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Evaluation White Paper

Working Adults

In the last 20 years there has been an increase in workers’ responsibility over their financial security and financial well-being. With the shift from the defined benefit (DB) to the defined contribution (DC) pension system, workers have to decide when and how much to save and invest for retirement. The financial system also has become increasingly complex and important decisions, such as whether or not to purchase a home, when and how much to borrow, and how to finance children’s life pursuits, can be difficult to make and have a long-lasting impact on workers’ financial situation. Further, changes in the labor markets have brought more flexibility, meaning that many individuals are faced with careers that provide less security and more uncertainty. In today’s rapidly changing economic and financial markets, financial decisions are increasingly complex and an understanding of basic financial concepts is becoming an increasing priority, and workers (and other working age adults) are prime candidates for financial education programs.

4A. Key Programs and Resources

One key venue for financial education for adults is the workplace. This setting is a natural fit, as it allows educators to reach a large audience and at the same time benefit from economies of scale. Workplace financial education can take many forms and cover a variety of topics including retirement planning, budgeting, saving, investing, credit and debt management, health insurance, and personal wellness.

Employers often choose to provide such information through three main formats. The first are short, one-time seminars aimed at providing information about employer-specific policies relating to retirement savings or health insurance provisions. These seminars are often provided at the time the employee is hired, when there is a company-wide policy change, or at a significant life moment for the employee (e.g., promotion, salary increase, etc.). A second format of education is extended financial education programs. These programs may last up to a week and could be paid for by the employer by sacrificing time from the employee’s normal duties. A third format is online financial education. In this case, employers often choose an online platform where workers can access a variety of resources and learn as much in depth as they like. This allows individuals to customize the education to areas that important to them.

Avoiding a one-size-fits-all strategy for financial education is especially important. While a standard course in understanding interest rates and risk diversification is a first step, in order to succeed, individuals must be offered a diverse set of financial education tools that apply to their diverse needs. For example, policies that work for high income or more educated working populations may not be equally effective for low income and less educated populations. Also, programs can have heterogeneous impacts by gender (Lusardi & Mitchell, 2008). The financial education contents and instructional methods must be carefully tailored to the audience of working adults for it to be effective in increasing financial understanding or attitudes.

Government agencies such as the Social Security Administration, nongovernmental organizations such as the National Endowment for Financial Education (NEFE) and the Financial Industry Regulatory Authority (FINRA), and private businesses such as Bankrate and Fidelity have all developed planning, budgeting, saving, and investing calculators and tools that can all be helpful instruments and resources for working age individuals looking to increase their financial knowledge or help manage their finances, and tools for financial educators. The Consumer Financial Protection Bureau has published a report (Financial Wellness at Work) that describes several promising case studies of workplace financial education programs (CFPB, 2014). One example of an innovative program is the initiative launched by the Doorway2Dreams (D2D) Foundation, which developed an online game to teach employees basic financial concepts. This foundation also developed other online financial education games that are free to the public on a website they developed, and can be a great resource for working age individuals who are looking to learn on their own. Finally, a key resource for employers looking to evaluate their own programs is the Woodstock Institute, which has developed a guide and survey example of how to evaluate the effectiveness of a financial education program (Jacob, 2002).

4B. Major Topics and Literature Review

Most discussions of workplace financial education target retirement savings. While one-size-fits-all policies such as auto-enrollment in employer-sponsored 401(k) programs has been highlighted as one potential mechanism to increase retirement savings, employees’ specific financial needs cannot be universally translated into policy prescriptions. Instead, financial education should allow individuals to make more informed decisions based on their current financial condition and plans.

A number of research and evaluation studies over the years have found generally positive effects for financial education on retirement participation and saving. Bernheim and Garrett (2003) found that individuals working at firms that offer financial education are more likely to participate in retirement plans, accumulate more retirement savings, and, on average, increase savings rates. There was no relationship, however, between the offer of financial education and wealth. Bayer, Bernheim, and Scholz (2008) showed that when firms offer more workplace seminars, retirement plan participation and retirement savings increased in the firm. These seminars ranged from financial education seminars for all employees to those directed at employees over 50, and again for those near retirement age.

Lusardi, Keller, and Keller (2008) studied the effect of additional employer-provided information programs on employee pension enrollment. To do so, the authors tested the effectiveness of an employer provided financial planning aid at a distinguished university. The authors tested the effect among employees who received the planning aid compared to a control group of new employees who attended employee orientation and received just the standard information packet. Using surveys, focus groups, and in-depth interviews, the authors evaluated the program and found that additional financial information provided by employers can greatly enhance employees’ enrollment in supplementary pensions.

Clark, Morrill, and Maki (2011) examined the impact of employer-provided financial education for newly hired workers on contributions to voluntary retirement savings plans. To evaluate the effectiveness of the program the authors randomly split workers into three groups, including a control group, and two other groups who each received different versions of the flyer, and then assessed the 401(k) enrollment rates for each group. They found that younger workers receiving the program information were significantly more likely to enroll in the 401(k) plan, while older workers actually had lower initiation rates relative to their control group, demonstrating that programs can have heterogeneous impacts on different groups and evaluations must take this into account.

More recently, Collins and Urban (2016) used a field study approach to determine the effect of online financial education on retirement savings. The online education was given to credit union employees in Wisconsin during work hours and consisted of ten units, taking employees an average of nine hours to complete. Employees offered the online education improved their financial knowledge compared to the control group. The employees receiving the online education also increased their retirement plan participation and the monthly amount of their retirement savings.

4C. Evaluation Practices, Strengths and Limitations

Evaluations aimed at understanding the effects of workplace financial education on financial knowledge and financial decision-making comes in three types. The first type is field studies. These studies randomize financial education in the workplace, allowing some groups to obtain the education first and the others at a later date. Randomizing financial education allows evaluators to compare a treatment group to a control group after the education is complete to see how treated adults’ knowledge, savings, and retirement plan participation changed as a result of the intervention. While we learn that the intervention changed behavior in a systematic way in one particular setting, it is not certain that a similar intervention would affect behavior in the same way for a different population, as studies have shown that one program can have heterogeneous impacts for different demographics.

A second strand of literature uses cross-sectional data to compare individuals who work in companies that offer financial education to similar individuals who are not offered financial education in their workplace. The samples are larger and more nationally representative than in field studies. Employees, however, may select into firms that offer better financial education, which makes it difficult to determine if individuals save more because of the education, or if they were more likely to save to begin with.

A third literature strand compares firms to themselves in times that they offered less or more workplace seminars. This allows evaluators to remove some of the selection of financially literate employees to firms that offer financial education. However, it could be that individuals choose to enter a firm at a time they are most focused on financial literacy training. These studies tend to be nationally representative in general.

4D. Public Communication

With greater talk about opt-out policies focused on increasing retirement savings, it is important to recognize the variety of employees’ financial decisions. These policies can change behavior for all individuals, while financial education can allow employees to better target their own financial goals and needs. Moreover, independent retirement planning can be costly. Workplace financial education can reduce these costs for employees, allowing them to be more productive in other areas. As such, financial education programs for the workers benefit all parties involved.

Beyond retirement, workplace financial education can focus more closely on the employee’s health insurance decisions, which correlate with both worker productivity and worker finances. Further, for low income individuals, providing employees with emergency savings options in the event of a financial shock will continue to be an important area in the future.