Financial education, starting with something as simple as the snowball effect of compound interest, may be an effective way for super funds to build member trust and engagement, writes SALVADOR SAIZ.
Anyone working in the superannuation sector knows the challenge of inspiring interest in a relatively (and unfortunately) disengaged audience. By building trust and engagement through financial education, proactive funds can build financial literacy and stronger relationships with members.
Firstly it’s essential to understand what members don’t know (but should know) and how financial knowledge can benefit them.
A commonly misunderstood topic is compound interest and its benefits. We in the financial services industry know the magic and power of compounding and how it can work to help build wealth. However, we take this knowledge for granted and probably assume “everyone” knows how it works. In reality, financial literacy levels in Australia are low. Numerous surveys over the years have confirmed this but thankfully, it isn’t too difficult to explain with the right tools. So let’s share the magic of compound interest.
Would you prefer to have $1 million today, or start with $1 today and have it doubled every day for a month?
The beauty of compound interest is it’s one of the easiest ways for members to make/save money without really doing anything. It may sound too good to be true, but for once, this one is genuine, and there are many ways to prove it to members. However, we often forget we need to communicate differently and use different concepts with members, than those we in the industry are familiar with.
Lifting the financial knowledge of your members around compound interest helps build a stronger connection as their trusted, reliable financial partner. It also creates an opportunity to share the benefits of long-term investments, savings, the importance of super, and the value of making voluntary contributions. Helping your members build interest is more than just financial.
Everyone likes the idea of financial gain for little effort, and that’s what compound interest in super can deliver. And it can do it in two ways:
A great way to kick off the topic is to ask members this question: Would you prefer to have $1 million today, or start with $1 today and have it doubled every day for a month?
Then reveal that if they chose the second option, by the end of 30 days, they’d have over $10 million – thank you compounding!
Sure, this is an extreme example, but it’s also an attention-grabbing way to spark a conversation about how compound interest can be a powerful yet easy strategy for growing their super balance. And they don’t even need to do much or be particularly financially savvy.
You’ll then need to explain how it actually works. We love an analogy, and the snowball is our favourite to demonstrate the continual growth of compound interest. A simple analogy keeps the topic relatable and easy to understand for those still expanding their financial literacy.
Explaining compound interest should be the easy bit.
Gaining the audience’s attention can be the more significant challenge, and engaging customers through education needs to be much more than just an article and some cute snowball graphics (although we have those at the ready).
When it comes to broadening members’ financial literacy, a multi-faceted approach is necessary, drawing on a variety of channels and methods, such as:
All good communication begins with understanding your audience. Show them you understand their needs and wants, and they’ll feel valued. Then they’ll listen. Deliver your message in a simple and engaging way and you’ll capture their interest.