Overcoming Math Anxiety a Key to Better Understanding Retirement

Informing plan participants is not a suggestion. And much has been said of the need to make information provided to plan participants more readily understandable. But a specialist in retirement education and employee benefits communication has suggested that something else is in play in participants’ understanding of retirement-related information — math.

In “Math Without Meaning: A Hidden Flaw in 401k Education,” Dennis Ackley of Ackley Associates certainly does not argue against efforts to simplify the wording and content of materials concerning retirement plans. “Investment jargon needs to be eliminated or clearly defined repeatedly. If employees don’t understand the words in 401k meetings or materials, not much learning will ensue,” he writes. But that is not enough for everyone, says Ackley. “So what about employees who don’t understand the math your 401k educator is using? Math illiteracy might be a greater learning obstacle in 401k ed than jargon,” he writes.

Ackley argues that certain math skills are central to successfully participating in a 401(k) plan and maintaining an account. If employees are to be successful, he says, they must know how to:

• create a realistic and meaningful estimate of the amount of money they’ll need in their account to pay for the lifestyle they’ll want during retirement;

• determine how much money they need to contribute to build their account,

• invest their account to supplement its growth, and

• make periodic withdrawals from their account in order to have the income they want and that will likely last their lifetime.

“All these things involve numbers. Math is required,” Ackley asserts.

There are a variety of reasons that math is an obstacle to some participants’ understanding of retirement-related materials and their ability to successfully manage their retirement accounts.

Disparity in Understanding. Ackley observes that senior managers, investment specialists and financial professionals “already know or readily learn the math involved in 401(k)s.” They may suffer from “the curse of knowledge,” he says, which creates in them a lack of understanding regarding how anyone could find basic math hard, nor how the math involved in 401(k)s could be an obstacle to participants. But, says Ackland, the United States is rife with poor math skills. “Unless your workforce consists only of math majors and math lovers, there’s a good chance you’ve got some math-challenged 401k participants. America is full of them,” he writes.

Bigger Is Not Always Better. Ackley observes that there are multiple studies in which people choose fractions in which the denominator is larger over fractions with a lower denominator, not understanding that those with larger denominators are not always a larger amount. This, the studies show, reflect an assumption that a larger number is always better than a smaller one, no matter where it appears in a figure or equation or fraction

Percentage Perils. Many people also have a hard time correctly using and calculating percentages, according to studies Ackley cites.

Equation for Improvement

There are some steps that Ackely suggests can be taken to improve the situation:

1. Convince those who are conversant in math and its application to retirement plans that there really are people who do not share their skills.
2. Suggest an approach to retirement plan education that focuses on who will not attend a basic presentation or will not visit a related website.
3. Enlist the help of a retirement plan provider.
4. Make sure that educators making presentations to employees understand that many of them may be math-challenged.
5. Audit materials to be presented at employee education sessions, to make sure employees will readily understand them.

“All employees — not just the number-lovers — deserve a 401k education that will help them learn how to use a 401k successfully,” asserts Ackley.