We can do better on financial education

The industry has been telling people they should be saving towards their retirement, it has been telling them roughly how much they should be saving each month and it has been explaining how putting just a little bit extra aside could have a tangible impact on how much they will have when they come to retire.

But the reality is that education alone – whether pension education or financial education – has not been working.

A much more holistic approach that helps people to better understand their relationship with their money will have a much bigger impact on how they spend and save

The problem with education

People are being educated but they are not engaged. Most know they should be saving towards a pension each month to ensure they have a decent retirement, but this falls by the wayside when they are focused on their money in the short term – such as making pay last the month, saving for a big purchase like a car or a holiday, or putting money aside for a deposit on a house.

Rather than financial education, we need a much more creative solution. We need to help people unravel and understand their relationship with money so they can feel good about it today, and in turn feel confident to make decisions for the future too.

We need to understand why they are not saving into their pensions, or are not saving enough, and help them tackle those problems. Instead of educating, we need to show some empathy and understanding.

Understanding our members

Research has revealed three key things that give us some insight into why this approach is likely to have much more of an impact upon how people feel about their money – and ultimately pension outcomes – than education:

• We are not very good at imagining the future: When people look into their past – recent or distant – there are lots of examples of how their lives have changed. But if we ask them to project this forward, it is much more difficult – most simply cannot imagine that much is going to change in the future.  

If it is hard to imagine what the future might be like, no amount of education around how much people should be saving will encourage them to part with their hard-earned cash and put it away for a retirement some 10, 20 or even 30-plus years in the future.

• We have emotions rather than ideas: When people talk about the future, they tend to experience emotions rather than having lots of practical ideas – this may be because they struggle to imagine the practicalities of what that future might be.

Therefore, understanding the emotions that people feel and the psychological relationship they have with their money – and tapping into those emotional responses – is likely to have a much greater impact on how they act, feel and behave; much more so than traditional education.

• We are creatures of habit: Research shows us that there are strong correlations between people who have good habits with things such as sleep, what they eat and how much they exercise, and how they are with their money.

And so, rather than focusing on educating, encouraging good habits in relation to general wellbeing could in turn result in good financial habits too.

Focus on broad financial health

Encouraging small victories and helping people develop good micro-habits in all areas of their lives may just result in bigger victories over time and in turn affect how they feel about their money, including their pension outcomes.

So, can financial education improve pension outcomes?

Financial education, in the traditional sense, is not the answer. Instead, a much more holistic approach that helps people to better understand their relationship with their money will have a much bigger impact on how they spend and save it both today and for the future too.

Danii Pout is a communication consultant at Like Minds