That there is a racial, ethnic and gender wealth gap is well known.
What’s perhaps less known is that racial, ethnic and gender retirement knowledge gaps in the U.S. exist as well. And that’s a problem especially since retirement knowledge is, according to numerous studies, positively related to wealth accumulation, retirement preparedness, and retirement well-being in older adults.
How big are those gaps and what can be done to close them?
A new paper, co-authored by Luisa Blanco, a professor of public policy and economics at Pepperdine University and Ron Hays, a professor of health policy and management at the UCLA Fielding School of Public Health, has shed—in ways many other studies have not—some light on what individuals know about retirement planning.
In their study, Blanco and Hays created something called a Retirement Knowledge Scale (RKS), which assesses three dimensions of financial planning for retirement: reflection about retirement plans, engagement with information on retirement preparedness, and evaluation of retirement preparedness.
Moreover, it was designed to measure retirement knowledge among lower and upper levels of income, and among English-language and Spanish-language adults, as well as retired and non-retired individuals.
In their study, Blanco and Hays used the RKS to compare retirement knowledge by race, ethnicity, and gender in a sample of 1,351 adults participating in the 2020 Health and Retirement Study experimental module. Some of the 10 questions posed to respondents were:
- How often have you thought about at what age you expect to retire?
- Before you retired, how often did you think about at what age you expect to retire?
- How often have you thought about how much money you will need to save for retirement?
Those surveyed could answer never (0); one time (33.33); two or three times (66.66); or four or more times (100). The entire list of questions asked and the scale can be found here and below.
And what Blanco and Hays found is this: Men score higher than women on the RKS, 40.9 to 35.4. Whites score higher than Blacks and Hispanics, 42.09 to 33.8 and 26.69, respectively. White women score higher than Black and Hispanic women, 38.6 to 33.7 and 27.2, respectively and white men score higher than Black and Hispanic men in the RKS, 47 to 34 and 26 respectively.
A higher score on the 0-100 RKS could, for instance, mean that people have thought about the age they expect to retire more so than others or have thought about how much money they need to retire more so than others, according to Blanco.
A higher value on the RKS can also be due to a survey respondent being more engaged with information related to retirement preparedness through print or internet sources, or by talking to family/friends or a financial adviser, or attending a class, Blanco said in an interview.
And, the RKS can also be higher if people perceive themselves as having knowledge on how retirement accounts work and how prepared they are. (In Table 2 in the working paper, you can see the components of the scale too.)
The researchers also found interesting racial, ethnic, and gender differences related to the three dimensions of the RKS. The largest difference between men and women and between whites and Blacks and Hispanics are when it comes to the evaluation of retirement of preparedness, Blanco and her co-author wrote.
Now what’s different about the RKS is that it’s simple to understand and it’s linguistically and culturally appropriate for English and Spanish-speaking Hispanics, according to Blanco. And that’s important given that Hispanics, the fastest-growing minority in the U.S., lag other racial and ethnic groups in levels of financial literacy, retirement preparedness, and Social Security literacy. Read Retirement Planning Among Hispanics: In God’s Hands?
According to Blanco, other measurements and tools were too complex. “Existing self-reported measures of retirement knowledge are complex for many low- or moderate-income individuals, and they fail to assess many aspects of financial planning for retirement relevant to vulnerable population subgroups,” she and her co-author wrote.
She suggested, for instance, that the 2020 Retirement Income Literacy Survey is an example of a survey with questions that are too complex for moderate- and low-income and low levels of literacy households.
Blanco also noted that when she conducted retirement planning classes in the Los Angeles community working with immigrant Hispanics she really didn’t think there was a measure out there she could use with Hispanic/Latino immigrants.
In an interview, Blanco discussed how to bridge the knowledge gaps.
The right kind of education makes a difference
In a previous study, Blanco and her colleagues conducted a community-based randomized controlled trial to evaluate the impact of an intervention to promote retirement saving among low- and moderate-income, predominantly Spanish-speaking Hispanics, who do not have access to an employer-sponsored retirement account.
The intervention provided participants with key information in Spanish related to financial planning for retirement and made use of “behavioral nudges” to encourage participants to open a government-sponsored retirement saving account, my Retirement Account or myRA. (The myRA program was available at the time of the study but has since ended.)
And the nudges worked. Of those who got nudged, 14% opened a myRA. Meanwhile, no one in the group that didn’t get nudged opened a myRA. What’s more, the intervention was effective in increasing self-reported knowledge related to retirement saving and preparedness.
In essence, Blanco discovered that “educational programs to increase retirement preparedness for minorities that are linguistically and culturally tailored are effective.”
At present, however, there’s a lack of good resources in Spanish, for instance, that are comparable to English, she said. And the need for educational programs that are linguistically and culturally tailored is especially important for two reasons:
· 1. Retirement planning is complicated and complex. “It’s very important to create material that is simple for people to understand and to follow,” Blanco said.
· 2. Saving for retirement may not be the norm for many, especially for those who grow up in families that don’t have access to employer-sponsored retirement plans. “It’s something that you are not familiar with, so it’s very new to you,” she said.
Advisers agree that there’s a need for a tailored approach. “As the study more or less noted, ‘cookie-cutter’ approaches to retirement planning/knowledge are not always practical,” said Frank Paré, the president and managing partner of PF Wealth Management Group. “Therefore, we must tailor our approach to the person in front of us. When sharing retirement planning advice or knowledge, we, as professionals, have to meet people where they are—financially, psychologically, and in their life stage. It often takes work that extends beyond rates of returns and ratios.”
Need to better understand preferences
In addition to developing educational programs that are linguistically and culturally tailored, there’s a need to better understand preferences. For instance, Hispanics are much less likely to talk to family/friends and a financial professional and attend a workshop/class than whites. Blacks were more likely to attend a workshop or class on retirement preparedness than whites. And individuals who answered Blanco’s survey in Spanish are much less likely to meet with a financial professional or attend a class or workshop about retirement preparedness. They also evaluate their knowledge on retirement saving accounts much lower than those who answer the survey in English.
In all, these findings, she noted in the research report, could inform the design of tailored programs and campaigns that aim at improving retirement preparedness among women and minority groups to better meet their informational needs.
The need for more entry-level products
Getting the financial services industry to offer simple retirement products, especially for people who are just starting to save for retirement, is another way to bridge the knowledge gap, Blanco said.
Current examples include state-sponsored retirement savings plans such as OregonSaves, CalSavers, and Illinois Secure Choice. Those types of programs are especially useful for workers who don’t have access to an employer-sponsored retirement plan, she said.
In addition, products that are flexible for pulling funds in case of an emergency are preferred, Blanco said. (Of note, the new Secure 2.0 retirement law contains two main provisions related to emergency savings: 401(k) plan participants could have a “sidecar” account from which withdrawals could be made monthly and participants could withdraw up to $1,000 in a year from their retirement account to pay for an emergency.)
The role of social media
Blanco also noted the role of social media campaigns to motivate Latinas to learn more about retirement. In another study, Blanco and her co-author learned that messaging is important to attract interest on learning more about retirement preparedness and that using social media was effective because it provides a great reach of the target population, which can be a hard-to-reach population.
What’s more, they found that a message centered on peer influence may be more successful than a message centered on familism in getting Hispanic women interested in learning more about financial planning for retirement.
The role of the individual
It might be hard for an individual to be proactive, to find the education needed to start saving and investing for retirement. “It’s a hard topic,” Blanco said, noting how overwhelming it might be to learn about all the different types of retirement accounts if you were at the very beginning of the process.
Still, Blanco said the individual could seek out a structured approach to learn about retirement planning. (ICanRetire, for instance, is a digital participant engagement program designed to make retirement planning approachable for all. And Bank of America offers Better Money Habits.)
Does bridging the knowledge gap lead to bridging the wealth gap?
It may not necessarily be the case that bridging the knowledge gap will lead to closing the wealth gap, said Blanco. “I don’t want to say that we are going to teach people about retirement savings and then once we teach them about it, we solve (the wealth gap),” she said. “There are also important barriers when it comes to retirement preparedness that relate to income and wealth.”
Ultimately, the decision to prepare for retirement is influenced by what she calls the social determinants of financial well-being. “Your social environment actually will determine how well you prepare for retirement,” said Blanco.
Knowledge is one piece. But having access to an employer-sponsored retirement account is another piece, as well as whether you have an income that allows you to save for retirement.
Among lower-income individuals, if you want to encourage people to save for retirement, offer them financial products that are flexible for emergencies and special situations that can make a difference in their household, Blanco said.