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Financial wellness

Topic: Finance

 From HandWiki - Reading time: 10 min

Financial wellness refers to the “overall financial health of an individual” and is sometimes used interchangeably with financial well-being.[1] Employee financial wellness programs (FWPs) are work-placed programs that both “access and support” the financial wellness of employees.[1]

Paycheck poverty

More than 3 in 4 full-time American workers live from paycheck to paycheck with a lack of savings for emergencies.[2] As such, emergencies such as a broken boiler or an urgent medical expense can send a worker into a spiral of debt.[2]

Many established institutions have offered financial wellness programs for a number of years with seemingly limited success.[3] Although the situation has improved somewhat with the recovery in the economy, a 2018 report from the Federal Reserve Board stated that, in 2017, 41% of adults “would either have to borrow or sell something or not be able to pay if faced with a $400 emergency expense” which they described as “disconcertingly large”.[3]

In response to these issues there has been a growing awareness of the concept of financial wellness and the benefits of workplace programs to provide support to employees.[4]

Recent advances in technology are providing employers the opportunity to offer the option of money management tools to their employees, which Matthew Boyle writes, may help them break the paycheck-to-paycheck cycle.[5] For example, in December 2017 Walmart announced that it was launching a new personal money management tool for its associates that had been developed with the assistance of technology partners.[6] According to Matthew Boyle, Walmart saw more than 200,000 of their American employees adopt the tool just in its initial stages.[5] An app connects directly to their bank account in order to calculate the users’ imminent expenses and show them how much funds they have available to spend in real time.[7] A key feature is that it allows employees to access earned wages (via Instapay) ahead of scheduled paychecks potentially avoiding bounced checks or the need for payday lenders when an unexpected auto repair bill, or other large expense arises, sending them further into debt.[8] Financial app Even is currently focusing "on a new service that will automatically divert small sums of money into a separate savings account to reach a preset goal."[9]

Employees and FWPs

Financial wellness concerns the management of the financial health of an individual, supporting a balance between their short-term and long-term financial needs.[10] Financial wellness programs work through employers supporting their employees’ goals with a program that provides them with the "ability to track their progress and accomplishments, factoring in their goals".[11] From the perspective of employees, financial wellness programs are successful if they have "minimal financial stress; a strong financial foundation (little or no debt, an emergency savings fund and are living below their means); and a plan they are following that puts them on track to meet future financial goals."[12]

A 2013 report by Grinstein-Weiss and Lass suggested that “successful financial wellness programs could offer opportunities for employees to improve their financial management, decision-making, and credit scores; increase job stability, work satisfaction, and short- and long-term investments; and decrease debt and financial stress.”[13]

Employers and FWPs

According to Grinstein-Weiss et al., a number of recent studies have “linked employee financial wellness to improved employer outcomes.”[14] The returns are potentially large. According to a report by the Consumer Financial Protection Bureau the return on investment for employers from comprehensive health wellness programs appears to be between $1 and $3 for each dollar invested and early evidence suggests that FWPs can be similarly effective.[15]

Financial wellness programs prioritize the recognition of the relationship with money and their financial literacy by employers, which is recognised in the National Financial Literacy Month.[16] A good financial wellness program can lead to less physical illness due to lower stress rates, a higher level of focus and in turn, an improved level of productivity.[17] Robert Powell writes that FWPs can reduce the number of employee absences, as well as disability and worker’s compensation costs and provide lower employee turnover and lower healthcare, therefore, directly benefiting employers’ return on investment.[17]

A report from the Consumer Financial Protection Bureau commented on the relationship between productivity, spending and financial wellness:[18]

Given the large costs that may be associated with financial stress in terms of productivity loss and higher health care spending, employers have a potentially large incentive to explore cost-effective ways to enhance employee financial wellness. Indeed, employees would also clearly benefit from any programs that reduced stress that may be linked to poor health.[18]

Currently, most workplaces do not offer financial wellness programs as an employee benefit, although a survey of 400 companies revealed that many bussinesses plan to focus on financial wellness in the future.[19]

Efficacy

Recently a report by Bank of America Merrill Lynch 2018 survey found that although 48% of the employees they surveyed were offered workplace financial welfare plans only 31% participate in them because the services offered were not of interest to them.[20]

A 2018 PwC survey found that employees certainly wanted help with their financial decisions but for the majority, in practice, this means access to unbiased counselors providing help to understand and how to use the benefit they were being offered.[21] The International Foundation of Employee Benefit Plans (2018) survey of employers found that one-to-one meetings were considered the most effective approach with the highest levels of participation.[22]

References

  1. ↑ 1.0 1.1 Geraldine Hannon, Meredith Covington, Mat Despard, Ellen Frank-Miller, Michal Grinstein-Weiss (2017). "Employee Financial Wellness Programs: A Review of the Literature and Directions for Future Research" (in English). George Warren Brown School of Social Work. https://csd.wustl.edu/publications/documents/wp17-23.pdf. Retrieved 24 September 2018. "Financial wellness refers to the “overall financial health of an individual” and is sometimes used interchangeably with “financial well-being” (Boston College Center for Work and Family, 2011, p. 7). Employee financial wellness programs are workplace-based programs that both “assess and support” the financial wellness of employees (Consumer Financial Protection Bureau, 2014, p. 9)." 
  2. ↑ 2.0 2.1 Boyle, Matthew (19 July 2018). "Walmart’s Fintech Partner Helps Break Paycheck-to Paycheck Cycle" (in English). Bloomberg L.P.. https://www.bloomberg.com/news/articles/2018-07-19/walmart-s-fintech-partner-helps-break-paycheck-to-paycheck-cycle. Retrieved 24 September 2018. "More than three out of four Americans say they live paycheck to paycheck. ... The inability to weather an unexpected car repair bill or medical expense can a send low-income worker in a debt spiral." 
  3. ↑ 3.0 3.1 "Report on the Economic Well-Being of U.S. Households in 2017" (in English). Board of Governors of the Federal Reserve System. 2018. p. 21. https://www.federalreserve.gov/publications.htm. Retrieved 24 September 2018. "Four in 10 adults in 2017 would either borrow, sell something, or not be able pay if faced with a $400 emergency expense. While still disconcertingly large, the share of families who would struggle with such an expense has decreased over the past five years. In 2013, half of adults could not easily cover such an expense. Even with the improvement, financial challenges remain for many families. One in five adults cannot cover their current month’s bills, and one in four skipped a medical treatment in the past year due to an inability to pay." 
  4. ↑ Unser, Rick (17 April 2018). "More Buzz Than Action With Financial Wellness?" (in English). Forbes. https://www.forbes.com/sites/rickunser/2018/04/17/more-buzz-than-action-with-financial-wellness. Retrieved 24 September 2018. "Financial wellness is a process to engage employees and improve one or more aspects of their relationship with money. ... With a little communication and minimal cost, you can make a big impact on the financial futures of your employees." 
  5. ↑ 5.0 5.1 Boyle, Matthew. "Walmart’s Fintech Partner Helps Break Paycheck-to Paycheck Cycle" (in English). Bloomberg L.P.. https://www.bloomberg.com/news/articles/2018-07-19/walmart-s-fintech-partner-helps-break-paycheck-to-paycheck-cycle. Retrieved 26 September 2018. "Walmart Inc.’s employees have adopted money-management tools from Even Responsible Finance Inc. at a faster pace than anticipated, prompting a fresh round of funding to expand the fintech start-up. More than 200,000 Walmart employees in the U.S. use Even’s app to manage their finances or access their wages early, the Oakland-based start-up said in a statement Thursday, and almost half of that group employs it every day." 
  6. ↑ Boyle, Matthew. "Walmart’s Fintech Partner Helps Break Paycheck-to Paycheck Cycle" (in English). Bloomberg L.P.. https://www.bloomberg.com/news/articles/2018-07-19/walmart-s-fintech-partner-helps-break-paycheck-to-paycheck-cycle. Retrieved 26 September 2018. "Walmart Offers Financial Wellness for Associates. This program uses Even’s financial wellness platform (www.even.com) to provide the service integrated into Walmart’s payroll system with PayActiv processing some Instapay payments." 
  7. ↑ Boyle, Matthew. "Walmart’s Fintech Partner Helps Break Paycheck-to Paycheck Cycle" (in English). Bloomberg L.P.. https://www.bloomberg.com/news/articles/2018-07-19/walmart-s-fintech-partner-helps-break-paycheck-to-paycheck-cycle. Retrieved 26 September 2018. "Walmart’s adoption of Even’s financial app - which connects directly to bank accounts and calculates imminent expenses to show users how much they’re able to spend at any given moment." 
  8. ↑ Boyle, Matthew. "Walmart’s Fintech Partner Helps Break Paycheck-to Paycheck Cycle" (in English). Bloomberg L.P.. https://www.bloomberg.com/news/articles/2018-07-19/walmart-s-fintech-partner-helps-break-paycheck-to-paycheck-cycle. Retrieved 26 September 2018. "The arrangement lets Walmart’s about 1.5 million U.S. employees access earned wages ahead of scheduled paychecks, avoiding bounced checks or payday lenders. … The inability to weather an unexpected car repair bill or medical expense can send a low-income worker into a debt spiral, and financially stressed workers can be less engaged and not as productive." 
  9. ↑ Boyle, Matthew (19 July 2018). "Walmart's Fintech Partner Helps Break Paycheck-to-Paycheck Cycle" (in English). Bloomberg L.P.. https://www.bloomberg.com/news/articles/2018-07-19/walmart-s-fintech-partner-helps-break-paycheck-to-paycheck-cycle. Retrieved 27 September 2018. "Schlossberg said he will use the funding to build out the company’s 37-person workforce, with a focus on doubling its engineering staff, and open a new office on the East Coast to serve the app’s nearly 300,000 total users. Even’s product developers are working on a new service that will automatically divert small sums of money into a separate savings account to reach a preset goal." 
  10. ↑ Eisenberg, Richard (1 August 2018). "Why Workplace Financial Wellness Program aren’t well" (in English). Next Avenue. https://www.nextavenue.org/workplace-financial-wellness-programs/?utm_source=sumome&utm_medium=linkedin&utm_campaign=sumome_share. Retrieved 24 September 2018. "The 2018 Bank of America Merrill Lynch Workplace Benefits Report surveyed 657 employees who participate in 401(k) plans and 667 employers who offer a 401(k) and a financial wellness program. Employers, the survey found, tend to focus on actions to manage workers’ immediate financial needs, like budgeting and handling expenses. But employees prioritize long-term financial goals, such as ways to help them save and invest for the future." 
  11. ↑ Eisenberg, Richard (1 August 2018). "Why Workplace Financial Wellness Program aren’t well" (in English). Next Avenue. https://www.nextavenue.org/workplace-financial-wellness-programs/?utm_source=sumome&utm_medium=linkedin&utm_campaign=sumome_share. Retrieved 24 September 2018. "When both groups were asked what would help improve employee financial wellness the most, employees wanted practical guidance that would “focus on the single next thing to do — one step at a time.” By contrast, employers said: “considering the impact of employer benefits on overall personal finances.” Employees also said they want personalized advice from a professional, with the ability to track their progress and accomplishments, factoring in their goals." 
  12. ↑ Powell, Robert (27 September 2014). "More companies offer financial wellness programs" (in English). USA Today. https://eu.usatoday.com/story/money/columnist/powell/2014/09/27/powell-financial-wellness-program-benefit/15457903. Retrieved 24 September 2018. ": Financial wellness, from an employees' perspective, is a state of financial well-being, where they have: minimal financial stress; a strong financial foundation (little or no debt, an emergency savings fund and are living below their means); and a plan they are following that puts them on track to meet future financial goals." 
  13. ↑ Geraldine Hannon, Meredith Covington, Mat Despard, Ellen Frank-Miller, Michal Grinstein-Weiss (2017). "Employee Financial Wellness Programs: A Review of the Literature and Directions for Future Research" (in English). George Warren Brown School of Social Work. https://csd.wustl.edu/publications/documents/wp17-23.pdf. Retrieved 24 September 2018. "Grinstein-Weiss and Lass (2013) reported that successful financial wellness programs could offer opportunities for employees to improve their financial management, decision making, and credit scores; increase job stability, work satisfaction, and short- and long-term investments; and decrease debt and financial stress." 
  14. ↑ Geraldine Hannon, Meredith Covington, Mat Despard, Ellen Frank-Miller, Michal Grinstein-Weiss (2017). "Employee Financial Wellness Programs: A Review of the Literature and Directions for Future Research" (in English). George Warren Brown School of Social Work. https://csd.wustl.edu/publications/documents/wp17-23.pdf. Retrieved 24 September 2018. "A number of recent studies linked employee financial wellness to improved employer outcomes. Financial wellness has been linked to improved productivity (Center for Credit Union Innovation, 2002; Stanford Center on Longevity, 2014), reduced distractions." 
  15. ↑ Cordray, Richard (2014). "Financial wellness at work: A review of promising practices and policies" (in English). Consumer Financial Protection Bureau. https://www.consumerfinance.gov/data-research/research-reports/financial-wellness-at-work/. Retrieved 24 September 2018. "The return on investment to employers from comprehensive health wellness programs, though hard to pinpoint, appears to be large, ranging from $1 to $3 or more per dollar invested." 
  16. ↑ Zucchi, Kristina (26 January 2018). "Why financial literacy is so important" (in English). Investopedia. https://www.investopedia.com/articles/investing/100615/why-financial-literacy-and-education-so-important.asp. Retrieved 24 September 2018. 
  17. ↑ 17.0 17.1 Powell, Robert (27 September 2014). "More companies offer financial wellness programs" (in English). USA Today. https://eu.usatoday.com/story/money/columnist/powell/2014/09/27/powell-financial-wellness-program-benefit/15457903. Retrieved 24 September 2018. "From an employee perspective, it can lead to higher satisfaction and better knowledge of their employer benefits, less physical illness due to lower stress, higher productivity at work and, of course, financial security. ... What's more, financial wellness programs can reduce absenteeism, as well as disability and workers' compensation costs. That's because poor financial management causes stress, which sets the stage for medical problems, the CFPB said in its report." 
  18. ↑ 18.0 18.1 Cordray, Richard (2014). "Financial wellness at work: A review of promising practices and policies" (in English). Consumer Financial Protection Bureau. https://www.consumerfinance.gov/data-research/research-reports/financial-wellness-at-work/. Retrieved 24 September 2018. "Given the large costs that may be associated with financial stress in terms of productivity loss and higher health care spending, employers have a potentially large incentive to explore cost effective ways to enhance employee financial wellness. Indeed, employees would also clearly benefit from any programs that reduced stress that may be linked to poor health." 
  19. ↑ Powell, Robert (27 September 2014). "More companies offer financial wellness programs" (in English). USA Today. https://eu.usatoday.com/story/money/columnist/powell/2014/09/27/powell-financial-wellness-program-benefit/15457903. Retrieved 24 September 2018. "To be sure, most employers don't offer financial wellness programs. But three-quarters of about 400 large companies surveyed by Aon Hewitt survey say they're planning to focus more on financial wellness this year." 
  20. ↑ Eisenberg, Richard (1 August 2018). "Why Workplace Financial Wellness Program aren’t well" (in English). Next Avenue. https://www.nextavenue.org/workplace-financial-wellness-programs/?utm_source=sumome&utm_medium=linkedin&utm_campaign=sumome_share. Retrieved 24 September 2018. "Little wonder, then, that Bank of America Merrill Lynch also found that although 48 percent of the employees surveyed were offered workplace financial wellness plans, only 31 percent participate in them. One reason employees said they demur: “Don’t offer services of interest to me.”" 
  21. ↑ "2018 Employee Financial Wellness Survey: PwC" (in English). PricewaterhouseCoopers. 2018. https://www.pwc.com/us/en/industries/private-company-services/library/financial-well-being-retirement-survey.html. Retrieved 24 September 2018. "More than half of all employees want to make their own financial decisions but are looking to have someone validate that decision. Employees want a financial wellness benefit with access to unbiased counselors and help understanding and using their benefits." 
  22. ↑ Eisenberg, Richard (1 August 2018). "Why Workplace Financial Wellness Program aren’t well" (in English). Next Avenue. https://www.nextavenue.org/workplace-financial-wellness-programs/?utm_source=sumome&utm_medium=linkedin&utm_campaign=sumome_share. Retrieved 24 September 2018. "Employees also said they want personalized advice from a professional, with the ability to track their progress and accomplishments, factoring in their goals. Similarly, in the International Foundation of Employee Benefit Plans (IFEBP) 2018 survey of employers, in-person, one-on-one meetings were rated as the most effective meeting approach, with the highest participation rates." 

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