Financial literacy awareness is not enough

Financial literacy awareness will not prepare a plan member for retirement! Having knowledge about what it takes to have financial literacy awareness isn’t always power, especially when it comes to achieving financial wellness.

First, individuals need to understand their negative behaviors when it comes to managing their money. Next, individuals must learn to eliminate negative behaviors while reinforcing positive behaviors. As Kris Alban, Executive Vice President at Enrich financial well-being written in a recent BenefitsPro column“Knowledge is not enough.”

It’s similar to the distinction between being aware of a problem and tackling that same problem head-on. Raising financial literacy awareness is a good start, but it won’t solve the problem. Simply understanding that a problem exists, understanding why the problem exists, and knowing what behaviors perpetuate it should help the person dealing with the problem move closer to its resolution. It’s the same with a strong awareness of financial well-being.

As Mr. Alban rightly pointed out, financial literacy and financial well-being are not the same thing. 401ktv a wrote about this previously as well. Financial literacy awareness precedes true financial wellness. In other words, one must possess knowledge of financial literacy in order to seek and achieve financial well-being. Yet financial literacy does not translate into financial health.

Mr. Alban put it this way: Financial literacy is about understanding “key financial concepts and having the ability and confidence to manage personal finances through appropriate short-term decision-making and sound financial planning and long-term, while taking into account life events and changes”. economic conditions.” In contrast, he wrote, “financial well-being is having the knowledge, ability, and desire to make intelligent financial decisions and having the ability to live a happy life within one’s means. “.

Emotions play an important role in how people interact with and manage money. This is most evident in times of crisis, such as the past two years as Americans struggled financially during the Covid-19 pandemic. Personal struggles or overconfidence can also manifest as money issues. Mr. Alban wrote, “Someone who is highly impulsive and lacks self-control may struggle to save for the future, regardless of their level of financial literacy. Someone who is overconfident in their preparation for retirement may think that everything will be fine even if they don’t take the necessary steps – and may even make risky decisions.

Therefore, employers should consider financial wellness programs that dig deeper into the psychology of money and help employees understand the “why” behind the financial decisions they make. This will help them learn how to make positive changes to these behaviors so they can better manage their finances in the future.

This includes helping employees understand the financial behaviors they should adopt based on their age and life stage, Alban noted. But it’s more than that, “…helping them understand the strengths and weaknesses of their financial behavior based on personality type may be what engages them in long-term change,” he said. writing. According to Alban, understanding how emotions and behaviors influence their financial decisions can help employees make long-term changes, such as reducing unnecessary expenses, increasing savings, eliminating debt. and starting or improving retirement savings.

Effective financial wellness programs also benefit employers. Improved levels of financial well-being lead to a more productive workforce and lower health care costs, Alban noted. Done right, financial wellness is a win for everyone. But it’s up to employers to help make those victories a reality.

Steff Chalk

Steff Chalk

Steff C. Chalk is executive director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education. Steff is also Executive Director of The Plan Sponsor University and is currently a professor at The Retirement Adviser University.

Steff Chalk

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