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Including Financial Wellness in Your Retirement Plan Strategy

02.03.20

Many employees are paying a high price for their inadvertent ignorance about personal finance matters, studies are concluding. The price isn’t measured solely in bad investment or spending decisions, but also emotional and physical health, as well as in diminished job productivity. Employees’ understanding of your retirement plan, or lack thereof, is a critical piece of the puzzle. Designing a retirement plan educational strategy without considering employees’ financial wellness could yield disappointing results.

Connect Literacy to Health

A study by the Stanford Center on Longevity found that Americans are losing ground in three “interdependent domains”: healthy living, financial security and social engagement. As a result, the study found, “many companies are expanding their vision of wellness to include other aspects of an employee’s wellbeing,” including personal finance. And a report by Prudential found that increasing “numbers of employers are finding it advantageous to address overall wellness — financial and physical and social engagement — in their human capital strategy.”

For some, it begins with a crash course in financial literacy. A recent study of Americans’ grasps of basic personal finance topics conducted by the TIAA Institute identified “critical gaps in financial literacy among American adults and underscored the connection between financial literacy and financial health.” The average survey respondent could answer only around half of the questions in a quiz that was administered as part of the study.

Interestingly, respondents were found to know much more about how to borrow money than how to assess the financial risks they face. Unfortunately, the risk of being unable to afford to retire wasn’t high on the list of risks for people who understood how to get into debt.

Similarly, it can be an uphill battle to bring about meaningful retirement savings rates among employees who’re strapped for cash. This may be because they failed to buy adequate auto insurance and incurred an expensive claim, or they didn’t purchase a health benefit plan best suited to their circumstances. The same may be true of employees who overspend on discretionary convenience services such as restaurant meals to alleviate unmanaged personal stress.

The TIAA Institute’s study found a correlation between financial literacy and retirement savings patterns. For example, 83% of the people who got at least three-fourths of the quiz questions right save regularly for retirement. That contrasts with only 37% of those who answered no more than one in four of the questions correctly.

Promote Financial Wellness

The recognition of the importance of an interdisciplinary approach to employee well-being has spawned a booming industry of financial wellness service providers. Promoting financial wellness effectively requires more than delegating the task to a vendor, however. The Prudential analysis of financial wellness programs includes five tips for taking a strategic approach to getting the most out of a financial wellness program:

  1. Make overall wellness a component of your human capital strategy.
  2. Analyze your workplace demographics to understand your employees’ financial needs.
  3. Design programs to drive positive employee behaviors.
  4. Create a personalized experience that engages your employees and motivates them.
  5. Align your financial wellness metrics with your business outcomes.

Whether you put a financial wellness program together yourself or engage a vendor for support is up to you.

Measure Success

Ideally, the success of such an effort can be measured in more ways than changes in the average employee 401(k) deferral percentage — even if that metric is the easiest to calculate. Changes in employee health and productivity can be trickier to measure, but merely taking success on faith isn’t a prudent alternative.