|
Why is the Financial Health of Employees Important to Organizations and What Can be Done to Help?
By: Gary Klaben, President, Simply Money Now
| |
What is financial wellness?
“Financial wellness” is a relatively new term in our lexicon. To be financially well is defined as having good fiscal health and sound financial well-being, which includes extrinsic and intrinsic qualities. Extrinsic qualities are easy to document and understand and can include things like cash flow, having an emergency fund, saving 15% annually, and spending less than earned (budgeting discipline). These are all solid extrinsic, financially-well benchmarks.
Intrinsic factors such as emotional, social, and economic relationships with money, along with behavioral biases around money and finances, can either increase or reduce financial wellness.
What are telltale signs that an individual is generally financially well? If that person has more money coming in than going out, has several months of expenses set aside for emergencies, along with consistent debt reduction and long-term savings are generally good indications of a ‘financially well’ person. Further, it’s important that that person feels confident about their finances and their plan moving forward.
| |
Why is financial wellness an issue for employees?
Regrettably, individuals that fit the profile described above are the vast minority of American workers. Does it surprise you to know that 41% of Americans don't have $400 for an emergency? Or that 67% of Americans cannot pass a basic financial literacy test?1
Yes, indeed, it is that bad.
Unfortunately today, money is generally not part of our basic secondary education. But it used to be. In the 1950s and 1960s, students learned the basics of budgeting, balancing a checkbook, and basic savings. This is no longer the case. Based on a recent study, people are two times more likely to discuss politics, religion, and sex and drug use than to discuss salaries or size of retirement savings with friends.2
Not only are many people not money savvy, they won't even discuss important money topics with others due to socially constructed taboos.
Back during the '50s and '60s, while students were learning about money in high school, their parents were busy accumulating wealth from defined benefit pension plans. When these parents retired in the 1970s and 1980s, they were financially well receiving a monthly pension and Social Security.
Fast forward four decades. Today, only unions and government-funded pensions remain. The result? The majority of workers must rely on a 401(k) or other self-funded programs to perform their retirement-funded heavy lifting. The issue? Very few people understand what they need to contribute and by when in order to retire the way they want to.
The employer, supposedly the fiscally responsible party, “feels their pain” and speaks of financially ‘hugging their employees.’ Meanwhile Human Resources department fields money complaints, watches over workplace accidents and missed work days – while employees scramble to hold down two jobs or an additional gig job to make ends meet.
| |
Why is the financial health of employees a problem for employers?
Much has been studied and written about financial wellness, especially in the 401(k) and retirement plan industry; but far less research has been done about financial scarcity – defined as the perception that one does not have sufficient financial resources to meet one’s needs.
Often we single-mindedly think about financial wellness as retiring on time with dignity. But if the data proves the vast majority of employees are not retirement ready, what does that mean for employers? It actually means a great deal. Deeper dives into balance sheets and the contributing factors that impact employer bottom lines have been done in recent years.
A recent study analyzed two types of scarcity; direct scarcity, which might involve an employee who doesn’t have much money and knows it, and indirect scarcity, which is the cognitive burden or perception around their current situation, and the stress associated with it. This indirect scarcity is significant because when employees are focusing on their financial concerns and regulating the resultant negative emotions, their job performance can falter because they have less attention and information-processing power to devote to work-related tasks (Smallwood & Schooler, 2006).
Financial scarcity and the corresponding lack of retirement readiness combined with a population of employees who statistically become less healthy as they age, has a direct negative impact on an employer’s financial statement and bottom line.
| |
What can an employer do about it?
Like any new benefit offered in corporate America, many players entered the financial wellness fray. From comprehensive platforms and single-subject options, to thinly structured programs and elevated lunch n learns, many have tried and few have succeeded in solving the snowballing financial crisis in America.
Many programs focus on major pain points such as debt reduction or specific pre-retirement planning. These programs inadvertently shut out a majority of employees who are experiencing other life-changing or financially precarious issues related to negative cash flow, poor investing, a lack of critical insurance coverages, etc.
Engagement with employees is primarily passive. Email communication from the program provider or the Human Resources department remains the central communication channel used by the majority of programs at a time when, ironically, email open rates are under 3%.
Due to societally constructed taboos around money discussion, financial illiteracy, and the financial precarity of living from paycheck-to-paycheck, important money messages are not being received. Financial wellness needs to focus on eliminating communication deficiency and removing employee financial precarity. The employee’s engagement must increase; the employee needs help and they need it now.
Employees are employers’ greatest asset. They are the lifeblood of any organization. If then, the employees need help and employees make up employers or businesses, doesn’t it then, make perfect sense how employees’ financial struggles directly impact business balance sheets?
Today, very few financial wellness programs take both active and passive engagement approaches when it comes to addressing financial issues and coming up with plans. But they should. Financial wellness and financial well-being are states of mind. The path to realizing these states is different for everyone and requires not only education, but expert advice, personal context, planning, diligence, accountability checks, and consistency. The question becomes, how can we democratize such a personalized financial planning offering, and bring the value of a hybrid private financial planner/personal financial coach to everyone?
The answer? Technology.
Technology makes it possible for advisors to scale. By automating the time and labor intensive parts of their jobs, technology gives advisors that time back to guide employees in personalized ways.
Technology has now progressed to the point that the initial onboarding of an employee can be accomplished simply and easily. In less than 60 minutes, employees can sign up, take an assessment to assess their intrinsic financial sentiments, aggregate their financial accounts (checking, savings, 401(k), investments, credit/debit cards, etc.), generate automatic to-do's, schedule a meeting with an advisor, read up on topics relevant to them, chat, and so much more.
Controlling for scarcity with effective retirement readiness and comprehensive financial wellness programs is incredibly powerful and has a direct impact on employees and companies. Implementing a holistic and flexible program including technology and human interaction, backed by expert coaching is critical in making a difference in the hearts and minds of employees, and on the balance sheet.
| |
Conclusion
Most employees in America are considered “the ignored." They are ignored by the majority of financial services advisors, consultants and planners. Employees simply do not provide a payday of any consequence in the still primarily transaction-centric bureaucracy of money. Wall Street generally ignores Main Street.
This urgently needs to change. Employers no longer can risk ignoring their most important asset: their very valuable human capital. Employees represent employers’ critical number one investment for future success. Contact your consultant to learn how we can help
| |
About the Author
Gary Klaben is the President of Simply Money Now and is a financial coach focused on helping people achieve financial wellness. Gary is always simplifying the complex and strives to motivate others to take the next action that's right for them.
| |
| This report is intended for the exclusive use of clients or prospective clients of DiMeo Schneider & Associates, L.L.C. Content is privileged and confidential. Any dissemination or distribution is strictly prohibited. Information has been obtained from a variety of sources which are believed though not guaranteed to be accurate. Information has been obtained from a variety of sources believed to be reliable though not independently verified. Past performance does not indicate future performance. This paper does not represent a specific investment recommendation. Please consult with your advisor, attorney and accountant, as appropriate, regarding specific advice.
| |
|
|
