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How Financial Information Is Presented Impacts Asset Allocation Decisions

New research from the TIAA Institute found that working adults’ ability to understand retirement plan communications, along with how the information is presented and how workers absorb it, has a notable impact on their asset allocation decisions. Since having the right investment mix plays a key role in retirement readiness, the findings, though early, are significant.

According to the TIAA Institute study, even though larger organizations may have someone  available with financial know-how — like a financial advisor — to help retirement plan participants make more informed investing decisions, many workers rely on self-education and self-assessment of their knowledge to choose their asset mix. However, financial information is complex, and that self-reliance may lead workers to misunderstand what they’ve read, and as a result, make the wrong asset allocation decisions for their risk tolerance, age and stage of life.

It turns out that how the information is presented impacts comprehension and decision-making. TIAA researchers used eye tracking technologies to collect information at the individual level about how workers consume and process financial communications. The information was also presented in different ways, i.e., in print and online, and graphics vs. text.

What they found was that reading style had the biggest impact on comprehension, which affected asset mix decisions. Workers read print media more closely than online formats, and charts garnered more visual attention than text.

In addition, the TIAA researchers discovered that financial knowledge has two components: conceptual knowledge, such as financial literacy, and procedural knowledge, i.e., how to make financial decisions. Both had similar, impactful effects on individual asset allocation decisions. For example, “higher knowledge” individuals tended to invest in stocks. Other individual traits, such as risk tolerance and financial self-confidence, also impacted investment allocation decisions.

So what does all this mean? How information is presented and how workers ingest it are key pieces of information for sponsors to account for when it comes to retirement plan communications. Presenting the information in ways that are more graphic-intense and aesthetically interesting may capture more attention, thus boosting participants’ comprehension and potentially prompting them to make better, more informed asset mix decisions, leading to improved retirement outcomes.

Robyn Kurdek

Robyn Kurdek

Freelance writer with nearly 2 decades of financial industry experience, with niche expertise in the defined contribution (DC) industry. I also have defined benefit (DB) plan knowledge. I write all types of content for retirement plan participants, sponsors and advisors, including web copy, newsletters, white papers, fact sheets, blog posts, financial wellness articles, and more. "I speak DC."
Robyn Kurdek
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