The State of Financial Inclusion
How inclusionary practices can empower traditionally underrepresented investors to save more for retirement
Traditionally underrepresented groups, including non-white investors, first- and second-generation Americans and women, have historically faced challenges in many areas of society. Even if they did not create these challenges, employers and financial services providers are in a position to help underrepresented communities stand on equal ground when it comes to one particularly consequential activity: saving for retirement.
To help people of all demographics save effectively for retirement, employers and financial services providers should constantly evaluate and re-evaluate communications, retirement plan offerings and employee outcomes, then make adjustments as needed. This effort starts with understanding the current reality of employee attitudes and outcomes.
A survey conducted by The Harris Poll on behalf of Empower Retirement reveals that many employees experience a sense of disconnection from the retirement and financial services industries.1 In the short term, this disconnection can cause confusion about how best to plan for the future, and in the long term it can result in a less secure retirement.
Our results also show that traditionally underrepresented groups are behind when it comes to retirement preparation. In other words, not only are there perceived inequities across demographics, but there are also realized retirement inequalities.
One reason for this retirement inequality is that a higher percentage of traditionally unrepresented groups do not have access to workplace retirement plans. Having that access increases the likelihood that an employee has begun saving. In addition, traditionally underrepresented employees tend to lag their counterparts when it comes to their income levels. It stands to reason that this disparity may impact the ability of lower-income employees to save for retirement.
Investors who have been traditionally underrepresented recognize the need for more financial education and guidance, but many are uncertain where to turn for unbiased advice. Many employees who are not white men say they will not be taken seriously as a client by a financial services company.
Perhaps as a result, many of these employees are turning to family, friends and colleagues for financial advice instead of financial advisors. This leaves a large percentage of Americans relying on sources that are not necessarily trustworthy for retirement savings guidance.
Tackling the retirement wealth gap starts with communicating to employees clearly and straightforwardly about their retirement saving opportunities. Employers and advisors who can take the time to understand investors’ needs are more likely to connect with them. Additionally, financial services providers should make sure all employees have access to unbiased retirement advice and increase representation within their ranks so the industry better reflects the makeup of society. Over time, such efforts can help close the retirement wealth gap.
Takeaways for plan sponsors and intermediaries:
- Reinforce that relevant retirement communications are always straightforward, accessible and easy to understand.
- Provide unbiased advice, direction and support — and continue to promote the financial services currently available to participants. You may even consider adding advice as a qualified default investment alternative (QDIA) in the form of a managed account.
- Connect employees to digital tools that can be personalized to meet their needs.
- Look for recordkeepers that take diversity, equity and belonging seriously — especially when it comes to their employee base and internal training.
1 Empower Retirement conducted a survey in conjunction with the Harris Poll of 2,014 U.S. citizens in an effort to better understand the mindsets of traditionally underrepresented groups and the impact these mindsets have on retirement saving. For the purposes of this article, traditionally underrepresented groups include Black, Hispanic, Asian, First-generation American, Second-generation American, multicultural household, multilingual household, interracial couple and female employees. All the data in this article is from this survey unless otherwise noted.
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