Tailored Financial Advice

Tara Siegel Bernard writes in the Times that financial services companies like Fidelity, which provides employer-based retirement plans for more than 13 million workers, have started to tailor financial advice and messaging to specific demographics: members of generational and income groups, Hispanics, and women. Tailored messaging to women is especially significant since they tend to earn less than men and take longer breaks from the workforce to start families, which can mean fewer dollars in retirement savings when compared to men. Here’s Bernard:

So the often-repeated numbers declaring that the average working man’s 401(k) account balance (about $121,000) is more than 50 percent higher, on average, than a woman’s ($78,000), as calculated by Vanguard, isn’t that surprising. It’s largely because the average wage for male savers in Vanguard plans, at $107,000, is about 40 percent higher than the average for female savers.

But when you look a little closer, an entirely different picture emerges. When you compare women and men who earn the same salaries, women actually save at the same rate — or higher — and their average balances converge (or are slightly higher). But men take the lead in savings once again among male and female workers who earn more than $100,000, according to Vanguard. Even though women are saving at the same rate or more, this suggests men’s wages are higher. Fidelity uncovered strikingly similar trends among its participants.

A case study: When communications giant AT&T discovered that its female employees were saving at a lower rate than male employees, it worked with Fidelity to come up with a workshop geared towards women that focused on budgeting, managing debt, and preparing for retirement. As a part of the workshop, a financial planner interviewed three women at different stages of their career: an MBA grad with student debt, a mid-career professional saving for a child’s college education, and a woman nearing retirement age — and made the interviews available for employees. After one month, Fidelity said that “nearly 60 percent of attendees logged into their retirement accounts and 11 percent initiated retirement planning sessions using online tools.” An economics professor at the George Washington University School of Business points out that women are “more likely to change their behavior following an intervention.”

Tailored messaging can be helpful when it comes to retirement planning, but the most helpful strategy is one that, as Bernard points out, can be applied to all workers: saving for them. This would mean “automatically enrolling workers in a 401(k)-type retirement plan, typically at 3 percent of salary, and automatically increasing their savings rate each year. Workers need to physically opt out to stop saving.”

And that’s been true in my case; automating the way I save for retirement (automatically having 10 percent deducted from every paycheck and put into a retirement account) so that I never have to actively think about actually doing it has made all the difference.

Photo: Kheel Center

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