HR Technologist | New Year, New You: The Easy Path to a Financial Wellness Program | Thomas Conlon
With 2018 underway, now is the time to review financial wellness offerings. Tom Conlon, Business Success Executive at Betterment for Business, discusses the steps employers can take to ensure programs are in place and employees are on track to reach their goals.
As soon as the calendar ticks over to the new year, there’s one thing on everyone’s mind: a commitment to being our best selves. As the breadth of workplace wellness offerings show, though, it’s not just about eating more vegetables, spending 20 extra minutes on the elliptical or using yoga to minister to both your mind and body: when people can spend an average of 13 hours a week at work worrying about money, good financial health is essential to both workers’ well-being and their ability to cope with the unexpected.
The U.S. Consumer Financial Protection Bureau defines financial wellness as a state of being in which an individual has control over their day-to-day and month-to-month finances; has the capacity to absorb a financial shock; is on track to meet financial goals; and has the financial freedom to make choices that allow him or her to enjoy life. While putting a financial wellness program in place might sound like a heavy lift, it might not be as difficult as you think: chances are, your company already offers many of the key pillars of a healthy financial life. Your employees might just need some help understanding the full breadth of what’s already on offer.
The capacity to absorb a financial shock
For many companies, insurance is a base benefit—not too exciting, but a must-have to make life less risky. Health, life and disability insurance are some of the best safeguards against any sudden changes to an employee’s financial situation that might be caused by illness, death or major life events. In addition to preventing minor health issues from compounding into more costly illnesses, health insurance mitigates the risk of incurring unpayable, bankrupting medical bills. If an employee does become seriously ill and needs extended time off work, disability insurance is available to replace the missing paycheck, preventing a difficult situation from becoming harder. Finally, life insurance gives a family the extra funds they might need to bear additional costs, pay down any debt left behind and give them the time they need to get through one of the worst periods of their lives.
On track to meet financial goals
Whether employees’ financial goals are buying a house, paying college tuition or maintaining a rainy day fund, they will feel a deep sense of security knowing that they have enough squirreled away in the bank to meet their needs. One of the most daunting—though most important—financial goals they should be setting is funding a comfortable retirement, whether it’s five or 35 years down the line.
There are three basic factors that predict how much money an employee will have in retirement: how much they save, how well their savings are diversified and how much of those savings are eroded by fees.
While employers can’t actually do the work of saving for their employees, what they can do is offer a 401(k) plan—the most comprehensive vehicle to help employees save for retirement—in the first place. Assuming that a 401(k) is already in place, employers can make the process even easier by adopting an auto-enrollment feature and adding a professionally managed account. Employers should set the default auto-enrollment contribution to six percent and bump it up each year until it hits ten percent – no matter the employees’ salary – to encourage them to save more . Additionally, by adding a professionally managed account to a 401(k), participants are more likely to receive actual advice tailored to their individual situation when they need it.
Both of these strategies will encourage employees to save more than they would have without the nudge, diversify their investments appropriately and eliminate the guesswork of what can be a complicated account to understand.
The financial freedom to enjoy life
The building block of a financially well life is also the most basic and common benefit there is: compensation. Every employee’s income and personal needs are unique, but it’s critical that employees use their salaries and bonuses to save at least six months of expenses for an emergency fund.
Besides salary and bonus packages, some companies offer stock straight out, or provide employees with an opportunity to buy company stock at a discount. This gives employees a direct interest in the company’s success, while diversifying the ways in which they are compensated.
Either way, employees need to understand the risk and rewards of stock ownership. Employers aren’t required to make financial advice available, but they should strongly consider doing so—and not just in the form of dense handouts that might never be read. A financial advisor—whose services might be subsidized by the company, making it a more affordable option for anyone who wants it—can act as a guide for a sound investing and savings strategy across an employee’s entire financial life.
Successfully resolving to live a sound financial life can have a trickle-down effect that improves every aspect of a person’s life. Employers who are deeply committed to employee well-being and success should be aware of the important role they play in this aspect of an employee’s life—and offer the programs and advice that can help them hit their goals.