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    The Vital Role of Employers in Supporting Financial Wellness

    THE VITAL ROLE OF EMPLOYERS IN SUPPORTING FINANCIAL WELLNESS

    The Vital Role of Employers in Supporting Financial Wellness

    February 27, 2024

    Personal finances and financial stability have a profound impact on people's lives. Yet money management is rarely taught comprehensively in schools or families. Many adults lack the knowledge and skills to make optimal financial decisions. Fortunately, forward-thinking employers are increasingly filling this need through financial wellness programs.

    What is Financial Wellness?

    Financial wellness reflects financial security and freedom of choice in the present and when looking to the future. Key elements include:

    • Managing expenses and saving money
    • Paying down debt
    • Understanding and monitoring credit
    • Setting and planning for financial goals
    • Having adequate insurance protection
    • Building long-term assets and net worth

    The Need for Financial Literacy Education

    The Need for Financial Literacy Education

    Surveys show most adults struggle with various aspects of personal finance:

    • Only 41% could cover a $1000 emergency with savings.
    • Almost 70% carry some credit card debt month-to-month
    • Under 40% feel on track for retirement goals

    Yet high schools and colleges rarely provide enough relevant money management education. What little they offer tends to focus solely on budget spreadsheets. This leaves graduates unprepared to navigate loans, investing, insurance, taxes, etc.

    Supplementary financial literacy instruction is desperately needed.

    Unique Position of Employers

    Unique Position of Employers

    The workplace offers an ideal avenue for providing financial wellness support. Employees spend much of their time on the job. So, offering classes, coaching, and tools provides convenience and saves people time.

    Importantly, employers have intrinsic incentives for boosting workers’ financial literacy and health:

    Increased productivity – Financially stressed employees have 37% higher absenteeism and 60% more workplace productivity issues. Alleviating money worries enables better focus.

    Improved retention – 78% of employees say they’d be more loyal to an employer who showed concern for their financial well-being. This cuts hiring and training costs.

    Reduced healthcare expenses – People with financial issues have more physical/mental health problems, raising insurance premiums. Financial counseling can help avoid medical visits.

    With employers benefiting along multiple dimensions from running financial wellness programs, their motivations align strongly with those of their workforce.

    Elements of Successful Financial Wellness Programs

    Constructing a rewarding and effective financial wellness program requires forethought and care. Key recommendations include:

    Needs assessment – Survey employees to identify their biggest money management challenges, knowledge gaps, and stress points. Customize programming accordingly.

    Varied offerings – Combine workshops, seminars, online classes, one-on-one financial counseling, helpful apps and tools, and more. This accommodates diverse situations and learning styles.

    Ongoing support – Schedule recurring events, not just a one-time class. Also, provide free access to certified financial planners for personalized guidance. Habit-forming assistance is most constructive.

    Incentives – Offer small rewards for participating and implementing positive financial behaviors. Incentives boost engagement substantially.

    Unbiased education – Require any providers to pledge to deliver genuinely neutral, fiduciary advice that serves clients’ best interests. No pushing unnecessary products.

    Confidentiality – Ensure all services protect personal financial information fully and comply with relevant regulations. Build trust.

    Key Focus Areas

    Employer financial wellness programs should cover various topics relevant to participants' evolving needs across different life and career stages.

    Budgeting and Money Management Fundamentals

    Mastering basic personal finance concepts equips people to control spending, save strategically, and set financial targets. Helpful groundwork areas are:

    • Creating realistic, balanced budgets
    • Strategies for cutting expenses
    • Paying yourself first with automatic transfers to savings
    • Maintaining emergency funds and liquid cash reserves
    • Tracking expenditures to inform future decisions
    • Avoiding common money psychology traps

    Managing and Eliminating Debt

    Excess debt impedes flexibility, increases stress exponentially, and costs extra interest charges. Areas to address include:

    • High-interest debts versus lower-cost debts
    • Credit card management and debt consolidation options
    • Student and auto loans – payoff approaches and decisions
    • Mortgages – shopping for the best terms and rates
    • Debt snowball versus debt avalanche payoff methods
    • Working with creditors on hardship programs and alternatives

    Utilizing Tax Advantages

    Taxes significantly impact take-home income. Help employees:

    • Adjust federal income tax withholdings for the ideal refund size.
    • Make pre-tax 401k contributions to lower current tax bills.
    • Understand tax-advantaged retirement accounts like HSAs and FSAs
    • Claim all available credits and deductions.
    • Consider tax implications of investment/asset choices.

    Accessing Affordable Insurance

    Being underinsured puts financial security at risk. Offer education about:

    • Health insurance – plan choices, using networks frugally
    • Disability insurance – replacing income if unable to work.
    • Life insurance – ensuring dependents’ ongoing needs are met
    • Homeowners/renters insurance – preventing bankruptcy after disasters

    Use collective purchasing power to secure group coverage deals.

    Growing Wealth With Investing

    Long-term compound growth requires capitalizing on market returns. Yet, investing in education is sorely lacking. Provide overviews of:

    • Asset types – stocks, bonds, mutual funds, real estate
    • Risk tolerances and time horizons
    • Compounding growth with regular investing
    • Employer-sponsored retirement accounts like 401ks
    • Self-directed IRA investing alternatives
    • Building diversified, balanced portfolios

    Protecting Credit and Assets

    One mistake can severely damage credit scores and undo years of hard work. Explain common pitfalls and recommend:

    • Checking all three credit reports annually for errors and suspicious activity
    • Freezing credit reports when risk is elevated to block new account openings
    • Setting up account alerts for all financial accounts and monitoring monthly
    • Recognizing predatory lending practices, credit repair scams, investment frauds, and identity theft tactics

    Retirement Planning and Preparedness

    With increasing longevity, employees need help modeling projected costs 30+ years out and saving adequately. Areas to cover include:

    • Social Security – eligibility, benefit estimates, strategies
    • Withdrawal strategies – sequences, Rule of 72, safe rates
    • Accounts – 401ks, IRAs, annuities, HSAs, pensions, and coordination
    • Relocation, medical expenses, long-term care needs
    • Estate planning basics – wills, trusts, beneficiary choices

    Evaluating Program Success

    Metrics like participation rates, cost versus savings, and employee surveys provide tangible assessments of what’s working and what adjustments may help.

    Human impacts are more difficult to quantify but equally important – relief from money anxieties, restored optimism about the future, improved family relationships, and newly secured financial foundations. This represents life-changing value.

    An Ongoing Partnership

    An Ongoing Partnership

    With ever-shifting economic trends and individual circumstances, achieving financial wellness is not a one-time event. Instead, it's an ongoing collaboration between employers and staff to build knowledge, skills, and confidence over time.

    Much like maintaining physical health with good nutrition, regular checkups, and positive lifestyle habits, maintaining financial wellness requires diligent upkeep and self-care. Ongoing access to guidance makes success realistic and sustainable.

    Employers empower happier, healthier, and more productive workforces by championing programs that reduce financial stress and expand financial literacy. Supporting financial wellness offers returns for years to come – for both individuals and organizations.

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