Young canadians, a generation saddled with record-high student debt, poor job prospects and modest earnings, are still absorbing the fact that they will need to save more toward their retirement than their parents did.
Aside from the lack of positive cash flow, the reason many young people fail to save is deeply rooted in behavioural psychology: when an event such as retirement is so far in the future, people tend to distance themselves from it and think about it in the abstract.
In visual terms, it is more difficult to see the details of a photograph when you are far away – just as it is difficult for young adults to perceive old age.
The perception will become more concrete only as the event gets closer, says Nicole Votolato Montgomery, professor at Williamsburg, Virginia’s College of William & Mary, in a paper entitled How Can Employers Encourage Young Workers To Save For Retirement?
For young workers, retirement security simply lacks the urgency older workers feel for achieving this goal. Although individuals 45 and older save roughly 8% of their earnings on average, those younger than 35 tend to save less than 5%, according to the Center for Retirement Research at Boston College.
A key concern, then, is identifying what types of communication tactics are most effective in encouraging the younger cohort to save.
Research suggests that if an event is going to occur in the near future, people focus on the specific steps needed to achieve the desired outcome – the feasibility of reaching the goal, Montgomery says.
If, instead, the event is going to occur in the distant future, most people focus more on the desirability of the goal rather than the steps needed to achieve it.
Because younger workers think in a more simplistic manner about such a distant goal as retirement, she suggests, abstract information about the desirability of a secure retirement, coupled with a specific long-term savings goal, might better guide their decision-making.
Study participants were asked to look at a series of advertisements promoting retirement saving. All the ads were based on a similar template, but each was altered to represent either abstract or concrete wording – the “framing” – about retirement and either a long-term or short-term savings goal required to get there.
The results showed that the saving intentions of younger workers were heavily influenced by the interaction of the communication framing (abstract vs concrete) with the time frame of the savings goal (long-term vs short-term).
Among the ads with abstract framing, young employees were more responsive to those that proposed the long-term savings goal, suggesting both a higher intended likelihood of saving and a higher intended saving rate.
To encourage retirement-related saving, employers routinely distribute educational materials to their employees. However, these often fail to take into account the mindset of younger workers, for whom retirement remains a vague and distant event.
Materials appealing to their abstract way of thinking may be more effective in persuading this group to begin saving or to save more, Montgomery says, particularly if they are supported with concrete guidance, such as how much to save in each pay period.
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