Financial education is not for everyone. That's the best way to sum up the reaction of plan sponsor groups and record keepers to a proposal aimed at tackling the issue of financial illiteracy among retirement plan participants.
"I always liked the idea of people knowing more about finances, but the question is how do you get them to do that?" said Diann Howland, vice president for legislative affairs at the American Benefits Council in Washington.
The proposal — written by researchers at the University of Pennsylvania Law School and George Washington University and posted on the SSRN academic website in May — recommends employers sponsoring retirement plans be required to offer financial education to their employees. In it, the authors urge the Department of Labor to play a central role by mandating workplace financial education programs and issuing a set of minimum program requirements.
The proposal is not intended to be just another "academic exercise," said co-author Annamaria Lusardi, the endowed chair of economics and accountancy at George Washington University School of Business and founder and academic director of the school's Global Financial Literacy Center in Washington.
"We want to make sure that it is indeed translated in practice," she said.
The 54-page paper outlines the challenges facing individuals it identifies as workplace-only investors, those whose only experience with investing is through their employer-provided retirement plans. Using data from the 2015 National Financial Capability Study, the authors found workplace-only investors have strikingly low levels of financial literacy, much lower than investors with experience making investment decisions outside of their retirement plans. Only 26%, for example, knew about basic bond pricing compared with 41% of active investors, the study said.
The researchers also found the percentage of workplace-only investors is not insignificant. Of the 8,784 investors surveyed, 28% were workplace-only.
"The level of financial literacy today is too low to confront all of the complex financial decisions that we all face, and in finance, ignorance is not bliss," Ms. Lusardi said.