You go to get the oil changed in your car. You wait a few minutes, and finally the guy with the name patch on his shirt saunters up and throws a grease-covered manual at you and says, "Here. Do it yourself."
That's a bit like what's happening to investors these days. Here's your 401(k) and individual retirement account, a few pie charts, a menu of investments and good luck to you. Now, with a little -- or a lot -- of time and interest, we could all change our own oil or invest for retirement, but it's going to take more than a brochure and an employer-sponsored "educational" meeting.
Financial education is simply not working. Here's why, and how we can fix it.
Some "education" is a thinly-veiled sales pitch. Conventional or synthetic oil? IRA or 401(k) -- traditional or Roth? Whether it's an oil change or an investment, we can't be experts at everything. Yet money is such a critical factor in our lives, and our lives after work, that we -- the doctors, dancers and deskbound of the world -- are somehow expected to learn all we need to know in a 30-minute annual 401(k) workshop.
Some of those educational meetings may be little more than a smooth hustle. In a 2011 U.S. Government Accountability Office report to the House of Representatives, the GAO said: "Although investment education is defined as generalized investment information, providers may highlight their own funds as examples of investments available within asset classes even though they may have a financial interest in the funds."
The report noted that participants often perceive education as investment advice, and such conflicts of interest could result in the selection of investments with higher fees or mediocre performance -- ultimately leading to "a significant reduction in retirement savings over a worker's career."
In December, FINRA, the self-regulatory authority of U.S. securities firms, voiced the same conflict-of-interest issue regarding "educational" information and meetings guiding investors to roll over 401(k) assets to IRAs.
The "largest failure ever of adult education." "Today, 401(k) education is the largest failure ever of adult education," wrote Dennis Ackley, a retirement education consultant in San Diego, in an email. "But don't blame adult education experts. They were not involved in it." He says financial instruction is often taught by workshop leaders and executives who aren't well-versed in adult learning theory.
"Naturally, people in the financial industry are 'numbers oriented.' Yet many participants who attend 401(k) meetings are innumerate," Ackley wrote. "If the instructional concepts do not resonate with employees -- and if they are not becoming personally motivated to learn and to save substantial amounts to reach their personally meaningful goals -- then after three decades of trying, it's time to stop using content experts to teach the basics."
Ackley believes the financial industry should recruit professional teachers and instructional designers using proven adult education principles to build interesting and meaningful learning experiences.
"Without clearly stated outcomes and competencies, how can the 'educators' create a targeted curriculum? And how can they measure their results?" Ackley writes.
Fear in the faces of investors. Chad Parks, founder of The Online 401(k), a Web-based retirement plan provider, says he has seen a good deal of fear in the faces of investors.
"I have said this many times: It's a shame I had to get a master's degree in finance to get the basics of a financial education," Parks wrote in an email. "It used to be when you worked for a company, you were offered a pension plan, and because most of the decisions were made for you, you had peace of mind that you were covered in your golden years. Social Security was a kickstand."
But as companies abandoned pensions in favor of 401(k)s, almost all of the burden and responsibility shifted to the employees, he writes.
"I have seen the deep-rooted emotional fear from this audience -- not their fault -- but rather the fault of our very immature industry," he writes. "The challenge with 401(k)s and retirement in general is to overcome that deep-rooted fear of giving up today what is going to provide for your tomorrow. We need to address not only the logical side of people, but more importantly, the emotional side that holds the purse strings."
Parks proposes a financial education process that brings an end to jargon and incorporates full transparency. "Financial crisis, housing crisis, pension crisis, the fine print crisis. This is not something we fix with a calculator and a cool advertisement. It needs to be an honest conversation that doesn't take a translator to understand," he writes.
"Just in time" financial education. Perhaps the most scientific analysis of why financial education has simply not worked comes from a trio of researchers who studied 168 papers covering 201 studies of financial literacy and its relationship to financial behavior.
Daniel Fernandes of the Catholic University of Portugal, John Lynch Jr. of the University of Colorado--Boulder and Richard Netemeyer of the University of Virginia found that financial education accounted for just a fractional (0.1 percent) change in behavior. The impact was even less for lower-income investors, who arguably need the most help.
Fernandes and his associates determined that financial education, like other education, "decays over time." Even many hours of education have negligible effects on behavior 20 months or more from the time of instruction.
The researchers surmised that perhaps some of the failure might be attributed to, as Dennis Ackley offered, teacher training. They also suggested that education effectiveness might be improved by teaching "soft skills" such as planning, proactivity and a willingness to take investment risk, rather than the more technical facets of compound interest, bonds and the rest.
But possibly the most interesting proposal extended by the academics was "just in time" financial education. Because of our tendency to forget -- or at least forget to apply -- lessons learned in the past to current decisions being made, the professors wrote, "there must be some immediate opportunity to enact and put to use knowledge or it will decay. Moreover, without a ready expected use in the near future, motivation to learn and to elaborate may suffer."
In other words, when an investor is ready to retire, he or she should be able to access objective, jargon-less, emotionally inspired, conflict-of-interest free education. In a world of immediate gratification and instant information, "just in time" financial education may be exactly what we need.
Hal M. Bundrick is a certified financial planner and former financial advisor and senior investment specialist for Wall Street firms. He writes about personal finance and investing for NerdWallet.
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