One advantage of defined-benefit pensions is that employees do not have to individually manage their retirement accounts – instead, pension funds are managed by finance professionals with deep knowledge of the market and years of experience. And, because of a clear formula, public employees are able to know approximately how much they will receive in retirement and can plan accordingly.
For the majority of defined-contribution participants, those public employees are the ones in charge of their retirement plans, despite varying levels of knowledge of the financial system and how the market works. Not only does this place the burden of investment performance on the backs of nurses, firefighters, teachers, and bus drivers, it also doesn’t guarantee those essential workers a guaranteed amount to use for retirement planning.
Retirement planning is only part of the financial planning process for workers: estate planning, budgeting, and debt are also major concerns. In a report published by the Center for State and Local Government Excellence (SLGE), “Financial Literacy Programs for Local Government Employees,” they found that only 43% of public-sector employees feel confident making independent financial decisions. A mere three in 10 government employees reported being offered a financial literacy program by their employer, despite 65% of government employees believing that it is important for financial literacy programs to be offered.
Public employees dedicate their careers to their communities, often spending decades of their lives making less than they could in the public sector. It’s important to offer these workers pensions, which are the most efficient vehicle for a secure and dignified retirement. However, it’s not the only way public employees should be thanked for their years of service. In SLGE’s report summary, they call out three galling statistics:
- 61% of Americans can’t answer more than three of five questions correctly on a financial literacy quiz
- 54% of Americans don’t have enough money set aside to cover three months of unexpected expenses
- 16% of Americans percent spend more than 20 hours each month worrying about personal financial issues while at work
SLGE found that when employees are empowered to make better financial decisions improving their health and well-being, the employer’s bottom line is improved along with them, not to mention morale and recruitment and retention efforts. So what does SLGE recommend government employers do? After conducting an assessment to understand employees’ needs and wants, they endorse creating tailored materials that translate complex terms and concepts into more easily understandable language. Employers should offer these resources in multiple languages and educate participants about how financial practices can differ across the United States.
A financially literate public employee is more likely to be happier and more productive in their job, and more likely to stay in it for the long haul.