How 401(k) advisers can create effective financial wellness programs

The central goal shouldn't be education, but rather lasting ways to change unhealthy behaviors

May 21, 2017 @ 12:01 am

By Kristen Berman

For all the buzz employer financial wellness programs are receiving, they may be short-lived.

When our team at Duke University's Common Cents Lab evaluates financial wellness programs, we focus on one key area: Is the program using proven methods to change behavior?

Sadly, most financial wellness programs get a very low score.

These programs are trying to address financial wellness by investing in financial education programs. Financial education alone does not produce financial wellness. According to the Consumer Financial Protection Bureau, the U.S. spent more than $670 million on financial education programs in 2013. The hope is that by teaching Americans the importance of savings — and how to save — Americans will in fact save.

Unfortunately, this is not true. A 2014 meta-analysis of 188 academic studies found that financial education alone does not change financial decision-making. In a study of 1,000 low-to-middle-income Americans led by our own researcher, Wendy De La Rosa, we found that respondents were well educated on the steps they should take to save more. Yet 36% of these people had less than $500 in savings.


This "intention-action" gap exists in most financial decisions. We know that we are supposed to create an emergency fund, open a college savings account for our child or amp up our 401(k) contribution. And tomorrow is a great day to do that. Today, I'll splurge on a new outfit.

Kristen Berman

Employers and financial advisers who want to promote savings and improve financial well-being must stop relying on financial education methods like brochures, websites and seminars. These shortcuts reduce liability and absolve responsibility, but they result in poorly performing programs and financially unprepared employees. To produce working programs that result in improved financial wellness, advisers must implement proven strategies that alter behavior.

Retiremap [a financial wellness coaching firm] approached Common Cents Lab to help design a program that would remove the complexity from financial decision-making, break savings into actionable steps and successfully automate step-by-step coaching for plan advisers. To do this we relied on three proven strategies to design and deliver the end result.

Behavioral Strategy 1: Dedicated accounts. In a three-year randomized experiment, researchers found that parents provided with college savings accounts showed higher social and cognitive performance. The hypothesis is that parents given college savings accounts changed how they thought about their child's future.

This intervention was not about educating parents about their child or about their finances. Instead, this intervention was designed to help parents create a "college-bound" savings account by default. In this way, they made it easy for parents to opt into a child savings account.

By providing a separate account, the researchers helped create a college-bound identity for the children in their parents' minds. Advisers could use this same strategy to help employees save on everything from short-term savings to 529 plans to retirement accounts.

Behavioral Strategy 2: Accountability. To overcome the "intention-action" gap, we often need an external push. This can manifest in many ways, including accountability through a deadline.

We've seen this time and again in our own experiments — one that doubled the response rate to an email by including a reply deadline, and another that increased the number of applications for a low interest rate loan by 24% simply by including a deadline.

Minneapolis North High School is an organization using accountability in a different way to drive positive behavior. Students are required to meet with a designated adviser: a classroom teacher who essentially doubles as an academic coach. This 36-minute period of accountability serves as a homeroom of sorts that teachers testify "lays the foundation for student success."

We all crave some accountability in life, especially when decisions are tough. Advisers can leverage these findings to build deadlines into contributions or applications, or use technology to provide scalable ongoing coaching for employees.

Behavioral Strategy 3: Confidence. Another study, "Subjective Knowledge in Consumer Financial Decisions," examined the role confidence plays in our financial decision-making for retirement savings. The study's researchers broke participants into two groups and provided each with different materials. One group was given basic descriptions of low- and high-risk investment funds, the second a more advanced description with complex terminology.

The participants were then asked how likely they would be to invest in each fund. Those given more technical and advanced descriptions were less likely to invest, regardless of whether the fund was low or high risk.


Advisers would do well to note that participants' confidence in their understanding of the fund played more of a role in their investment decisions than the actual risk profile of the fund.

In identifying and implementing these strategies on behalf of Retiremap, it is obvious that financial education cannot be the strategy for producing financial wellness. Financial advisers committed to the success of employees must take a more well-rounded approach and include behavioral change strategies to produce improved financial decision-making.

Kristen Berman is the co-founder of Duke University's Common Cents Lab.


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