How to really engage young people with superannuation
Young people play an important role in co-creating solutions to Australia's superannuation and retirement challenges – but how can the industry best engage them?
Superannuation is a complex topic for most, but it is especially confusing for young people who have a long way to go before retirement, and who might not be as financially literate. To help future generations better navigate this landscape, why not employ young people to generate actionable ideas for accessible digital tools that explain the myriad of complex concepts, the importance of saving, and what that might look like down the road?
That is precisely what the Retirement Sandbox project, a collaboration between UNSW and the superannuation industry, has achieved. The project’s lead, Dr Kevin Liu, Undergraduate Program Coordinator of the School of Risk and Actuarial Studies at UNSW Business School, recently spoke about how young people can help to co-create innovative solutions at the 29th Colloquium on Pensions and Retirement Research, co-hosted by the Centre of Excellence in Population Ageing Research (CEPAR) and the School of Risk & Actuarial Studies. The presentation was delivered jointly with Dr David Bell, Executive Director at the Conexus Institute, and Dr Shang Wu, Associate Portfolio Manager at Aware Super, both of whom completed their PhD at UNSW Business School.
Many of the challenges discussed ten years ago are still the same issues being addressed today, Dr Liu explained. These include post-retirement product design, financial literacy, longevity risk, behavioural issues that prevent people from making optimal retirement decisions, policy implications, regulation, and the performance of superannuation funds. So it seems these challenges are not going away anytime soon.
Do young people care about superannuation?
Speak to anyone in the superannuation industry, and they will say young people need to engage more with their retirement savings earlier in life. While the whole point of superannuation is to let time do the work, many Australians unwittingly end up paying fees on multiple funds instead of simply rolling them into one. Or, many people end up sticking with their job’s default fund for way too long, simply because they do not understand how to switch or the importance of doing so. Young people, who should be contributing more to their superannuation earlier to build greater long-term earnings, are "missing out" due to their lack of engagement.
Of course, asking young Australians to contribute more towards something they cannot access for many years into the future will present challenges, but assuming young people do not care about their futures is neither helpful nor accurate, as other, more systemic issues are at play. For example, in 2019, the Productivity Commission's final report revealed structural flaws, including unintended multiple accounts and “entrenched underperformers,” that harmed millions of superannuation members. Today, around $13.8 billion in Australians’ hard-earned wages is waiting to be claimed in lost or unclaimed superannuation, with NSW topping the nation at $3 billion. But can we really blame the public, or could there be other reasons those funds existed or were forgotten in the first place?
Superannuation is complex. For those who aren't expert investors, a lot of what's involved in how superannuation is invested and calculated isn't intuitive. Even something as basic as compound interest, which economists call a financial miracle, can be challenging to comprehend, let alone apply to your own savings when considering the impact of stock market volatility and the existence of the low volatility anomaly – a theory based on findings that stocks exhibiting lower volatility achieve higher returns over the long term. Indeed, many riskier asset classes experience down years, which can amplify losses over time, and this can be a difficult pill to swallow for some. Many young people are making decisions without adequate information or the ability to imagine what any of these decisions might mean in 20, 30 or even 40 years’ time.
All of this means that the world of superannuation is exceptionally tricky terrain for young people who generally want secure funding for their futures but don’t know how to achieve it in an increasingly unpredictable, volatile, and unsustainable world (given the looming threat of climate change). This is why young people need help making sense of the nuance in a way that interests and engages them. Indeed, reports have shown that young people become engaged when financial services and products are provided on the right platforms and are easy and simple to use. But the idea that all young people are uninterested and ill-equipped to handle their retirement savings journey is simply not true. Young people just need the right kind of engagement.
The power of unleashing student-led problem solving
Although academics, policymakers, and industry have mounted massive efforts to address the superannuation industry's ongoing issues, young people, as key stakeholders, are typically not engaged in developing solutions to tomorrow's most pressing challenges, explained Dr Liu. But the industry can absolutely inspire young people to own these issues and unleash their creativity and innovation to develop actionable ideas and solutions to real-world problems, he said.
Therefore, Dr Liu has incorporated Sandbox industry projects in the Retirement Saving and Spending over the Lifecycle course at UNSW Business School. To date, there have been three industry partners in the Sandbox program in the superannuation course last year – Aware Super, which provided one industry challenge, and the Conexus Institute and Super Consumers Australia, which jointly provided one challenge.
“The Conexus Institute is always looking for ways to collaborate, contribute and have an impact, so the Sandbox Program represents a really good opportunity,” explained Dr Bell. “I love working with smart and vibrant students, and it is good to engage students with problems faced by the industry.”
In one of the challenges, students were tasked with solving the problem of how to engage young members more with their superannuation for industry partner Aware Super. The second challenge for the Conexus Institute was to create a better retirement projection model. Working within a small group, one team identified a lack of personalisation and several barriers to understanding superannuation, regardless of age, yet expressed a desire to engage more.
Another group used an evidence-based approach to create a feature within the Aware super app that showed people the difference between the compounded value of making a voluntary contribution and the value of discretionary consumer/tangible items that target their demographic sees desirable, such as a vacation or a 20-year Netflix premium plan.
"Getting young members to engage with their super is an important issue. Understanding just what an asset their superannuation is can empower them to make a real difference to their retirement. So, we thought, why not challenge smart young students to develop some solutions?" explained Aware Super's Dr Wu. “Aware Super is pleased to be supporting the Sandbox Program, and we get really valuable insights from the students.”
Young people need to form an emotional connection with their superannuation
Most of the solutions the students came up with highlighted that, while young people, as key stakeholders, are typically not included or engaged, it is important to create tools that enable them to form an emotional connection with their future selves.
“We try to incorporate real industry challenges into the classroom to create a safe place for students to try and learn and co-create solutions, alongside industry practitioners. They can design solutions to real-world challenges and problems with 19 industry partners and 90 industry representatives across the different schools within UNSW Business School,” explained Dr Liu.
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These students have experienced a unique opportunity to learn, engage with industry, and contribute to the solutions to real-world retirement challenges. And so far, Dr Liu says he has been impressed with the students’ exciting and innovative solutions, which provide industry partners with fresh perspectives and creative ideas. “Our Sandbox collaboration experience shows that we can inspire talented young minds to play an important role in co-creating solutions to the pressing retirement challenges through partnering with the industry,” he said.
6 recommendations for industry professionals
- Superannuation product teams should involve members in co-design before determining how engagement tools present contributions, projections and retirement outcomes.
- Digital teams should test ways to link contribution decisions to outcomes over time, rather than presenting account information without context.
- Member engagement teams should examine whether communication helps members understand how decisions now affect retirement savings.
- Industry partnership teams should consider university collaboration as a channel to test concepts against the problems faced by superannuation members.
- Education teams should explain concepts, including compound growth, fees, investment risk, and retirement projections, using examples tied to members' decisions.
- Research teams should document the problem, design process, participant role and results when publishing future Sandbox work so readers can judge the basis for each conclusion.