What Are The 3 Keys to Financial Health?

According to recent return on investment studies, increasing employee financial wellness is one way to improve your company’s bottom line.

The Center for Financial Services Innovation found that when employees felt financially secure, they were more engaged and productive¹.

In fact, companies offering financial wellness programs actually strengthen their brand and reputation.

But what constitutes employee financial health, and how can a financial wellness program help employees? 

The 2020 PWC Employee Financial Wellness Survey discovered three key components of financial wellness: financial stress, emergency savings, and retirement savings².

The survey concluded with recommendations for financial guidance to improve employee financial health in these areas.  

Let’s explore these components and how offering a financial wellness program will benefit your employees, and ultimately, your bottom line.

Financial Stress

PWC found that employees are stressed about money. In fact, they are more stressed about money (54 percent) than all other life stressors - such as health, relationships, and employment - combined.

Additionally, when employees feel this stress, they are far more likely to bring that stress to work in the form of distraction or presenteeism: 50 percent of financially stressed employees are distracted by finances at work, compared to only 16 percent of non financially stressed employees.

A Financial Health Network survey found that financial stress is not limited to specific groups of employees based on age or income, nor is financial stress limited to particular industries or professions³. Because of the pervasiveness of financial stress, all employers feel the effects.

Financial wellness programs can help reduce this stress by providing guidance on financial issues. The PWC survey found that employees are looking for help, including:

• Prioritizing spending and bill payment
• Handling creditors
• Making short-term financial decisions during a financial crisis

Financial wellness programs can provide this help through financial education that focuses on general budgeting, identifying relief programs, determining potential repayment terms such as waiving late fees or pausing cancellations, and offering short-term loans to keep employees from dipping into their retirement savings.

Emergency Savings

In their 2019 report, PWC found that 62 percent of millennials, 55 percent of Gen X employees, and 44 percent of Baby Boomers felt their top financial concern was not having enough emergency savings4.

Additionally, 49 percent of those surveyed said they had difficulty meeting monthly expenses. Over two-thirds said they wouldn’t be able to pay their bills if they were out of work for an extended period of time.

The solution to this problem is having an emergency savings fund, yet over one-third of employees have less than $1,000 saved for emergencies.

A financial wellness program's educational components can help employees develop an emergency savings plan before a crisis occurs. Once a crisis has passed, such features can help employees get back on track with their savings to avoid future troubles.

Additional financial wellness benefits, such as sidecar savings matching in which employers match contributions made to emergency funds connected to a 401(k) account, can also prove useful.

Retirement Savings

Retirement savings are not keeping up with future retirement needs. The PWC report found that 79 percent of millennials, 48 percent of Gen X employees, and 39 percent of Baby Boomers have saved less than $50,000 toward retirement.

Due to the pandemic's economic difficulties, a large number of employees, especially those with less than $100,000 in retirement funds, feel they will need to borrow from these funds for unexpected expenses or medical bills.

Although borrowing from retirement savings may seem like a necessary short-term solution, the long-term implications are staggering.

Not only will employees create even more underfunded accounts, but those approaching retirement age may determine they have to work longer because their retirement is no longer secure.

Financial wellness programs are perfectly suited to educate employees about saving for retirement, including understanding the company 401(k) program, the power of compounding interest, and the problems that occur when taking retirement fund loans.

It can also help those currently underfunded, either due to lack of savings or retirement savings withdrawals, to create a budget that increases their savings rates to meet retirement goals.

Education can also help employees discover the right long-term investment strategies based on their retirement horizon and risk tolerance level rather than relying on emotional reactions to market fluctuations.

Combining an employee financial wellness program with a 401(k) matching program is very powerful, as financial wellness programs have shown increased participation in retirement plans.

Proactive Financial Planning

PWC found that almost 75 percent of employees have used their employer-provided financial wellness program for such things as preparing for retirement, understanding spending, paying off debt, saving, investing, and managing healthcare expenses.

However, most employees do not seek financial guidance until they are ready to make a financial decision or are already experiencing a financial crisis. The PWC survey found that employees seek help when:

• Making financial decisions (42 percent)
• In a crisis (25 percent)
• Never (8 percent)
• Experiencing a life event (10 percent)

That’s why employers are uniquely positioned to offer financial guidance before, during, and after an employee experiences a financial crisis.

By providing a holistic financial wellness program accessible to employees when they feel the need, employees can access information in real-time as they hit financial crossroads.

1 - https://s3.amazonaws.com/cfsi-innovation-files/wp-content/uploads/2017/05/26183930/2017-Employee-FinHealth.pdf

2 - https://www.pwc.com/us/en/industries/private-company-services/library/financial-well-being-retirement-survey.html

3 - https://finhealthnetwork.org/research/employee-financial-health/

4 - https://www.pwc.com/us/en/industries/private-company-services/images/pwc-8th-annual-employee-financial-wellness-survey-2019-results.pdf