Financial Wellness Programs: it’s not all about the money

Long before the pandemic started, employees were already struggling with financial wellness. Intrum’s European Consumer Payment Report 2018 (ECPR) found that 41% of Europeans did not save money every month.

Of those who saved, 67% put money aside for emergencies, but only 25% were saving for retirement. So, besides compulsory pension contributions, less than a quarter of the European population was putting extra money aside for retirement.

Since they weren’t saving for retirement, the least you would expect is they were investing the money, but sadly, that’s not the case. 58% relied on a savings account and 22% were saving cash.

Another troubling survey was conducted by ING in 2019, which showed that only 28% of European employees were confident they can maintain their pre-retirement standard of living when they stop working.

Despite the very low number, the problem was further compounded when over 5.5 million people lost their jobs. Even with stimulus packages and normal social benefits, people without jobs won’t be able to save up for retirement as planned or handle other large costs if they don’t have any savings.

This presents a very bleak future for European staff.

Employees need a lasting solution to their financial woes, and no one is better equipped to do that than their employers.

How? By providing financial wellness programs.

What is financial wellness?

Financial wellness or financial well-being refers to how close an individual is to financial security. A person with adequate savings that can cover emergencies, temporary unemployment and a comfortable retirement is said to be financially well and vice versa.

Contrary to what many people think, this has little to do with income. We see this in the slew of highly paid athletes that have gone broke soon after their careers were over. Similar trends have been identified with other celebrities and lottery winners.

Conversely, we find people with low-paying jobs able to become millionaires at retirement due to savvy investments. The reason is that there is more to financial independence than salary.

Met-Life identified five factors that influence financial wellness:

1.    Personal characteristics

 This has to do with the age and stage of a person’s life. A single 25-year-old living in an inexpensive city earning 35,000 will have a different level of financial wellness from someone near retirement with the same income living in Munich or London.

2.    Financial literacy

In our experience, financial literacy is one of the most important determinants of financial wellness, second only to financial behaviour. Financial literacy refers to a person’s understanding of financial concepts such as how savings and investments work, compound interest, stocks, bonds, ETFs and other tools that help people accumulate wealth quicker.

3.    Financial behaviour

Financial behaviour shows how a person makes use of their financial literacy. Do they save and invest? How do they do those things? Are they prepared for retirement or at least taking the right steps to have enough stashed away on time?

Financial knowledge can be useless when it is not applied, thus making this the most important step, even above what should be the most obvious one below.

4.    Financial situation

This has to do with what a person owns: salary, benefits, assets and liabilities. In other words, an individual’s net worth.

When most people, including employers, think about financial wellness, this is where they tend to stop. If a company is paying an employee more than their competitors, they think they are doing a bang-up job.

But as seen in the case of football players, salary and a high net worth aren’t enough. Why not? Because of number five.

 5.    Financial stressors

Life is unpredictable. All it takes is one run of bad luck to topple the net worth of most individuals. Losing a job, personal bankruptcy, ill-health and losing a home can cause tremendous stress on a person’s finances and emotional state.

Part of financial wellness is being able to steer through life emergencies without compromising your standard of living.

The World Bank estimated that an additional 150 million people could be pushed into extreme poverty by the end of 2021 as a result of the pandemic. While many of these people probably considered themselves financially well before the outbreak, they now face an upward challenge to crawl out of poverty.

This can be the case for employees in any industry that lack the proper resources to survive and thrive in a recession. While governments try to solve this with social benefits, this is often inadequate.

 What workers want is a lasting solution; what they need is a financial wellness program.

What is a financial wellness program?

 A financial wellness program, quite simply, helps employees become as financially healthy as possible. From the five factors above, we can see that employers really only have influence over financial literacy and financial situation.

The pandemic showed that companies can do little to protect themselves from certain financial stressors, let alone protect their staff.

A survey of small and medium-sized enterprises (SMEs) in Europe by McKinsey & Company found that half of them don’t expect to be in business by the end of this year.

However, the companies that are still in business can and should help their employees by offering financial wellness benefits, or at least that is what employees expect.

While staff know that there is a limit to how much they can get paid and gladly accept that, they would appreciate financial education.

Unfortunately, many employers don’t quite see eye-to-eye with employees in terms of what constitutes financial wellness benefits.

Who wants financial wellness programs?

 PwC’s 2020 Employee Financial Wellness survey revealed that 58% of staff in the US are stressed about finances. Half of these admitted that the stress is affecting their work.

This shows that employees know that they are in financial trouble and they know it is costing their employers money, so companies should be the most motivated to find a solution.

A study by Morgan Stanley and the Financial Health Network found that 75% of staff consider a financial wellness program to be a very important benefit. 60% of workers said they would be more willing to stay with a company that offers this benefit.

The same study revealed that 85% of employers will spend as much or more on financial wellness programs than they did before the pandemic. Given the large number of businesses that have closed down or are experiencing considerable financial challenges, it is safe to assume the remaining 15% can’t afford to offer financial wellness benefits.

It means that there is a near unanimous agreement amongst employers in the US that financial wellness programs are important.

In the UK, some of these numbers are even more impressive, while others are disheartening.

According to Employee Benefits, 91% of HR and finance leaders agreed that organisations have a responsibility to provide more financial education to staff. This bit of good news was immediately doused by the next statistic.

64% of employers do not provide financial advice to staff because they say it is too expensive, according to Lightbulb. This survey was conducted before the pandemic, in 2019.

However, 84% of employers agree that offering financial wellness benefits will attract top talent.    

 A global survey by ADP found that 67% of employers believe financial wellness affects productivity, 62% believe it influences engagement, 53% think it impacts turnover and 38% say it affects the bottom line.

The general consensus, therefore, is that most employers believe that financial wellness programs are important not just to the employee but also to the company.

 Seeing as both parties are in agreement, what’s the problem?

 One problem is with the execution.

Employees and Employers see financial wellness differently

A study by Merrill Lynch showed that employees want financial wellness programs that help them achieve one goal at a time, while employers want to hit them with everything at once.

This is only natural because employers want their staff to get out of the danger zone as quickly as possible, in order for it to stop affecting their work. However, this approach means trying to teach staff everything there is to know about finances in a two-hour seminar.

That simply does not work. It takes years to build poor financial habits, so it’ll take more than a few days to break them. Savology identified that 83% of households with a financial plan feel better and less stressed about their finances after just one year.

According to Mercer, employees want a more flexible and personalised approach to learning. They want the information at their fingertips, so they can develop competence gradually and understand fully how to make the right financial decision every time.

Another important difference in expectations is that employers are more fixated with financial solutions, while employees prefer financial education.

Some employers that have a “financial wellness program” offer loan-repayment assistance, flexibly salaries and improved health insurance. However, employees want to be taught how to handle money: how to budget, save for a house, invest, retire comfortably, make education contributions etc.

For the employers that get it right, the results have been outstanding.

Impact of financial wellness programs. Continue reading here