“If you don’t understand the basics around saving and investing, it might create a false sense of confidence,” said DeLong. “Perhaps you would be less confident if you understood your particular picture or had a sense of what you were doing. There could be a correlation between low levels of literacy and high levels of confidence.”
While most plan participants are not counting on Social Security to fund their expenses, a sizable portion believe that it will be sufficient: 41 percent of survey respondents said they would end up being able to fund their retirement needs from the program.
Alliance Bernstein also asked participants their feelings about socially responsible investing. Ninety percent said it’s important for the investment options in their plans to reflect their core values, and 71 percent said they would be likely to invest in socially responsible funds if offered within a plan.
“We’re seeing the sponsor community and plan advisors as well just starting to think about this and educate themselves, but I think that process will speed up if there is more demand from participants,” said DeLong.
The participants’ lack of financial literacy was on display when they were asked about target-date funds, with more than one-third of investors in those funds believing they were guaranteed not to lose money and that they would be invested 100 percent in cash at retirement. More than two-fifths of the target-date fund users believed the vehicles guaranteed a certain level of retirement income and that they were insured by the FDIC.
From its survey, Alliance Bernstein identified three archetypes of retirement plan participants: Capable, confident investors; eager, young, unaware participants; and cautious, confident savers.
Capable, confident investors scored highly on the financial literacy portion of the survey and expressed high levels of confidence.
Eager, young, unaware participants had high enthusiasm for planning and saving and high levels of confidence, but scored low on the financial literacy portion of the survey. They were the most likely to describe themselves as spenders, rather than savers, and to report not following a financial plan.
“The eager, young and unaware certainly have the longest runway to retirement, enabling the help of an advisor to have the most impact,” said DeLong. “Though it can be hard for them to think about retirement, they have the opportunity to do something about it now.”
Conservative, cautious savers had both low confidence and lower levels of investment knowledge, but also reported being diligent savers—Alliance Bernstein’s report argues that these participants “actually know more than they may realize.”