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Our oldest grandchild is off to college this September. Needless to say he is a bit anxious. I gave him some simple advice I learned many years ago in basic training. “Anticipate, be aware and plan ahead.”
In basic training they do their best to break you down, to keep you on edge and then they build you up. The fear of what’s happening next is worse than the reality.
I remember the live fire training when they told us the machine gun was three feet above the highest point on the range. Naturally most of us assumed that meant three feet over our heads as we crawled the course. However, if you were aware, you would have noticed that there was a pole six feet above the deck where the machine guns were, hence the highest point on the range.
Getting caught short, not being aware, not being prepared, not planning or anticipating can create unnecessary stress and perhaps unnecessary work or even financial problems.
I saw this every day working with employees and their employee benefits especially when it came to heath and retirement programs. Many employees simply ignored all of our communications, never read their benefit books, didn’t attend meetings, didn’t pay attention to deadlines – and they suffered the consequences.
Here is what all too often happened:
I could go on forever with my examples, but the point is that very often people create their own problems and financial difficulties simply by not paying attention especially when information is readily available even though a bit of effort is required.
Definitely preaching to the choir if you’re talking to most people perusing this site.
However I do think it is unfair to blame the victims for not making the most of information that is available. The personal finance industry is complex and somewhat opaque and people are swamped with all sorts of documentation which is provided because of regulatory requirement and CYA reasons without being remotely intelligible to the lay reader.
An example – I looked at the 30+ page annual reports generated by my parent’s investment manager while handling my father’s estate. While I could flip to the annual performance and extract the fees info easily (and have a sharp intake of breath at the excessive fees for non-performance) my mother really had zero clue and while my father conscientiously saved everything I know he wouldn’t have really understood everything (or had the stamina to read 30+ pages) while I could recognise so much as useless boilerplate and caveating most of which was to protect the investment manager from being sued rather than being of utility to the customer.
I also think employers fail to pick up sufficiently on the education piece. At least for the regular joe. My own employer has switched and swapped providers for its DC pension schemes multiple times (for its own convenience) with the process usually being an upfront communication something will the happening, then it failing to happen at the indicated date then finally a communication with a decision to be made based on insufficient detail (or insufficient time to find and engage a financial advisor) with an unfairly tight timeframe. Almost always any literature provided fails to address important technical questions and then the helpline is staffed by generic HR call centres rather than pension specialists.
If they spent a fraction of the effort they spent on people surveys and celebration of our worldwide diversity etc on pension/PF education for the staff it would be enormously beneficial IMO.
The real crux of the issue and maybe worthy of an article in itself is that there are maybe a dozen (+/-) generic personal finance strategies that are applicable to an individual which get narrowed by circumstances, age etc. To get concrete advice usually involves paying a financial adviser but most people could get a solid grounding through a generic education or walkthrough of case studies around these core models. It’s pointless single adults being sold life insurance for instance but might be absolutely No 1 priority for young families after food and lodging. An employer that invested in education on this (or indeed a charity or union or whatever) could do a lot of good.*
*I should say that I suspect for a good many employers it is not strictly in their interests to have employees too financially empowered. They might stop slavishly chasing those payrises or considering earlier retirement if the mystique is lifted, or even just put their own financial wellbeing ahead of dealing with those emails out of hours.
I think you are reading too much into this.
I am talking about a minimal effort by the individual to learn and be aware of things in their best interest, not the employers or governments for that matter.
Certainly there are documents, insurance policies proxies, etc, that few people, including me, are going to read, but the key info, the warnings are usually displayed and summarized in simpler form.
We can rationalize and make all sorts of excuses, but in the end, it is the individual and their family that gets hurt. If individuals are not responsible, how can anyone else be?
When I was working, the several union were as frustrated as I was because they worked to get the benefits and many of their members paid little attention or even lost out.
Are we to the point that we actually need HOT printed on a coffee cup?
I can understand your frustration given the efforts you would be making and no doubt the repeated and easily avoidable mistakes people made, probably most often through inertia.
We’re all prone to a certain amount of this. I only today got round to rolling over a deposit bond that had matured last week because I needed some time and space to research candidates, log in to multiple accounts etc etc.
For someone who is less confident that process might take weeks or never because it’s hard for them.
I think what I’m really advocating for is a) formal personal financial education in the workplace ( high school or college is probably too early because you really need to be earning before it matters) backed up by b) peer group coaching and reinforcement. It’s easier asking questions of and indeed listening to a workmate at a similar grade to you than a faceless HR person you’ve never met but equally that peer can’t provide definitive advice. As it’s not really my field I’m not sure where the sweetspot is.
So while it’s easy to say tough on those who don’t learn to pay attention and ask for help, it’s also easy to recognise that very few of us get everything perfectly right with hindsight in and that financial epiphanies come to us all at different times and at different levels of wealth.
Every DC plan is required to provide the DC participant with a timely Summary Plan Description (SPD). The SPD is the simplified version of the plan document and the related plan adoption agreement. My experience is that my employer HR department would sent me a SPD upon my eligibility or sooner and at every plan change (as a Summary of Material Modifications) and I had to sign acknowledging both receipt of the SPD and having read the SPD. A SPD also also lists a contact person and their contact information.
Under ERISA a SPD must be issued at least every five years unless there are no changes (and there are always law changes most every year even if the employer has made no changes).
I agree the DC rules are compex but the plan participant bears a responsibility for reading and understanding key provisions of the documents provided to them. For many plan participants the value of their 401(k) at retirement may be their largest asset, yet they have paid little or no attention the rights and obligations contain in the plan. My experience is the main reason smaller employers do not adopt 401(k) plans is the complexity and compliance costs. Adding a new level of employer funded formal personal financial education in the workplace would, in my opinion, discourage the adoption and/or retention of a 401(k) plan and increase employer plan cost and create a new liability for the employer in regard to providing such education.
The US Department of Labor has a search tool which allows you to review your plan’s 5500 tax return and larger plans, that are required to be audited, also have attached the plan’s audited financial statements to the 5500 return.
https://www.efast.dol.gov/5500Search/
Not only DC plans, but every employee benefit plan. And each year plan sponsor must send out Summary Annual Reports.
You’re singing to the choir Dick. For a long time I would send newsletters to my tax clients. I was a one man operation, so that meant buying the supplies, writing, printing, stuffing, labeling, stamping, and sending hundreds of envelopes. Come tax time many people would bring in all of their various tax documents, un-opened, many times including my newsletter. Those were also the folks who needed the information the most.
Our financial lives contain a lot of very, very complex issues. The average IQ in the US (from Wikipedia) is 100. For many people, some of the contractual/legal language is beyond their ability to understand. Each time we update our phones we have to accept contractual language which I bet no one reads. The same is true for the contracts that accompany bank accounts, brokerage accounts, car loans, home loans etc. I mean, this stuff is written by lawyers in legal jargon that the vast majority cannot really understand.
Dick, you are an expert on employee benefits. It was your job. You didn’t achieve your level of understanding overnight. Is it reasonable to expect the average worker to decrypt all that legal jargon and know enough about all those topics to avoid all problems?
Steala99 – You made your point very gently and I applaud you for that. It took me a long time to get it through my head that there are some people who are not capable of understanding financial matters. I could site a dozen probable reasons for this but the bottom line is they simply don’t understand.
I used to think that if I could make the effort to learn then others should too.
There are some people who just don’t have the motivation. We should help and encourage others to the extent we are able–and hope some knowledge and reason will rub off.
You have a point, but i am not referring to legalese. Summary descriptions are written at 8th grade reading level.
In addition, there were many individual brochures focused on a single issue, global e-mails and many opportunities for face to face info. Believe me we tried everything.
I think it’s reasonable for people to at least make an effort. I know lots of guys that can rattle off sport statistics and team roosters for an entire league, but can’t manage to tie their financial shoe strings (so to speak).
It’s sometimes surprising what you find if you do wade through that stuff. For instance, my bank says that it never checks signatures. Since I don’t believe credit card companies do either, I sign those touch screens with a squiggle. I recently changed PCPs and the new clinic expected me to sign that I agreed to their use of my SSN, even though Medicare switched to a different number some years back..