Financial education is one of those subjects that shouldn’t be as thorny as it apparently is.
After all, most people are interested in money. We all need it to survive, we like a little extra for creature comforts, and some of us are positively motivated by it. Yet no one teaches us how to go about acquiring it, and especially holding on to it.
The trouble is, we live in a society in which half the population doesn’t understand what 50% means. Numbers are abstract and attached to objects people aspire to owning, not used to calculate how those ambitions might be achieved.
Now, I’m not advocating that everyone should be able to calculate compound interest off the top of their head, but we are starting from a low threshold and we need to think about where to go next.
For too long, the industry has tried to ‘educate’ employees about their pensions in order to help them understand their benefits, right? Wrong. In fact, at least as far as defined contribution (DC) schemes are concerned and group personal pensions in particular, The regulator insisted on so much communication documentation that the industry had to go through the motions of educating the workforce.
Then providers and consultants tried desperately to get employers to pay to educate their employees. Of course, this was more about revenue than education, but it was good business if you could get it. However, it didn’t work. For all the money sunk into member communications, the level of engagement was pitiful.
So, why should we worry about it now? Surely, if kids are going to get taught about money in the classroom, all we need do is wait a few years for a more knowledgeable generation to come along. Well, that won’t work, either.
Hoping workers will engage with their retirement savings just because they understand the annual charges is a futile exercise. They still won’t care, because they will want to be profligate, get drunk, go on holiday, maybe buy a house or even pay off debt first. But auto-enrolment means we don’t need to worry about this because most will be in a pension scheme and stay in, right?
No, things have changed. It used to be with defined benefit (DB) schemes that the employee didn’t worry about how things worked. Whereas with DC, as it isnot bearing the investment risk, the employer wouldn’t worry how much it was going to cost. Now, auto-enrolment and the changing regulatory landscape mean employers have an ongoing, and inescapable, duty of care to those enrolled in their schemes.
Not only must schemes pass muster according to regulation, but they must be run properly. Very soon, employers will even know what the regulator thinks an employee should expect from his or her occupational pension, and heaven help them if they don’t monitor their scheme to make sure it at least tracks the bottom end.
So although employers don’t actually need to educate employees about the finer points of their benefits schemes, and there is certainly no longer any will to turn them into their own chief investment officer, basic governance under auto-enrolment requires employees to understand the communications given to them.
As a result, communication may well become a popular optional extra as employers provide their workers with just enough education to understand the basics and perhaps labour the point about just how munificent they are in providing these benefits in the first place.
After all, it pays to advertise and if you don’t blow your own horn, who else will?