If you’re trying to come up with a simple definition of financial wellbeing, you may be struggling. This is because there is no rigid classification; it varies a lot even from person to person. If you factor in age, education, means of employment, salary, gender, spending behavior, and location, you’ll soon see why. And because of all these variables, each person experiences different financial stressors at different times in his or her life.
Unfortunately, these days, many Americans are very anxious about their financial situation. This burden adds strain to their physical and mental health and detracts from their motivation and concentration at work. Because financial stress can profoundly affect an employee’s ability to work, it makes perfect sense to offer financial wellbeing programs in the workplace.
The Cost of Financial Stress in the Workplace
When team members are financially stressed, it costs your company money. It has been noted repeatedly that financial stress is a distraction from work and reduces productivity and engagement, but there is also the fact that it can raise your company’s healthcare costs. Numerous studies connecting stress and employer healthcare have indicated a significant increase in costs.
Americans have been citing money as the number one source of stress for the past seven years, and research shows that staff members who have a high level of financial stress are more likely to suffer from depression, headaches, anxiety, and digestive issues. They also have difficulty sleeping and concentrating. Employees with low-level debt stress are still likely to suffer from lower back pain and muscle tension[1].
Because of the significant costs of loss of productivity and high health care spending caused by financial stress, as an employer, you have a great incentive to examine cost-effective ways to boost your employees’ financial wellbeing. It’s worth bearing in mind that not only are employees paid at work, but they also make most of their financial decisions in the workplace, so the opportunity for positive change is already there.
Why Employees Need Financial Wellbeing Programs
The good news is that many employers are beginning to take note of the overwhelming financial stress that is building up in the workplace, and they are taking steps to reduce it. If you’re apart of running a business, you need to implement a financial wellbeing program now.
Financial wellbeing is not just a fad; it is a commitment to lifestyle change; a continuous process which will evolve as each individual makes different financial decisions along life’s journey. Each stage of life has its financial burdens, some planned, some expected, and some unexpected, which is why your financial wellbeing program has to be continuous to be effective.
Take a look at some of the financial burdens that can affect staff members at different stages of their working life:
The Burden of Student Loans
As the influx of millennials enters the workforce, most of them are burdened by their student debt. This not only shapes their view of their career but also their finances. According to American Student Assistance, 75 percent of students surveyed said that their student loan repayments affected their decision to purchase a home, and 43 percent said it postponed their decision to start a family. On top of that, many millennials have a low expectation of receiving social security upon retirement.
The stress of student debt is making a significant impact on young professionals’ physical and mental health as well as their financial health. This has a domino effect, preventing them from performing their best at work and contributing to significant absenteeism. Many millennials are aware of these problems and are prepared to make a longer-term commitment to employers who are dedicated to helping them reduce their student debt and offer greater financial security.
The Burden of Healthcare
Increasing healthcare costs are another significant threat to financial wellbeing. Different employers offer different types of health care coverage, which means different participation rates, deductibles, premiums, and copays. No single health plan is suitable for everyone’s needs. Many of your team members may be affected by a lack of or insufficient healthcare coverage. This is another significant cause of anxiety, particularly when unexpected health crises arise and there isn’t enough health insurance to cover it.
Many employees are confused about which healthcare plan is right for them and their families but are uncertain where to turn to for confidential advice. You can help them by providing education and information about their healthcare options.
The Burden of Unexpected Expenses
Many people live from paycheck to paycheck, which means they have no financial safety and are unable to cope with unexpected expenses. These can crop up in many forms. For example, a car accident, sudden illness, house repairs, or burglary. Individuals who have no savings and no family members to help them out can suddenly tumble into financial crisis.
A financial disaster on its own is difficult enough to navigate, but without a backup plan, it can be devastating. The impact can affect mentally and physically as well and financially. By providing your staff with options such as payday loans and work savings plans, you can give your employees a safety net.
The Burden of Retirement
According to the 2018 Employee Financial Wellbeing Survey, 42 percent of staff members claim they will need to draw on the money in their retirement plans for emergency expenses. The number is even higher when it comes to teams who are experiencing financial stress or who are struggling to pay off their own or their child’s student loans.
Some employers have added further restrictions to 401(k) plans to prevent employees from withdrawing funds. But this only makes the problem even bigger because it forces staff members to look for other ways to plow through their financial crisis, and some don’t have any other resources. You can help combat this problem by making your team aware of healthy spending, budgeting, and saving strategies.
How Employees Define Financial Wellbeing
You may be surprised to know, that for many years and across several generations, the team definitions of financial wellbeing have remained the same. Most employees want the same four things[2]:
- Freedom from debt: Employees want to be able to reduce their debt repayments so that they are not taking such a large percentage from their incomes. This would give them the chance to save money.
- Freedom from financial stress: Employees want the flexibility to live life on their terms, and this only comes with freedom from financial stress. They also want a sense of financial security both now and in the future and the peace of mind that comes with this.
- Freedom from anxiety over unexpected expenses: Staff members of all ages want to have a financial safety net that will cover any unforeseen events. This will mean greater financial security and less anxiety over the future.
- Freedom to make choices: Employees want to be able to have the freedom to spend some of their money on pleasurable pursuits like travel, dining out, buying a new car.
Understanding the Discomfort Zone
It’s not always easy for staff to talk about their finances, particularly at work. Surveys show that most Americans would rather talk about death than money. This silence is part of the problem. For the people you employ to overcome their financial stress and increase their financial wellbeing, they must be able to discuss their situation.
Breaking the Silence
If this silence is to be broken, you must create a comfortable environment for your workers. Here are some steps you can take now:
Create a comfort zone: Many people are embarrassed to discuss the state of their personal finances for fear of being judged negatively, which is why it is crucial to create a comfortable environment for them. Encourage staff to ask questions so they can build their confidence. Some employees will not want to discuss their personal situation in a group with other team members. For these, you can arrange private sessions. Others may feel uncomfortable discussing their finances face to face. To prevent them from missing out on your financial program, you could arrange a way where they can ask questions anonymously.
Listen carefully: Every employee’s financial situation is different, and you will have to listen to what they are saying so that you will be able to guide them in the right direction. It’s important to provide as many financial support options as you can. Not all of them will be suitable for every member, but you must give them the freedom to choose a solution for themselves.
Keep it confidential: Under no circumstances should you discuss your employee’s financial situation with anyone else, not even financial experts. Breaking staff confidentiality will not only destroy their trust in you, they will also lose faith in the financial wellbeing program. If you feel that, as an employer, you are unable to provide sufficient information to help your team members, or you have a large workforce, then recommend or refer them to an expert, so that they can take this route if they feel comfortable with it.
What Do Employees Want?
It is without question that employees want help with their finances. More than 50 percent of employed people want to make their own financial decisions but would prefer someone more knowledgeable to confirm them. Ideally, staff members want to have access to unbiased, non-judgmental financial advisors to help them understand and implement their monetary decisions. Many would also like more information and a deeper understanding of the employee benefits available to them which they may not already have.
Employees also want better benefits. Retirement is a number one concern, and many team members feel they need assistance in planning for their future. Their biggest concern is that when retirement comes, they will not have enough money for themselves and their family to live off. As well as retirement, health care is a major worry. More than one in five employees say that they would prefer better health care benefits than a future pay increase.
Giving Employees the Financial Guidance They Want
Here are some ways you can offer financial guidance to your employees:
- Provide onboarding: This is great for new members because you can fill them in on all the benefits you offer, including a retirement plan. This will get them off to a good start as soon as they become a member of your team.
- Promote divided allocation of paychecks: Encourage staff to have their salary split between checking and savings accounts. This will get them into a habit of healthy saving and provide them with a safety net.
- Offer monthly counseling sessions: These are helpful for people who are struggling financially. They can also be used to update the team with new benefits and financial trends.
- Provide annual financial checkups: This will give employees a chance to check in on their retirement plan and see if they are on track or if any adjustments need to be made.
- Offer an employer-based small-dollar loan program: This type of program is becoming increasingly popular, and it’s a win-win situation for employers and employees. It enables your hard-working members of staff to take advantage of a safe, affordable loan without predatory fees and to reestablish their credit rating.
- Targeted financial wellbeing advice: A great way to improve financial wellbeing programs is to offer financial advice to specific target groups, such as millennials, baby boomers, women, and Gen Xers. This means you will be giving the right information to the right group of people instead of wasting time with a more general approach which doesn’t help anyone.
Types of Financial Wellbeing Programs
There are several different types of financial programs; you may wish to offer your staff members all of them or design your own based on these models.
Financial Education
In the realm of financial wellbeing, a solid education is the foundation of money management. This should begin with a basic understanding of what financial wellbeing involves. This kind of program should not just focus on budgeting, bill payment, and day-to-day money management. It should also encompass the rudiments of saving, preparing for emergency expenses, investing, and planning for retirement. A financial education program should focus on each aspect at a time and not just on one single component. That way, your employees get an all-round education of any financial aspect they will be dealing with.
Budgeting and Cash Flow Management
This type of program takes advantage of digital platforms such as banking and personal accounting apps to empower employees to take charge of their finances. Teaching employees how to use online money management programs, use savings or retirement calculators, and aggregate all their accounts in one place helps to assist staff members who have not previously had the opportunity to benefit from these applications, such as older employees.
Financial Coaching
A financial coach is different than a financial planner or a financial educator. A financial coach is a professional who addresses financial habits. Coaching focuses on educating and empowering employees by looking at their bad financial habits and replacing them with good ones. Rather than focusing on long-term planning or investment strategies, financial coaching aims to improve longer-term spending and saving behavior by introducing positive financial behavior. On-going one-on-one counseling helps the team to maintain healthy financial practices.
Student Loan Solutions
Student loan debt in the United States has exceeded $1 trillion, so it’s not surprising that this consistently ranks as one of the top financial stressors for employees. Student loan debt is a particular burden for younger employees just entering the workforce. Student loan solutions, such as student loan benefits, can help ease this burden. This type of product can incorporate employer refinancing options or employer-student loan contributions.
Investment Counseling
Investment counseling involves advice from a specific type of financial advisor who specializes in making investment recommendations and analyzing the current market. This type of financial wellbeing program is more suited to an employee who has already reached a certain level of financial wellbeing. For example, these team members may already have an emergency fund, little or no credit card debt, and are managing their mortgage payments comfortably.
The Holistic Financial Wellbeing Model
The holistic plan can incorporate any or all of the above programs. The foundation of this type of financial wellbeing program is based on three principles:
Physical needs: Holistic financial education starts with basic human needs such as food and shelter. Its aims to provide security both in the present and for the future. Physical needs vary from one team member to the next. A single young woman right out of university will have very different needs to a married man with three children. When basic physical needs are discussed, employees can develop a financial strategy which suits their lifestyle and helps them work towards long-term goals.
Mental Needs: Prolonged and high levels of stress contribute to frequent and continuing health problems. This incurs a greater cost to your company through absenteeism, loss of productivity and healthcare costs. Financial difficulties are one of the leading causes of staff stress, and companies can help to alleviate this by making employees aware of the many financial options available to them and empowering them to take control of their financial futures.
Emotional Needs: Financial stressors not only cause physical problems, but they are also intertwined with many other aspects of life such as family life, marital relationships, social relationships, and worldview. Emotional distress related to these life aspects contributes to absenteeism and disengagement in work. This, in turn, puts added stress on other members of the team. Increasing overall financial wellbeing removes these stressors.
A Lesson to Learn from Failing Financial Wellbeing Programs
Not all financial wellbeing programs are created equal, which can be a good thing because not all employees have the same financial problems. But it can also be a bad thing when the program isn’t providing any benefit. A recent Bank of America Merrill Lynch report shows that some employers are offering financial wellbeing programs that give lots of information, but it’s not the kind of information staff members want. The report showed that employers are tending to focus on employees’ current financial needs, such as budgeting and managing expenses, but employees are much more concerned about long-term financial goals, such as investing for retirement.
When employees were asked what would improve their financial wellbeing, most agreed that they preferred easy to follow steps to attain manageable financial goals. Their response showed a marked difference between the employers’ priority which was to look at the role of employer benefits in overall finances.
The report also showed that employers prefer in-person, one-on-one meetings with professional financial advisors, whereas most current financial wellbeing programs tend to offer group sessions. These can be a problem because they tend to take the one-solution-fits-all approach.
Another thing that the report found lacking was that many current financial wellbeing programs do not have any measure of effectiveness in place. This means that employers are unable to see if the programs are working for their employees.
The task is not an easy one, because there’s no standard formula to create or measure financial wellbeing programs, mainly because there is currently no overall agreement on what constitutes a financial wellbeing program.
This challenge could change in the future if employers are prepared to survey their employees to find out what kind of financial wellbeing help they would like. That way employers could adjust their programs accordingly, which would be good for both parties.
More of your team than you realize may be stressed out about their finances, making them more likely to be distracted by their finances at work, miss work due to financial worries, and develop health issues because of financial stress. As an employer, you have a responsibility to solve these problems. The key is to figure out the right solution, and the best way to do this is to ask your employees what they need.
[1] https://files.consumerfinance.gov/f/201408_cfpb_report_financial-wellbeing-at-work.pdf
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