Beyond Retirement Benefits: Equipping Members with Just-In-Time Financial Information

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• On: 09/21/2023 15:12:35
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By: Thomas Anichini CFA, CFP, GuidedChoice/3Nickels
 
Plan members would benefit from financial education and guidance, in different forms and with varying degrees of personalization, corresponding to their current financial situations.

This is an excerpt from NCPERS Summer 2023 issue of PERSist, originally published July 18, 2023.

Retirement security is a goal all plans seek to provide. Beyond retirement security, members' financial situations vary from one to another and across their working lives. At different times, members may face decisions about buying a home, paying off debt, or saving for college. They would benefit from having access to financial guidance on demand.

Researchers Fernandes, Lynch, and Netemeyer have shown the best way to equip people to make financial decisions is with “just in time” financial education.¹ Since acquired knowledge is a “use it or lose it” tool, attempts at financial literacy often make little difference because their concepts have been forgotten by the time they are needed. The authors found that a brief financial education intervention just prior to a decision may guide a person to a better choice. 
  
In that spirit, we attempt to offer individuals the guidance they need to make an informed choice about whatever personal finance topics interest them. For some, that guidance is in the form of topical videos. For others, DIY mobile app calculators. Holistic advice is meant to keep someone on track for their financial goals according to their current priorities.

Consider the prospect of paying down debt. People who are not financial professionals might not realize just how much money they could save by paying more than their minimum payments. Imagine a person who holds three debts totaling $54,000.

With access to the relevant mobile calculator, the person can calculate the actual time and dollar savings available from paying more than the minimum. The calculator would require details about the debts – balance, rate, minimum payment – and how much extra the person could pay. (For this example, assume $200/month). The results show how long it will take and how much interest it will cost to pay off the debt by paying only the minimum and compares that to two different early payoff strategies, “Avalanche” and “Snowball.” “Avalanche” pays the extra to the highest interest rate debt; “Snowball” to the smallest balance.

The output reveals the time and money savings from paying more than the minimum according to both strategies.  

Instead of simply learning that paying more than the minimum can be advantageous, having access to a calculator where they may enter their own information and see their savings in terms of time and dollars of interest might spur the member to pursue one of the early payoff strategies.

Debt payoff is merely one topic among many. While some members might benefit merely from having access to on-demand education and single-topic calculators, others may prefer holistic financial advice: advice on prioritizing their entire discretionary spending. Members' financial situations are complex and constantly evolving. They likely have different values with respect to debt, saving, owning property, and personal and charitable giving. Holistic financial advice first asks them about their priorities and then guides them in deciding how best to allocate their paycheck according to their values.

Source:
[1]Daniel Fernandes, John G. Lynch Jr, and Richard G. Netemeyer, "Financial literacy, financial education, and downstream financial behaviors," Management Science 60, no. 8 (2014): 1861-1883.

About the Author:

Thomas Anichini, CFA, CFP, is Chief Investment Strategist with GuidedChoice / 3Nickels, with over 30 years of actuarial and investment experience.

Tom is a member of GuidedChoice's Investment Committee. He refines GuidedChoice's capital market assumptions and proprietary return model, and also contributes to GuidedChoice's retirement advice engine and 3Nickels financial advice engine. Tom communicates about the firm's philosophy and advice, and represents the investment team when facing clients and consultants.

Prior to joining the firm, Tom gained experience in various actuarial, investment consulting, and portfolio management positions, including for EnnisKnupp & Associates, Mercer, Westpeak Global Advisors, and Freeman Investment Management.