1. FINANCIAL EDUCATION AND RETIREMENT PLANNING Robert Clark North Carolina State University

2. IMPORTANCE OF FINANCIAL EDUCATION IN PLANNING Individuals develop retirement plans based on their financial knowledge Individuals develop retirement plans based on their financial knowledge Essential information includes Essential information includes –Financial mathematics –Risk and return to financial assets

3. SETTING RETIREMENT GOALS Individuals develop their retirement plans by evaluating their preferences for: Consumption today and tomorrow Work and leisure

4. RETIREMENT GOALS Age of retirement Retirement income compared to preretirement earnings

5. LIFECYCLE MODEL NE t tax $ EtEt savings CtCt t R BtBt

6. RETIREMENT SAVINGS Retirement savings can be in the form of: Social Security – mandatory coverage employer pension plans – varies by employer coverage and worker choice personal savings - optional

7. EMPLOYER PENSIONS This research considers individual decisions about assets in employer pension plans provided by universities This research considers individual decisions about assets in employer pension plans provided by universities Basic defined contribution plans, typically required by employer Basic defined contribution plans, typically required by employer Supplemental or optional defined contributions Supplemental or optional defined contributions

8. KEY SAVINGS DECISIONS when to start making contributions to supplemental pension plans how much to contribute each year to supplemental plans how to invest pension accounts in both basic and supplemental plans

9. FINANCIAL EDUCATION: KEY QUESTIONS Are workers adequately informed about financial markets and the savings process? If not, do financial education programs improve the retirement savings process?

10. FINANCIAL INFORMATION Does financial education lead to more retirement savings and a better choice of savings methods? Should employers provide more financial education to workers who are increasingly responsible for their own retirement savings?

11. RESEARCH DESIGN TIAA-CREF seminars at educational institutions TIAA-CREF seminars at educational institutions Voluntary attendance Voluntary attendance Voluntary participation in survey Voluntary participation in survey One time educational event One time educational event

12. SURVEYS Examine responses to financial education seminars presented by TIAA-CREF consultants Based on 60 seminars nationwide that included 2,157 participants yielding 633 usable responses

13. SURVEY ONE Completed prior to the seminar Provides baseline financial and demographic data Identifies retirement goals

14. SURVEY TWO Completed after the seminar Examines whether newly acquired financial information affected retirement goals Asks participants to indicate whether they plan to make changes in their savings behavior

15. SURVEY THREE Sent to participants approximately three months after their seminar Have actual changes in retirement savings behavior been made Only 110 responses

16. DID THEY LEARN? Participants indicated confidence in their ability to apply the new knowledge gained in the seminar Participants agreed that the seminar had improved their understanding of need for retirement savings

17. KEY FINDINGS Financial education causes individuals to: 1. rethink their retirement goals 2. plan to alter their savings behavior

18. KEY FINDINGS One in eight respondents indicated that they had changed their desired retirement age One in eight respondents indicated that they had changed their desired retirement age Persons with very low expected retirement ages were more likely to increase them after the seminar Persons with very low expected retirement ages were more likely to increase them after the seminar

19. KEY FINDINGS Three out of 10 respondents reported that they had increased their retirement income goals Three out of 10 respondents reported that they had increased their retirement income goals Persons with initial goals of less than 65 percent were the most likely to increase the desired replacement rate Persons with initial goals of less than 65 percent were the most likely to increase the desired replacement rate

20. KEY FINDINGS In general, participants tended to move their retirement income goal toward a replacement rate consistent with being able to continue pre- retirement consumption patterns

21. KEY FINDINGS Women are more responsive to financial education than men. They were: 1. more likely to raise their retirement income goal 2. more likely to indicate a willingness to increase pension contributions 3. more likely to state that they will establish new supplemental retirement plans 4. more likely to want to alter investment patterns

22. KEY FINDINGS Younger individuals more likely to state a desire to make changes: 1. more likely to want to increase pension contributions and establish supplement pension plans 2. more likely to state that they will alterinvestment allocations

23. KEY FINDINGS Secretarial, clerical, and maintenance personnel were more likely to plan to increase their retirement saving Secretarial, clerical, and maintenance personnel were more likely to plan to increase their retirement saving

24. KEY FINDINGS Many individuals did not follow through with desired changes within the next three months.

25. IMPLICATIONS Financial education seminars alter the retirement plans and wishes of participants Financial education seminars alter the retirement plans and wishes of participants Lack of action indicates inertia and the need for on-site ability to change behavior Lack of action indicates inertia and the need for on-site ability to change behavior Lack of action indicates need for follow-up events Lack of action indicates need for follow-up events

26. ISSUES TO CONSIDER Selection bias of findings Selection bias of findings Enticing certain workers to attend educational events Enticing certain workers to attend educational events Responsibility for financial education Responsibility for financial education Effectiveness of alternative methods Effectiveness of alternative methods