Younger workers are typically more reluctant to participate in qualified plans. Retirement is far away for them, salaries are lower, and they may be struggling with bills, like rent or student loan payments. A psychological theory called Construal Level Theory (CLT) suggests that the more removed an event is from our personal experience, the more abstract it is for us. In contrast, if an event is going to occur soon, we tend to focus on the immediate steps we can take to reach a desired outcome.
Abstract vs. Concrete
So, if retirement is a very abstract concept for younger employees, how can plan sponsors encourage them to participate in a retirement plan? A 2012 study from the Center for Retirement Research at Boston College tested ways to communicate with younger workers about retirement to see what messages were the most effective. The study used four different types of advertisements, ranging from very abstract (“why you should save more for retirement”) to very concrete (“how you can save more to ensure you’re on the right path to retirement”). The ads offered some suggestions, with the abstract ads providing vague advice (“you may want to consider setting up a retirement account through your employer”) and the concrete ads giving specific steps (“Step 1: Set up your retirement account”). Finally, both types of ads presented some target savings amounts, with the abstract ads providing long-term goals in a lump sum (“Your total retirement contribution goal”) and the concrete ads giving a specific biweekly contribution amount to reach a retirement goal.
As anticipated, the younger workers responded strongly to the abstract advertisements that offered vague advice and presented the readers with a lump-sum goal they should pursue a secure retirement. However, the younger workers responded even more strongly to the very concrete ad, which listed specific steps to take for retirement, and provided biweekly contribution goals. The researchers concluded that the very concrete ad with a short-term savings goal refocused the younger workers’ attention to an immediate savings milestone, giving them a greater sense of urgency to save.
Create a Sense of Urgency
If you’re trying to motivate younger workers to participate in your retirement plan, The Participant EffectSM can help you with strategies to appeal to your workers. The Participant EffectSM relies on the field of behavioral finance to provide you with specific steps you can take to encourage your employees to take control of their retirements. Contact us at 866-625-4611 for more information.
Tracking number: 1-405417
This information was developed as a general guide to educate plan sponsors but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, the plan sponsor will be in compliance with ERISA regulations.
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