How Can Employers Encourage Young Workers to Save for Retirement?
One reason young workers don’t save for retirement is that the event is so far off. An experiment to boost their saving tested different ads: abstract or concrete wording (“why you should save more now” vs. “how you can save more now”); and a short- or long-term savings goal (“how much to save from each paycheck” vs. “how much to save over your lifetime”). The most effective ads paired abstract wording with a long-term goal and concrete wording with a short-term goal. Therefore, communications designed to spur saving by young workers should match the framing of the message to the time horizon of the savings milestone.
Workers under age 35 have the lowest 401(k) participation of any age group. Failing to save for retirement at a young age means missing out on compounded investment earnings that can substantially ease the burden of building a nest egg.
The reasons young workers save less for retirement range from college loan repayments and low starting salaries to a desire to save for a house. Another reason is deeply rooted in psychology: when an event such as retirement is far in the future, people tend to distance themselves from it and think about it abstractly.3 In visual terms, it is more difficult to see the details of a photograph when one is far away – just as it is difficult for young adults to perceive old age. It will become more concrete only as they move closer.4 For young workers, then, retirement security lacks the urgency older workers feel.
This brief reflects preliminary results from research positing that young adults’ distance to retirement may discourage them from saving, and it tests what types of communication tactics might be most effective in promoting saving. The first section compares 401(k) saving patterns for young employees with their veteran coworkers and explores the psychology behind how individuals perceive future events. The second section describes an experiment using advertisements designed to expose younger and older employees to a variety of communications strategies that might encourage saving. The third section finds that two types of ads appear most successful in boosting young employees’ saving intentions – one ad pairing abstract wording with a long-term saving goal (a total nest egg amount) and the other pairing concrete wording with a short-term goal (a bi-weekly payroll deduction). The final section concludes that communication techniques that reflect how young adults think about future events are likely to be more successful in boosting their saving.