Financial literacy awareness and wage stagnation are contributing factors in how much an employee can save for their retirement years. There is no denying the current retirement plan policy proposals on the table for regulators and legislators, are good for American workers. The executive branch and lawmakers are looking for ways to make workplace retirement plans more accessible to greater numbers of workers. This is particularly relevant in the small business segment, as the changes would make it easier and more affordable for smaller employers to sponsor retirement benefits. If Washington strategy develops as outlined, we could see retirement saving rates improve, which is obviously a good thing for America’s workforce.
These policy changes are positive, and frankly, they’re long overdue. The updates are especially beneficial for workers who are already saving. But like in the film “Field of Dreams”, just because we build it, doesn’t mean employees who are not saving, or those who are not saving enough will come. To put it in plain English, just because workers have access to a workplace retirement plan, doesn’t mean they will choose to use it.
The retirement savings crisis isn’t wholly due to a lack of access to workplace benefits. It’s just one piece of the puzzle. The other, perhaps bigger piece is America’s “money culture.” We can be a spendthrift, penny-wise and pound-foolish society that lives on big dreams and even bigger debts. Not everyone, of course, but certainly the majority. According to Pew Charitable Trust, 80% of Americans have some type of debt, whether that be credit cards, student loans, a mortgage, or a car loan. In fact, 70% of those Pew surveyed said that while they would rather not have it, debt is a necessity in their lives. This is clearly a case where a financial literacy awareness program could begin to make a difference.
Many Americans simply don’t know any better. Money can be a “taboo” topic for a lot of people in this country, so they choose to not discuss it. Most elementary and secondary schools do not have a financial education curriculum. Granted, financial literacy awareness programs are gaining popularity in the workplace, but only 23% of organizations offer them, according to a 2016 statement from the International Foundation of Employee Benefit Plans. Unfortunately, there’s still a big knowledge gap that needs to be filled.
Beyond a lack of financial savvy and the debt-laden lifestyle that often results, maybe we can cite wage stagnation as an additional source of the nation’s financial woes. According to The Wall Street Journal, working-class and middle-class Americans have seen a “sharp drop” in the share of national income going into their paychecks. The headline on the August 2018 article reads: “Wage Stagnation is Everyone’s Problem.” And it’s going to take sweeping policy changes and possibly subsidies to address it long-term.
What’s more, according to an opinion piece in The New York Times penned by Jared Bernstein, an economist and former adviser to Vice President Joe Biden, the workforce’s demands for higher pay have fallen largely on deaf ears. Moreover, wage growth should be rising a percentage point faster than it is currently, Bernstein writes. And while wages have not risen, the price of consumer goods has increased to the tune of about 2.9% for the past year, while wages have grown at a rate of about 2.7% before inflation. We’re also experiencing record low unemployment, which in theory, should force wages upward. However, Bernstein observes, that may not be enough to bring about consistent pay gains.
So sure, there’s a wage crisis in this country, particularly for the working and middle classes. But even with that said, given that employment is at record levels, making it tough for employers to compete for top talent, most workers have the option to fight wage stagnation by switching jobs and improving their salary situation. And/or in addition to bettering their household finances by budgeting and living within their means. In other words, reigning in their day-to-day expenditures, responsibly using debt (i.e., financing home ownership via a mortgage), and paying down existing debt so they can save for the future instead of working to pay for past purchases. These are all topics included in a good financial literacy awareness program.
At the end of the day, policy changes are a positive step in the right direction. These changes help those who are already on board the retirement savings train and those who understand the importance of getting on track to build financial security for their post-work years. As an employer, perhaps these policies, if passed, will allow your organization to offer a competitive retirement plan benefit if it doesn’t currently have one.
But again, that’s only part of the equation. Leading a horse to water does not mean it will drink. Similarly, offering a retirement plan doesn’t mean employees will participate. We need to go a step further and make sure employees understand why it’s important to do so, and why their workplace plan is a great way to save for the future. Perhaps it starts with a proliferation of a strong financial literacy awareness program in the workplace. Imagine, if instead of 23% of employers sponsored financial literacy awareness programs, that number shot up to 50%. What if we could drastically reduce workers’ financial stress and all the challenges that come with it, including lost productivity and missed workdays? That type of financial literacy awareness, combined with the proposed policy changes, could really make an impact on improving retirement savings. And that’s something for employers to think about.