When it comes to financial benefits at work, employers typically provide a 401(k) retirement plan option — and that’s it.
But both economists and human resources experts alike suggest that expanding financial wellness benefits in the workplace could be a cost-effective way to quickly address the staggering number of Americans living paycheck to paycheck, struggling with credit card and student loan debt, and experiencing stress around their personal finances.
The following Q&A with top industry experts explores how we define financial wellness following the coronavirus pandemic and the various types of financial wellness programs available today.
Questions and answers were taken from the U.S. News Webinar: How Financial Wellness Benefits Can Help Attract and Retain Employees recorded on April 5 and have been edited for length and clarity.
Q: How do you define financial wellness?
Annamaria Lusardi, academic director of the Global Financial Literacy Excellence Center at the George Washington University School of Business: As the word says, it means taking a 360 degree view on the personal finances of people.
We looked at some indicators of what financial wellness is and can be achieved, and I want to mention five, which is a sort of financial checkup that we can do on our employees and on people in general.
First, do people have the financial skill and knowledge to navigate the financial decisions we all have to make? Second, do we have the capacity to face unexpected shocks that could otherwise derail our path? Third, are we constrained by debt or can we manage and meet the obligation of the debt? Fourth, can we plan and save for the future? Finally, can we take advantage of all of the benefits offered by employers to do better in our personal finances?
It means looking at the personal finances of people well beyond their retirement savings. As an analogy, I want to say it’s like the checkup we do every year when we go to the doctor or what we do for our car, for example, when we take it to the mechanic. We want to do prevention. We want to make sure that we are really living well and are satisfied that we can do well with our personal finances.
This is important because if you are a young person, you are starting your economic life today in debt, probably carrying student loans. We all face an increase in risk: it could be climate change risk, it could be just the risk of the macro shock, as we have experienced with the pandemic and the war, and it could also be being a lot more in charge of our financial security in the short and the long term.
Q: How has the coronavirus pandemic further exacerbated existing issues around financial literacy and the need for financial wellness support?
Alexander Alonso, chief knowledge officer at the Society for Human Resource Management: We experienced a macro shock like one that we haven’t seen, candidly, since World War II, and one of the things that we see from a financial perspective is organizations are actually decreasing the number of benefits that they offer when it comes to learning, on the whole. In fact, we know that only 45% of enterprises offer this and then when they do offer it, utilization is up by almost 20%.
We’ve seen sort of a shift in the priorities of the organization, and it’s no surprise that that’s happened. When we talk specifically about the pandemic, more often than not CEOs, (chief experience officers) and (chief human resource officers) all point to one thing that stood out to them as an immediate need that came about due to the pandemic: It was actual well-being and mental health. The problem is that this diverted energy and attention away from the core skills around financial literacy.
Keep two other statistics in mind: Only 60% of working Americans said that they could survive an economic macro shock for more than four months, and only 7% said that they felt they had the financial literacy to actually achieve survival and to keep their finances and their financial planning going. That’s an indication from the working American that they themselves don’t feel ready for what we’ve experienced. We’ve seen a whole different perspective, both from the worker as well as the workplace.
Q: Many employers are aiming to address some of those issues. What do these programs actually look like when implemented?
Diana Witkowski-Grubard, human resources director at Northwell Health: Back in 2014, we had one of those typical surveys where you’d answer a bunch of questions and upon completion nothing happened. We left you high and dry. There was no follow-through. We really started to take more of an interest in promoting our retirement plan specialist. We started to encourage our employees to start planning for retirement and meet with a plan specialist.
But then in 2018, we started to evolve our program looking to create a user experience that would take our employees through a journey. We’re not just all doctors and executives. We want to deal with that population, but also how do I start to meet the needs of those that traditionally don’t fall within that financial scope and how do we start to educate them?
Our financial well-being program really looks at three major components. We have a digital education experience, and this is designed to measure and improve financial well-being by exploring a range of topics based on your individual needs. So you complete a survey and based on your answers, you’re going to go on a journey and that information is going to be provided to you in several different ways.
We also try to offer workshops about hot topics such as cybersecurity and cryptocurrency — not your typical financial education topics.
The last component for us is our financial planning. We allow our employees to sit down with a designated financial planner to talk about their individual needs. And that’s been a huge success. We really want a program that meets the needs of all of our employees, where there’s something for everyone and it’s really easy to access.
Q: Thinking about employees across the salary spectrum and from a range of different backgrounds, is there a group or groups most in need of financial wellness benefits?
Dani Pascarella, founder and CEO at OneEleven Financial Wellness: In America, the bar is just abysmally low. There’s nowhere to really learn this stuff, and we really struggle with building those healthy habits.
Four out of five Americans are paycheck to paycheck, even if you look at millennials making six figures. High earners and young people, it’s still 60%. So these bad habits, not learning the right way to do things from an early age, affects all income levels.
And if you look specifically at 401(k)s, for example, which is the most common benefit you’ll see, among white families, 65% are contributing. When you look at black families, that drops to 44%. Among Hispanic families, it’s 28%. And then when you look at gender, men have three times the retirement savings as women. So from a demographic standpoint, this is a massive diversity and inclusion issue if you’re just offering a 401(k) and not offering anything that helps people who would love to contribute to retirement but can’t quite afford that yet because maybe they’ve been dealing with a wage gap their whole life.
Q: Looking ahead to the future, what do you predict for the future of financial wellness?
Lusardi: I think this is a unique opportunity to use the time where we are now to use what we have witnessed — for example, during the pandemic and how important it is to be prepared for the unexpected — to really reinvent the future. We cannot go back to what was there before the pandemic because that was not good enough.
We need help. It is harder to find resources and resources that are reliable, and that’s why the employer can be an incredible source of help and information. This is often what the employee wants. It can be very cost-effective, particularly if you have a very large workforce.
Look at how vulnerable people are to shock: how low the financial literacy is, the fact that we don’t have anything in school, for example, the fact that people are taking on a lot of debt, the fact that people struggle to save for retirement. There are a lot of things we can change.
So I just want to end this with a call to action, in particular on the employer level, because there is a lot that can be done and we have the instrument, ideas and technology to do it, so let’s do it.
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