Consider Generational Needs for Employee Financial Education

“Between the technological divide, the way the change in the retirement benefit landscape will impact different generations—Baby Boomers have years in the work force when benefits were richer, while younger generations have a do-it-yourself landscape—and a difference in attitudes, it is more important for employers to target different generations than use a one-size-fits-all approach to education,” Liz Davidson, CEO and founder of Financial Finesse based in El Segundo, California, tells PLANSPONSOR.

Millennials (younger than 30)

Financial Finesse’s 2013 Generational Research study found Millennials are still stronger than their older Generation X counterparts in day-to-day money management, but they are struggling with debt and have yet to prioritize saving and investing for their retirement, despite a variety of challenges they will face. Their top three vulnerabilities, according to the study are not saving enough for retirement (64%), not having enough savings to cover emergencies (52%) and serious debt (34%).

In addition, Millennials are the least prepared among the generations when it comes to investing behavior. Thirty-three percent are not clear on investing basics, 63% have not taken a risk tolerance assessment, and 71% do not rebalance their investment accounts. However, Millennials are on track to become the most educated generation in American history. The way they prefer to receive that education is different.

According to Davidson, making things really engaging and fun is important. For example, she notes Financial Finesse uses Money Madness, a Jeopardy-style game, where groups compete against each other and plan sponsors give awards to the group with the highest score at end of year. “It is learning through gamification, learning in a way that appeals to Millennials’ desire for interaction,” she says. She adds that education for Millennials is very different from traditional communications about what benefits the company offers, to what the employee can do to prepare for retirement.

Generation X (age 30 to 44)

According to Financial Finesse’s research, Generation X was hit hardest by the Great Recession but has been improving in all areas of financial wellness. Financial improvements are the likely result of increased awareness and a “fierce self-reliance,” the research report says.

Despite these improvements, Gen Xers were the least likely to have a handle on their cash flow. And, of all generations, Gen Xers are the least likely to report they are on track to meet their retirement goals, at just 17%.

The research found the top three vulnerabilities of Gen X are not saving enough for retirement (59%), not having enough savings to cover emergencies (55%) and living beyond their means (40%).

Davidson notes that while Millennials tend to be very quick to galvanize around a cause, Gen X is more cynical, try to determine whether education is unbiased and independent, and free from conflicts of interest. Employer should really emphasize that they are offering unbiased education and information. Once Gen X is convinced of this, they are a show-don’t-tell generation; it takes more time and interaction to get them to buy into things. They need someone they trust to work with them on an ongoing basis, she says.

Late Baby Boomers (age 45 to 54)

Financial Finesse’s 2013 Generational Research report suggests Late Baby Boomers’ retirement savings could be jeopardized by growing college bills and long-term care costs. Late Boomers are the most likely to contribute to a college savings account (32%), but this could draw resources away from retirement savings. Inadequate wealth protection is a top vulnerability but a low priority for this generation. Enhancements to plan design may help Late Boomers that have not run a retirement projection and run the risk of not saving enough for retirement.

Late Baby Boomers are less likely than Early Baby Boomers to have long-term care insurance (11% vs. 14% in third quarter 2013) or an umbrella liability policy (24% vs. 28% in third quarter 2013). Inadequate wealth protection is a top vulnerability (36%). Long-term care insurance is especially important to purchase while they’re relatively young and healthy, since deteriorating health can make a policy unaffordable or a person uninsurable.

With stronger money management skills, higher incomes, and fewer minor children than Generation X, Late Boomers are in a good position to save more for retirement, but with only 42% having run a retirement projection, many run the risk of not saving enough.

According to Davidson, Late Boomers do not have the level of competing priorities that Generation X has, so they need to be looking more at insurance planning, and protecting the wealth they’ve built. They are more likely to have investable assets than younger generations, so can move from general education to retirement planning help, and working on how to reduce threats to savings, such as making sure they don’t compromise retirement for college expenses. The research report says they respond best to in-person education that addresses solutions for closing the gap between what they have and what they will need for a successful retirement.

Early Baby Boomers (age 55 to 64)

Early Baby Boomers are generally in the best financial shape, but a lack of emergency savings appeared as a top vulnerability this year, according to Financial Finesse’s research. Despite having the highest average wellness score of any generation, one-third of Early Baby Boomers still do not have an emergency fund. Retirement planning is a top priority, but more than half have not run a retirement projection.

Running a retirement projection is important for everyone, but most urgent for this generation, Davidson says. She says Financial Finesse finds that when members of this generation run projections, most are on track or able to make minor tweaks, but nearly half are in more serious trouble where they will need to make major changes to their retirement savings and planning behavior. “If you never run a projection, how will you know how to distribute assets?” she queries. “You may not retire with enough or may spend too fast.” In addition, she notes some may choose to work longer because they are uncertain whether they’ve saved enough, even if they don’t want to work. If an employee is not engaged, it is not good for employers.

Davidson says it is important for this generation to work at least annually with an adviser/coach one-on-one on a personalized financial plan.

With technology, employers now have the ability to really target communications and offer more personalized support, Davidson concludes. She says targeting by generation is a good way, but employers may also target by income levels, different regions/locations, or any number of characteristics, to help employees create the right plan. “Employees’ challenges create employers’ opportunities to relay different messages,” she says.

The Financial Finesse 2013 Generational Research report is here.