Continuous Financial Education Improves Retirement Outcomes

Financial wellness programs that follow up with participants or that are offered continuously are the most effective, according to a new report, “Assessing the Impact of Financial Education Programs: A Quantitative Model,” issued by the Pension Research Council at The Wharton School at the University of Pennsylvania.

These strategies “help employees retain knowledge acquired via the program,” according to the report. “In this case, financial education delivered to employees around the age of 40 will optimally enhance savings at retirement close to 10%. By contrast, programs that provide one-time education can generate short-term but few long-term effects.”

The council says that interest in financial wellness programs increased after the Great Recession of 2008. However, to date, the council says, little research has been done on the effectiveness of such programs. Additionally, the council says, “estimating the price of acquiring financial knowledge is difficult, as little is known regarding inputs to the production process.”

However, the council says that people between the ages of 40 and 60 are the most likely to participate in workplace financial wellness programs, since this is when they tend to save the most in their working lives.

“Furthermore, we find that program participation is higher for the better-educated, due to the larger gain in investing in knowledge for these individuals,” the council says. “Conversely, the least educated are less likely to partake of the program offering. The uneducated optimally save less, both as a result of their greater reliance on the social safety net, and their shorter life expectancies.” Additionally, higher-cost financial wellness programs have lower participation rates.

The council found that those who participate in a financial wellness program “have higher earnings, more initial knowledge and more wealth, while nonparticipants are poorer, earn less and have little financial knowledge at baseline. This occurs regardless of the age at which the program is offered.”

The council says it is important to offer financial wellness programs consistently: “After the program expires, we see that those who participate in the program cut back on their investment. Along with the depreciation in financial knowledge, this leads to a dampening of the program’s effect when it is offered. After the initial ramp-up in financial knowledge, the marginal effect on behavior is quite small. The net effect of a one-year program offered at age 30 is quite small, particularly by the time the worker attains age 65. In other words, a one-time financial education program may have little effect, as expected, but the long-term effects of a persistent financial education program can be quite sizable.”