a mortgage. The end goal is to secure a mortgage but getting there can be a complicated and stressful process. To reduce the adverse effects, individuals may call on various sources including family, friends, published resources, and experts and then go through the f o l l o w i n g information gathering steps required to make a knowledgeable decision:
- Context: Why do buyers need to learn about a mortgage? It’s simply because they need a place to live. In this case, the buyers bring the context in which the decision is made.
- Information: Banks, realtors, books, and the internet can all define what a mortgage is, how it works, when it is used, and who might need one.
- Guidance: These sources can also provide guidance in the form of advice and help you work through various scenarios.
- Practice: Mortgage and amortization calculators allow home buyers to experiment with numbers and scenarios to explore their various options.
Together, all of these steps – context, information, guidance, and practice – represent education. Now, the buyer is in a position to make key decisions such as which mortgage provider to choose and the appropriate mortgage size, rate structure (fixed versus floating), and amortization period.
Relative to deciding on a mortgage, decisions pertaining to CAPs can be quite complex. Furthermore, the buyer may not have access to good information or sources of guidance.
The other key difference is that home buyers have an immediate need in purchasing a house which means that they need a mortgage. Employees may not value a retirement plan because the need is not immediate and, therefore, often not understood. So how can we teach them about CAPs and how do we motivate them to learn?
The following guidelines, as proposed by the Joint Forum on CAPs, aim to provide the timbers to build the bridge across the thorny ravine.
- Investment Information – how investment funds work, securities, relative levels of risk, glossaries, and product guides
- Decision-making Tools – asset allocation models, retirement planning tools, calculators and projection tools, and investment questionnaires
- Guidance – giving employees the option of seeking professional expertise
What is still missing from the learning environment is the context for learning – why do I need to learn about CAPs?
The immediate need is the primary difference between learning about mortgages and learning about retirement planning. In the August 2003 issue of Benefits and Pensions Monitor, Annick Douville reports “a recent survey shows [that] many Canadians have failed to realize the importance of making enlightened retirement planning decisions.” Stated another way, they simply don’t see the need.
This makes it challenging for a CAP sponsor to educate its members. A lending institution that provides basic information about mortgages and an amortization calculator may find that people will learn because they have an immediate need to learn. A CAP sponsor that does the same may discover that its members do not have the information and assistance they need to make informed investment decisions as stated in the guidelines.
As such, more formal and structured investment education is required. Plan members need information, tools, and places to seek guidance – all structured and packaged in such a way that communicates the importance, value, and immediate need for them to explore, practice, and, ultimately, make an informed decision about their future.
Your first step is to provide educational materials that bridge that thorny ravine. The world is changing, markets go up and down and, each year, CAP members and their families have to face some of those ‘big’ financial decisions. As a result, retirement planning is something that should be (some say must be) revisited annually or whenever a major life change occurs.
The implication for a CAPsponsor in relation to the educational offering is four-fold:
- The information, contexts, tools, and guidance must be kept up-to-date and dynamic. The sponsor cannot anticipate major changes in the world, markets, or where p