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© Copyright 2000 Rogers Media. The following article first appeared in the June 2000 edition of
BENEFITS CANADA magazine.
Viewpoint
Promoting financial literacy: Are investment education programs missing the mark?
By Mary DiSpalatro (DePaoli)
Even more than the retail investment industry, the North American defined contribution (DC) pension
community has gone the extra mile in creating targeted, educationally based communication programs for
employees in 401(k) plans and their Canadian equivalents.
Consequently, it is somewhat surprising to see the following statistics from a recent U.S. DC plan study by
the Institute of Management and Administration and Matthew Greenwald and Associates:
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The two most widely used investment options are company stock (73%), followed by money market (36%).
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Most participants believe that money market funds have the same risk level as bond funds.
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55% think that you cannot lose money investing in a bond fund.
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If the stock market declined by 30%, 75% would change their investment strategy (i.e., the vast
majority see a declining stock market as an opportunity to sell, not hold or buy.)
Such low levels of financial literacy are even more pronounced outside group plans, where individuals are
missing the benefit of employer educational programs. So what, as an industry, can we do to help Canadians
increase their knowledge? Is taking the decisions out of their hands and offering advice the answer?
Obviously, the first problem is whether the investment advice is actually being understood, let alone
listened to. Next, selecting a suitable adviser adds a new level of complexity for the fiduciary, who will
be seen as endorsing the advice.
Many would also argue that advice is the easy way out since everyone should have the ability to develop a
basic set of life skills to help them make vital decisions regarding their hard-earned retirement savings.
The answer here is simple. In our industry's efforts to give plan members all the investment education in
the world, we often overlook one small but significant part of the equation: the plan member. Too often,
the communication materials we create are geared towards too high a level of understanding. We make too
many assumptions about the learning abilities of our end-users, even in such basic areas as literacy and
numeracy skills. We also too infrequently listen to their needs because we do not conduct sufficient
research into their investment aspirations and perceptions.
As a result, we risk losing our audience by virtue of trying to meet the requirements of our committees,
which are comprised of individuals with a far deeper understanding of the capital markets.
We need to listen to the voice of the plan member, which--in the drive to over-educate--may have become
somewhat lost. This should include a conscious attempt to measure the impact of our efforts to determine
where the weak links are and where we need to spend more time to strengthen them.
This is where the future liability for our industry resides. It is not in the educational process itself,
but in failing to successfully modify and deliver the message to the right audience. And as the ultimate
stakeholders in this process, should their needs not be considered paramount?
Mary DiSpalatro (DePaoli) is assistant vice-president, national sales and marketing with Sun Life
Financial Group Retirement Services in Toronto and is the author of The New Imperative: The Pension
Plan Sponsor's Guide to Successful Employee Communication and Education.
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