July 18, 2012 (PLANSPONSOR.com) - Financial education has been proven to improve retirement plan participants' knowledge and awareness about saving for retirement.
A financial management course changed the retirement savings behavior of Army members, Harvard University John F. Kennedy School of Government Professor Brigitte C. Madrian said during a State Street Global Advisors (SSgA) media event detailing SSgA's Defined Contribution Investor Survey (see "DC Participants Want to Save More, Need Education and Help").
Before the course, participants had an 11% participation rate in the Federal Thrift Savings Plans during year one and 17% in year two. After the course, participants had a 27% participation rate in year one and 47% in year two.
Participants’ monthly contributions also increased following education. Before the course, participants set aside $15 in year one and $22 in year two. After the course, participants set aside $32 in year one and $56 in year two.
When teaching participants, Madrian said plan sponsors should use rule-of-thumb-based education. An example lesson could be on the appropriate amount of money to set aside for retirement. Using the rule-of-thumb approach, Madrian suggests that plan sponsors tell participants what percentage of their income they should save for retirement (she used 10% of income as an example).
Madrian said employers should offer classes during paid work hours to encourage employees to attend them.