Prosperity and security are slipping out of the hands of many American workers, raising serious — but not insurmountable ― challenges for employers of all sizes in every industry.
The facts speak for themselves. As quoted in a recent Prudential report, more than 60% of Americans do not have a “rainy day fund” with enough savings to cover a $500 emergency. In addition, 52% of households are at risk of not being able to maintain their standard of living in retirement.
It's no wonder, then, that only 22% of individuals described themselves as being “financially secure.”
In addition, health-care costs and high debt levels are straining individual and family resources, leaving the typical worker vulnerable.
“Many people today are buckling under the strain from debt and budgeting challenges, which diminishes the extent to which they can plan for the future, including saving for retirement and protecting themselves against unexpected life events,” said Phil Waldeck, president and CEO of Prudential Retirement. “So in addition to being vulnerable to surprises, many Americans are on a track where their overall financial security is at risk.”
That's a problem not only for individuals but also for their employers.
“To the extent that living with financial stress leads to behaviors and dynamics that erode optimism, confidence and physical health, that can set the stage for low engagement at work and drive up health-care costs, workers comp and absenteeism,” Waldeck said.
The hit to worker productivity is also clear. According to the Consumer Financial Protection Bureau's report on “Financial Wellness at Work,” 46% of employees admit to spending two to three hours a week on personal financial matters while at work.
Waldeck said employees' financial insecurity has more of them concluding that they will have to work longer to make up savings shortfalls. Indeed, according to PwC's 2017 employee financial wellness survey, almost half (43%) of employees say that they expect to retire later than they originally planned.
“An increasing number of workers putting off retirement because they need to, not because they want to, could result in a workforce that has higher stress levels, is less motivated and potentially less productive,” Waldeck said. “This is not just a human resources concern. This has a financial impact for employers that is real and quantifiable.”
When employers help workers who are financially vulnerable get back on track to a successful retirement, everyone wins, Waldeck said.
NOT JUST A BENEFIT
That's the context in which discussions about financial wellness and company-sponsored financial wellness programs have emerged. And it is why employers need to start considering financial wellness not only as a benefit for their employees, but as a business investment.
“It is relatively early days in terms of financial wellness as a strategy and how that strategy is being deployed,” Waldeck explained. “But more employers are clearly thinking about how financial wellness can deliver tangible benefits to their business.”
There is no commonly accepted definition of financial wellness, which leaves it open to different perspectives among individuals, employers and benefits providers.
“Financial wellness means something different to everyone because concepts like security, freedom and flexibility are really complex concepts that people anchor to in different and intensely personal ways,” Waldeck said. “But there are core tenets to financial wellness. At Prudential, we have done a lot of consumer and employer research to get to the bottom of what people value over the long term, and what will help motivate them to take action.”
To move the ball forward, Waldeck believes employers have a unique advantage in framing the concept of financial wellness for their employees.
“One of the bedrocks of American society is the relationship and the trust that employees have with their employers,” he said. “It starts with employment, career opportunities and income, but there's also a deep history of looking to the employer for benefits and education. We have found that workers trust their employers to help them understand and work toward financial wellness.”
Employers of all sizes have an opportunity to educate workers and help get them on the right track so that they can build a secure foundation over time. Behavior change, for example, encouraging workers to adopt behaviors that support financial wellness, is one of the most important outcomes to drive toward. Finally, companies can offer employees cost-effective programs and services that can help them move from financial insecurity to financial security.
According to Waldeck, that secure financial foundation begins with three areas of focus that every employee should strive to embrace.
The first involves budgeting and meeting day-to-day expenses such as being able to make utility, mortgage or rent and car payments on time.
The second is for longer-term goals such as saving for retirement, appropriately allocating retirement assets and children's college expenses.
Third is helping workers protect themselves against unexpected events such as disability, an unexpected illness or a premature death of a family member.
“These are the building blocks of financial wellness,” Waldeck explains. “Some approaches focus solely on the savings component, or budgeting, but we believe that the real value in these programs lies in giving employees a broad view of all of the facets of financial security, and inspiring them to work toward that goal. There really is no quick fix.”
Just as there is no single definition of financial wellness, there is also no single approach to implementing a financial wellness strategy.
Prudential's research found that while 82% of employers believe their company would benefit from a financially secure workforce, they are just starting the process of taking action to help make that happen.
In Waldeck's experience, the conversation with plan sponsors generally starts with concern for their employees and the need to find better ways to use the investment in benefits programs to improve outcomes for individuals. But more often, employers are raising the issue with providers because they recognize the strong business case for financial wellness.
“Employers have become increasingly sophisticated in managing employee benefits programs to build loyalty and commitment while also reducing risks and costs. The interest in financial wellness is an outgrowth of that thinking,” Waldeck said.
One of the biggest hurdles plan sponsors face in addressing employee financial concerns is knowing where to begin.
“We hear a number of questions from plan sponsors,” Waldeck explained. “The most common are how do you know what to offer, how do you empower employees, and how do you help employees take concrete action?”
A first step includes reviewing the organization's strategy and priorities, and how the benefits program is structured to help achieve those aims. Data and insights into workforce trends and needs at various life stages is also used to identify any gaps.
“This is where some employers choose to leverage their existing retirement and group benefits providers to enhance the entire benefits suite with a focus on financial wellness outcomes,” Waldeck explained. “Others zero in on one or two top challenges such as an over-reliance on using 401(k) loans to cover emergencies.”
A combination of educating employees on key concepts, giving them an emotional connection and using behavioral finance concepts are all part of empowering workers and inspiring them to take action. Increasingly, employers are using data analytics to project financial wellness gaps, and turning to digital engagement tools to provide tailored resources or guidance when individuals need them most.
“Having a well-thought-out benefits program that helps employees overcome their challenges is part of what attracts talented individuals to an employer, and encourages them to build their careers with that employer. The value of these programs cannot be overlooked,” Waldeck said.
Finally, financial wellness strategies need to be measured and quantified.
“If employers take on the role of stewards of financial wellness, they will need to be able to demonstrate progress and measure their programs in terms of employee engagement and business results,” Waldeck said. “That is why solutions providers need to step up their game in terms of delivering tools, resources and products, and helping employers quantify impact and outcomes.”
Waldeck added, “We have to get better as an industry at helping plan sponsors embrace financial wellness, because we are the experts.”
A NEW FRONTIER
With so many definitions and approaches, financial wellness can seem complicated…but there are easy ways to get started by having the conversation with existing benefits providers on how to incorporate financial wellness concepts and metrics into existing programs, or by focusing on one or two key challenges.
What is clear is that a focus on financial wellness can have a significant impact on employees and employers alike.
Implementing financial wellness programs will require new approaches that are not only cost-effective, but also engaging for individuals, said Waldeck, who believes that many of the best solutions are going to be digital and incorporate interactive games. They will also have to be holistic.
“Financial wellness tools and solutions will have to integrate the complex parts of people's lives and the benefit and protection strategies that address their needs,” he said. “They must do so with an action orientation that adapts to each person.”
Many long-term benefits providers, which have been in the business for many years, are already looking to build those holistic integrated approaches.
However financial wellness strategies are implemented, the goal should be to help more individuals get back on financial track through a workplace channel that has delivered benefits effectively for decades, Waldeck said.
“Building this foundation is not only important for the individual and for the employer, in terms of creating a stable and productive workplace, there is also a ripple effect that leads to stronger families and communities,” he said. “There is a social dynamic here in terms of building and maintaining the country's economic prosperity.”