Guest Article

Best Practices in Financial Education for Gen X: A Generation Caught in the Middle

By Liz Davidson, founder and CEO of Financial Finesse.

Generation X employees face unique challenges in funding their retirement because they are caught in the middle of a sweeping societal change in employee pensions and the safety nets put in place missed them almost entirely. They started their careers when companies were freezing defined benefit pension plans and transitioning to defined contribution plans, everyone was encouraged to buy a home and the stock market was booming. They got their first credit card when credit was easy and many learned to live beyond their means. With defined benefit plans freezing, the housing market collapsing, credit tightening and the stock market showing basically flat returns for an entire decade, it is no wonder this generation has been characterized as the most skeptical.

Many Baby Boomers have pensions and even though they may be currently frozen or replaced with a cash balance pension plan, at least they will have some retirement income from a company pension. Contrast that with Gen X employees who either never had one or had their plan frozen not long after they entered the workforce. A safety net was installed with the Pension Protection Act of 2006 allowing automatic enrollment into 401k plans but this was not a significant benefit for Gen X since many employers enacted this feature for new employees only. Gen Y (or Millennials) would be the beneficiaries of this legislation since they were starting their first jobs at the time it was enacted. The Gen X employee missed both the defined benefit pension and the safety net of the auto enrollment thus making their retirement planning more challenging.

With these additional challenges, the Gen X employee actually needs to be the generation ahead but they are caught in the middle, instead doing worse in vital financial areas. The Gen X employee shows poor financial literacy scores compared to Baby Boomers and Gen Y in having a handle on their cash flow, paying their bills on time, and saving for retirement.

• Cash management - Only 66% of Gen X employees have a handle on their cash flow compared to 75% of Gen Y and 71% of Baby Boomers.
• Debt management - Only 52% of Gen X employees pay off their credit cards in full each month compared to 55% of Gen Y and 60% of Baby Boomers.
• Saving for Retirement - According to an EBRI study, in the past 10 years this age group has experienced the biggest drop in the percentage of workers who say they have saved for retirement.

Gen X has a different world view - one where there are no guarantees. The economic situation they came of age in gave them a more skeptical outlook than other generations. Many of them are also hitting a life stage where they have competing priorities with young children at home while at the same time having to fund their retirement and possibly take care of their own parents. Overall, Generation X employees have formidable challenges in planning for retirement, but financial education that is tailored to this generation can help.

Here are some best practices in financial education for Generation X employees:

Generation X employees are skeptical - Provide them with conflict-free communication and hands-on tools.

• Tone down marketing communication. If there is any hint of a sales pitch, they will shut down. These employees respond well to direct communication with lots of information for them to decipher. They respond well to clear messages giving them information to get them started on something to research on their own.
• Provide financial education with no hidden agenda. Since this group tends toward mistrust, they respond to and trust information that is from a source they feel is independent and credible.
• Provide tools they can try on for size. Since they are highly independent and like to do research themselves, put a variety of tools in front of them and allow them to self select.

Generation X employees are behind the curve - Provide easy to implement solutions to help them succeed.

• Install a safety net. Do a "look back" to see if Gen X employees were not included in auto enrollment and consider setting up an auto enrollment feature for all employees, not just the new employees, and coordinate that with an auto escalation feature.
• Encourage use of managed accounts such as target funds or pre-mixed asset allocation funds. According to a study by Hewitt, 17% of Gen Y employees use target date funds while only 8% of Gen X does. This could be due to the fact that they missed the default through auto enrollment. The asset allocation feature of the target date funds which starts with a more aggressive allocation and moves along the glide path to retirement getting more conservative could be a significant benefit to the Gen X employees who need inflation protection to grow their future income stream.
• Provide turnkey solutions. Gen X employees are at a crucial stage in their lives where they still have time to impact their retirement. Offer easy to implement solutions that are automated as much as possible. Features such as auto escalation and auto rebalancing in the 401k have been proven to put employees in a better financial position and would benefit Gen X since they are behind the curve.

Generation X employees have competing priorities - Provide holistic planning that integrates all the resources available to them.

• Focus on holistic financial planning. With so many things going on, the Gen X employees need to develop a financial plan and have an understanding of how to meet their long-term goals when they are faced with short-term day-to-day financial issues. Financial education that includes how to integrate their moving parts will help employees create strategies to meet simultaneous financial goals.
• Make sure financial planning integrates their employee benefits. Traditional benefits communication provides information on benefits at open enrollment and with the complexity of employee benefits today, many Gen X employees don't fully understand their employee benefits and how to apply them to their personal situation. Integrating benefits planning into financial education on an ongoing basis helps employees to have a higher utilization rate for all benefits, including retirement benefits, which results in higher participation rates in the 401k as well as reducing loans and hardship withdrawals.

Retirement Preparedness for the Gen X employee is not an impossible goal even with the list of challenges they face. Employers who take into account the unique world view of Gen X will help the Gen X employees who are caught in the middle between the Baby Boomers and Gen Y. Not unlike the middle child in a family, the Gen X employee needs focus and attention that might not be immediately noticeable but is vital.

This research has been compiled by Financial Finesse's Think Tank of CERTIFIED FINANCIAL PLANNER™ professionals, Trisha Brambley, President, Retirement PLAYBOOK, Inc. a leading expert in this area, and dozens of studies on Generation X. For additional research and best practices on Gen X and Financial Education, email AskFF@financialfinesse.com. Trisha Brambley can be reached at trishbrambley@gmail.com.

About Financial Finesse

Financial Finesse was founded with a single mission: Provide people with the information they need to become financially independent and secure. Today, we are the leading provider of unbiased financial education for large companies and municipalities. Our financial education services are fully integrated programs designed to address the strategic goals of the organizations we service and are delivered by on-staff Certified Financial Planner™ professionals as an employee benefit. If you are interested in learning more about workplace financial education programs, contact one of our education consultants at AskFF@financialfinesse.com.

The Ask Financial Finesse Q&A service is designed to provide general information on trends and developments in workplace financial education programs and participant education strategies. Due to the complex nature of financial benefits and/or workplace financial issues, the information contained in this document is not to be construed as advice.

###

401khelpcenter.com is not affiliated with the author of this article nor responsible for its content. The opinions expressed here are those of the author and do not necessarily reflect the positions of 401khelpcenter.com.

About | Glossary | Privacy Policy | Terms of Use | Contact Us

This work is licensed under a Creative Commons Attribution-NoDerivatives 4.0 International License.