Employees want employers to support their financial literacy.
Financial literacy is the foundation of financial wellness.
Is financial wellness more important for employees or employers? The answer is both. Thanks to a host of global economic factors, American workers are taking a hard look at their financial lives. More than ever, employees are looking for ways to improve their financial well-being. Employers are in a unique position to help by creating financial wellness programs that include financial coaching and improve financial literacy.
Between the ups and downs of the past few years and the effects of inflation, finances are tight for a large percentage of Americans. Many are relying on credit card debt and buy now, pay later options to make ends meet. In addition, 56% of Americans don't have the savings to cover an unexpected $1,000 expense.1 Unexpected medical expenses can hit employees hard, increasing stress levels.
Financial pressure can result in increased stress at home and work. In fact, according to one study, workers reported that financial stress negatively impacts their sleep, mental health, and productivity at work.2 Updating employee benefits packages to include a financial wellness program can result in a more committed and productive workforce. However, in a survey of HR professionals, nearly three in four (74%) report that their company hasn't updated employee benefits following the pandemic.3 For employers looking to offer financial wellness benefits, it’s important to align plan options with employee needs.
What is financial wellness?
When someone's financial life is in good shape, they've achieved financial wellness. Their day-to-day costs are covered, unexpected expenses are manageable and short- and long-term financial goals are achievable.4 In short, things are pretty good.
So how does someone achieve financial wellness? It starts with financial literacy, which is essentially an individual's understanding of how to use financial tools and skills. From budgets and personal finance to the basics of investing, financial literacy is key to financial wellness.
Unfortunately, Americans do not score well when it comes to financial literacy. According to a national study conducted by FINRA in 2018, only about a third of participants correctly answered four out of five basic financial literacy questions. These numbers are even worse for Black, Hispanic, and Native American participants.5 For these groups, literacy is only one part of a complicated path toward financial well-being. Let’s take a deeper look at the financial outlook for both groups.
A woman’s path toward financial well-being is different from that of a man. There are several contributing factors that can make it hard for women to achieve financial wellness. For starters, women often earn less than their male counterparts. They also may not have as much experience with finances. In fact, only 34% use a professional financial advisor and even fewer (24%) have a retirement strategy that’s written down.6 In addition, about a third (35%) of working women are or have been caregivers, and 83% of them had to make work adjustments due to their caregiving responsibilities.6 Any one of these could make it difficult to experience financial stability. Navigating all three can make a woman’s road to financial wellness, not to mention retirement, very bumpy. It’s no surprise that more than half of women expect to retire after age 65 and 53% of them expect to continue working after age 65 either full- or part-time.6 Women are trying to secure their financial futures. Most participate in 401(k) plans offered at work and on average they contribute 10% of their salary. As the world continues to recover from the pandemic, women are encouraged to keep their long-term financial goals in mind as they move forward.6
The racial wealth gap in the U.S. is complicated. While financial literacy is one factor that contributes to the financial well-being of people of color — it’s not the only issue. People of color and women both earn less. Recent studies have shown that people of color have been targeted by predatory financial services and even denied access. As a result, in part, they are more likely to rely on non-traditional banking options like bill payment and check cashing services or money orders.5 And between 2009–2018 while White Americans’ ability to make ends meet increased by 16 percentage points and Hispanic households saw their ability go up by 14 percentage points, Black households' increase was only 9 percentage points.5 This landscape combined with the complex nature of the American financial environment is problematic for not only individuals but our entire economy.
Improving financial literacy among women, minorities, and the population can aid the overall economic health of the U.S. Research conducted by the U.S. Financial Literacy and Education Commission 2020 proposal issued two clear steps forward:5
Clear guidelines for financial education
One-on-one financial counseling
Why is it important for employers to offer financial wellness programs?
Employers are in a unique position to help all employees improve their financial literacy through financial wellness programs that meet employees where they are currently. Those who offer a program see increased employee retention (41%), morale (40%), productivity (42%), and an improvement in company culture (44%).7 Providing this type of benefit can also serve as a recruitment or retention tool.
Increased employee retention adds up
HR professionals know first-hand the cost of losing a valuable employee. Financial wellness programs can serve as an essential part of a retention strategy. So, what's the best way to implement a financial wellness program? A trained professional can help with initial set-up, customer support, reporting, driving engagement, and coaching.7 If you're just getting started, keep these things in mind:
Set short-term goals to ensure you're engaging employees with valuable options.
Build a robust financial wellness program over time — it doesn’t have to be done all at once.
Monitor the success of your program to track participation and ensure options align with employee needs.3
Financial well-being can impact mental health and morale
If you've ever felt the strain of financial stress, you're not alone. In the last year, the U.S.'s inflation has increased by 7%.1 As a result, many households are trying to manage rising costs and stress levels simultaneously. Employers who expand employee benefits to address financial wellness can positively impact employee mental health and workplace morale. For example, when employees aren’t worried about paying for medical expenses, that boost in morale carries over to the workplace. That's a win-win!
Financially stable employees are more productive
For most employers, productivity is vital. Nothing saps employee productivity like financial stress. Employees whose financial life is stable are 42% more productive at work.7 And employees concerned about finances are twice as likely to seek new employment, which can be costly to employers.2
What kinds of financial wellness benefits are there?
Good news, there are several financial products to choose from when creating a financial wellness program. Research what your employees need before setting out to create a program. And remember, you don't have to go it alone. There are also toolkits and webinars to help measure and address employee financial wellness.8 Once you understand employees’ needs, it’s time to choose the products to offer in your program.
Retirement savings plan
Retirement savings plans are a staple for many American workers. One study indicates that 45% of employees save money in a retirement account.9 However, more than half of American workers may not be saving for retirement. Employers can consider offering other financial products as part of a benefits package if employees are not participating in retirement savings plans.
Safety net insurance
As the title implies, safety net insurance is typically a policy for life's unexpected events, like medical bills. This type of coverage can include life, disability, health, and even pet insurance. Supplemental health insurance is often tailored to specific medical needs, such as cancer insurance, critical illness insurance, or hospital indemnity insurance.
Financial planning
The world of finance can be confusing. A little professional help can go a long way when setting short- and long-term goals. Access to financial planning and advisory service is a popular option with employees. In fact, 93% of workers in one survey indicated they'd like their employer to provide increased access to financial planning services.9
Financial coaching
Financial coaching encourages accountability and helps employees navigate the basics like budgets, credit cards, loans, and more. Financial coaching can help employees improve their financial literacy as well.
Student loan benefits
For employees, education benefits rank near the top of the most valuable benefits an employer can offer.3 Whether it's assistance with loan repayment, tuition reimbursement, or a 529 account, employees see the value of this type of benefit. Plus, in a competitive market, education benefits can be leveraged as recruitment or retention tools.
Emergency savings account
Unlike retirement savings, an emergency savings account gives employees immediate access to cash. For many Americans, quick access to cash in an emergency can be a game changer. In fact, according to one study, 16% of employed and 45% of unemployed workers consider emergency savings accounts a vital benefit.3 For employers, this type of benefit can help retain and even recruit talent.
Employers who offer a 401(k) plan can work with their administrator to set up and manage the accounts. Those who do not provide 401(k) plans can work with an FDIC-insured bank or credit union to offer a Depository Institution Account.10
Employees are looking to employers to provide benefits that better meet their needs. Those who create a program that puts employee needs first, stand to win big with current and future employees.
Things to consider
Employees want a financial wellness program from their employer.
Financial wellness begins with financial literacy.
Financial stress at home impacts employee productivity and retention.
Transamerica Resources, Inc. is an Aegon company and is affiliated with various companies which include, but are not limited to, insurance companies and broker dealers. Transamerica Resources, Inc. does not offer insurance products or securities. The information provided is for educational purposes only and should not be construed as insurance, securities, ERISA, tax, investment, legal, medical or financial advice or guidance. Please consult your personal independent professionals for answers to your specific questions.
