement funds, Social Security, and Medicare. They tested workers before and after they attended their company’s program to assess their knowledge, and Morrill says workers were answering more questions correctly after the seminars. “It’s difficult to say how much knowledge about personal finance is enough,” she says, “but certainly, having more information available is better.”

Clark says workers seem to take advantage of that extra information. Surveys of workers after the programs found that many were shifting their expected retirement dates to delay tapping into savings or reallocating retirement funds so they could be used differently. “Older workers with incorrect or limited information make poor choices,” he says. “These programs help them make informed decisions, and they are acting upon them.”

 

Drs. Robert Clark and Melinda Morrill say employees often take beneficial action after attending company-sponsored workshops on financial literacy and retirement planning.