This is not a financial advice column. This is advice to managers and employees alike about the importance of financial literacy in the workplace.
Take the example of the 401(k) plan in most workplaces. It is a powerful way for the average person to put pre-tax payroll dollars into diversified investment options. Many employers match employee contributions on some level. Others match a lot. Still, experts say up to one-third of employees do not participate at all. Many more invest too little.
To make things worse, about 20 percent of employees have taken a loan against their 401(k)s for necessities or luxuries. While on loan, those dollars are not invested, and may one day result in tax penalties.
Why would employees turn down free, tax-deferred money with the opportunity to build safety nets for the future?
The typical reasons come in these categories: 1) I'm young; 2) I cannot save at my pay level; 3) I do not trust the stock market; 4) I'm too lazy to get started; 5) I'm confused. The truth is, 401(k)-type investment plans were created with all those excuses in mind.
"The Investment Answer" (by Goldie and Murray) is a 66-page book explaining five key decisions every investor must make. It is complex enough to help managers and executives but straightforward enough to teach the rest of us. Managers will find good facts for employee education. Employees who want to understand the long-term picture will benefit.
The book acknowledges Wall Street cannot be trusted, the media encourage poor behaviors, our politicians are most interested in themselves, and in spite of all that, you can control your financial destiny. It is not a budgeting or self-control book, but a way to see clearly through the murk and fog that keep us from acting in our own best financial interests.
Your employer's 401(k), if adequately structured and managed, meets all the principles in the book. It gives you professional money managers at a reasonable cost and easy ways to diversify among types of investments. It shows you why you do not have to trust a market or an economy to build your account over time. The fact you are young is a strong reason to get involved now. And the belief that all other uses of your paycheck dollars are more important is a sure way to suffer in retirement.
Managers owe their employees consistent messages and education encouraging use of this efficient way to save. Yes, markets will go up and down, and some employees will obsessively check their account balance every day or make poor timing decisions. But the majority who participate early, often and consistently in a rational way with the guidance of a competent plan advisor will be thankful one day for your encouragement and persistence. Employees who remain unsure, confused or fearful should talk with HR and the plan educator/advisor.
The lack of financial literacy is a bigger cause of our failure to prepare for the future than the actual inability to take small steps. Employers without plans and employees on the sidelines should re-think their choices.
