What does financial education mean to you?

You’ve probably read that financial education is important to your readiness retirement. You’ve probably read pieces designed to provide you with a financial education. But experts don’t agree on how to define “financial education.” 1 That’s why we’re asking you: How do YOU define “financial education”?


Definitions matter

You may think, why should I care about the definition of “financial education”? Definitions matter because they implicitly direct people toward specific goals. For example, imagine that you decide to look for a “better job.” Your goal differs depending on whether you define a “better job” as a job that pays more, offers more flexible work arrangements, or is more personally satisfying. Depending on the definition of a “better job,” the process that you follow to achieve your goal may also differ.


Alternative definitions of financial education

People use many words as synonyms for financial education. For example, there’s also economic education, economic literacy, financial capability, financial guidance, financial literacy, financial wellness education, money management education, participant readiness education.

These terms direct attention to different areas. The “economic” terms focus on understanding how a free-market capitalist economy works or how you should respond to market ups and downs . The “financial” terms may consider whether you can simply find financial information, or, perhaps, if you can apply that information . “Money management education” focuses on debt as a source of problems, while the focus shifts to retirement plans with “participant readiness.”

Have you heard the expression, “That which is measured improves?” The diverse definitions of financial education matter because they direct attention in different directions. Some definitions won’t help with retirement planning because they avoid the topic. Others may focus on the wrong goals. For example, an emphasis on boosting participation rates ignores what happens to the participants’ account . This approach views participants’ lack of retirement readiness as the fault of the participants. That’s the assessment, even though participants were not educated to make good decisions in their retirement plans.

As providers of retirement plan services, we worry about average Americans’ ability to enjoy a comfortable retirement. We see too many indications that their retirements will fall short of their dreams . They may even struggle with paying for necessities, such as housing and medical care.


Old and new approaches to financial education for retirement

Old definitions of financial education have driven a failed approach to retirement. The old way is a one-size-fits-all approach. It tells consumers to save money, invest in a product, let your assets grow, reach this age, retire, and live off  Social Security and savings for the rest of your life.

Does the old-style process sound familiar to you? Here’s another question. Do you feel as if that process takes into account your unique situation? As we see it, the old-style process ignores demographics, ideology, and life events. Some win, some lose but everyone follows the same process. 

We suggest a different approach that’s tailored to you. What if you start with the following questions: 

  • What steps are you taking to create a long-term self-sustaining environment for yourself and your family? 
  • How long do you think it will take to create that environement? 
  • If you are not prepared to start now, what would help you to start the process? 

People’s answers are likely to be as diverse as their situations. Some may say, “Save to buy a house, pay it off, and then have my family live there to support each other.” Those folks would benefit from education about mortgages, fixed income markets, and multigenerational household expenses. Some may seek to work in the corporate world for a while, but then start a nonprofit or teach.  They’d benefit from education about student loan debt, assuming an MBA or Ph.D. is required. Some may say “I intend to save a ton and invest prudently.” They’d benefit from classic investor education.

In short, we believe that when consumers pursue their own vision, they are more likely to turn financial knowledge into action that helps them retire. We urge financial advisors and retirement plan sponsors to align their products and services align to consumers’ visions.They can help to connect consumers with the knowledge, tools, and resources required to achieve their visions.

Keeping consumers’ visions in mind, advisors and plan sponsors should pursue the following four-step process:

  1. Define and teach
  2. Measure comprehension and practice
  3. Apply new learning in decisions and behavior
  4. Measure the behavior change and provide professional help where gaps exist


What works for YOU?

How do you define “financial education? What would you like to see in financial education that supports individuals’ long-term visions and their ability to retire comfortably?



How much do you need to save for your retirement?

By answering a few simple questions, this tool can help you evaluate factors that you can change, and ones that are beyond your control, for a complete picture of your what your retirement might look like. 

Related Articles

1Baumann, Carol, and Tony Hall. “Getting Cinderella to the Ball: Putting Education at the Heart of Financial Education.” International Journal of Consumer Studies 36, no. 5 (September 2012): 508–14. doi:10.1111/j.1470-6431.2012.01116.x.

2 Tisdell, Elizabeth J. “The Role of Emotions and Assumptions in Culturally Responsive Financial Education Practice in a Capitalist Economy.” New Directions for Adult & Continuing Education 2014, no. 141 (2014): 89–98

3 Baumann, Carol, and Tony Hall. “Getting Cinderella to the Ball: Putting Education at the Heart of Financial Education.” International Journal of Consumer Studies 36, no. 5 (September 2012): 508–14. doi:10.1111/j.1470-6431.2012.01116.x.

4Merton, R. (2014, July). The Crisis in Retirement Planning.

5EBRI Databook on Employee Benefits Chapter 5: Private- and Public-Sector Retirement Plan Trends [Dataset]. (2015, October). Retrieved March 13, 2017.