The latest push on financial wellness has many advisers and employers alike doubting if it's just another trend.
The context is important, especially as Financial Literacy Month winds to a close. Over the past decade, we've seen a flourish of employee benefits take root. A competitive labor market combined with integrations with payroll and other platforms have made it easier than ever to offer new solutions with little overhead. Entire new categories such as mental health have not only become normalized, but also gave way to new subcategories.
And almost always new benefits carry the promise of better retention and better productivity. Who doesn't want that? Especially as business continues to push for growth and efficiency at the same time.
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So when financial institutions, researchers and professional associations spotlight solutions like workplace emergency savings, student loan relief and financial wellness more broadly, it doesn't make the lives of HR or benefits consultants easy by any means — or any less important.
To understand why financial wellness as a strategy has been more relevant than ever, consider the following recently released data: Less than half of Americans can handle a $1,000 emergency with cash savings; credit card debt (now at $1.13 trillion) has set new records; and one in three have tapped their retirement savings early as a loan or hardship withdrawal.
As a result, employees continue to say that money is their top source of stress, compounded by their involuntary delay of pricey personal goals like a house or kids.
Employers are taking note, with 96% saying they feel responsible for their employees' financial wellness, according to Bank of America's 2023 Workplace Benefits Report.
But financial wellness isn't the destination, it's an engagement strategy. The real goal should be financial well-being, which the CFPB describes as a "condition wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future and is able to make choices that allow them to enjoy life."
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By understanding and disaggregating that goal, just like with population health, advisers can better understand and package relevant solutions to measurably improve financial well-being.
Foundational to financial well-being is emergency savings, which is why Congress included the solution in SECURE 2.0. Thanks to innovative, people-first employers sharing their data, we can now see how emergency savings and financial well-being can directly and meaningfully impact business objectives.
Consider retention, for example. A recent analysis published in EBN by my colleague, Rachel Fox, found an emergency savings program reduced annualized turnover by 33% in a large nonprofit. Elsewhere at a quick service restaurant conference, Hart House CEO Andy Hooper shared that their emergency savings program saw annualized turnover of only 28% vs. industry standard 180% — a whopping six-times edge in one of the most competitive industries.
Then we have productivity. Researchers discovered a 7.1% improvement in manufacturing output and overall quality when workers had better wage liquidity and lower financial stress. With lower financial precarity, employees also have a lower load on the core cognitive system of working memory. That's what Professor Carrie Leana studied at a midsize transportation company whose emergency savings program led to a statistically significant reduction in traffic infractions due to financial precarity. There were implications for both on-time delivery and workers' compensation insurance.
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Remember also that employers as retirement plan sponsors carry a fiduciary duty, which is part of why they've been perplexed at the recent rise of retirement loans and early withdrawals. From a diversity and equity perspective, those tapping their retirement savings have been disproportionately more female, Black or Latin American. Here again research has shown that emergency savings reduces likelihood of 401(k) loans and withdrawals, while also increasing the likelihood of higher contributions and overall participation – so retirement and emergency savings are not competitive, but rather complementary benefits.
There are other interdependencies, too. Studies have shown the significant impact of financial stress on mental health, sleep, diet and cost-related non-adherence (i.e., foregoing prescriptions or medical treatment due to lack of savings or financial well-being) — all of which contribute to an employer's health insurance expense and supplemental coverages.
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However, the above won't amount to actionable outcomes for employers and, more importantly, employees without HR and benefit brokers and advisers embracing the overwhelming evidence and tying it to stated business priorities, like rapid growth or margin expansion.
That's why producers' most important task remains the articulation of their clients' "why."
Easy advice, masqueraded as market norms, that is unresponsive to employer's business objectives, broader research, or employees' needs and wants only stands to harm their client organizations and the relationship.
