Individuals who don’t save for retirement can be divided into three groups: those who don’t know they should, those who are unwilling (they know they should but don’t), and those who don’t have the means (they know they should but can’t). A plan sponsor likely has all three of these groups within its organization; each presents some unique challenges, but the first two groups would clearly benefit from an effective financial literacy program.
It’s a simple and sad fact that some people don’t understand how important it is to save for their futures—these are the truly financially uninformed. Perhaps they were never exposed to the concept of saving; or their parents didn’t save or emphasize its importance. Where else would they pick this up? In North America, it’s rarely taught in school. Lacking knowledge and awareness, they live in the moment and are surprised to find they’re unprepared for the future.
More puzzling is the group of individuals who don’t save for retirement when, at a basic level, they know they should. Why would someone saving hard for retirement take an ill-advised loan from the account to pay for a new truck? Perhaps the following starts to explain some of this seemingly irrational behavior.
- The concept of a comfortable retirement is too nebulous and distant to motivate people to save. Instant gratification is the name of the game. Why wait when you can have it now?
- Denial dominates the thinking. If subsisting on Social Security or a meager public pension is the consequence, it doesn’t seem real for individuals as they continue to enjoy a prosperous and bountiful lifestyle.
- Information overload can lead to inaction. An overabundance of information can make it hard to filter out what’s important. People can reach the point of saturation and simply become paralyzed.
- Choice costs time. When faced with too many choices, it can be overwhelming to wade through them. The more choice, the more effort—and people will often choose the path of least resistance, which is to do nothing at all.
Critical needs can compete for resources. When a person is struggling to put food on the table every day, how is it possible to set money aside for the future? Sadly, given the economic downturn, more and more people are in this situation across the globe.