Financial wellness

For years, organizations have focused on the physical wellness of their employees. They’ve provided health insurance; health savings accounts; access to helpful information through employee assistance programs; paid time off; and, of course, physical wellness programs designed to help employees get into better shape, lose weight and quit smoking.

But health is more than simply the absence of disease. The World Health Organization (WHO) has defined it this way: “Health is a state of complete physical, mental and social wellbeing.”

In stark contrast to that desired outcome is a 2017 report from the American Psychological Association which states that more than 60 percent of Americans list money as a significant source of stress.

Why should financial wellness be important to the company?

Approaching employee wellness holistically produces better overall outcomes, creates more engaged employees and when employees aren’t distracted by financial worries, financial wellness:

• Improves productivity
• Minimizes turnover
• Creates better physical health
• Increases employee engagement
• Produces more affordable retirement opportunities for all employees
• Enables career advancement opportunities for younger employees

Helping employees achieve financial wellness is an integral part of overall employee wellness and that’s a huge benefit to any organization.

Five key factors in creating employee wellness
Not only are there five separate areas that make up the overall wellness of any employee, but they’re all inextricably linked. Each one can have a profound impact on the others.

1. Physical wellness is where many people stop when they think of “employee wellness.” But it’s only one part — a part that often can’t succeed unless the others are aligned.
   
   
2. Social wellness means employees are connected with others in the workplace.
   
   
3. Emotional wellness means employees have a sense of purpose, and that they’re resilient enough to manage inevitable ups and downs.
   
   
4. Environmental wellness represents working and living in a health-enhancing environment.
   
   
5. And, finally, there’s financial wellness.

What does “financial wellness” actually mean?
What it doesn’t mean is having a higher income. It’s more about getting rid of financial fears and oppressive financial concerns.

The Consumer Financial Protection Bureau (CFPB) defines achieving financial wellness as “…a state of being 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.”

What that translates to is not necessarily how much money an employee has, but how they are able to manage it. It means gaining control over daily and monthly expenses; being able to absorb the financial shock of unexpected expenses; and being on track to meet short- and long-term financial goals.

The problem isn’t a straight line. It’s a vicious circle.
As stated earlier, 60 percent of all Americans list money as a significant source of stress. And stress can cause — or at least be a major contributor to — illness.

A Federal Reserve Survey found that, if faced with an unexpected expense of $400, four out of every 10 Americans would either not be able to cover it or would pay for it by selling something or borrowing money.

A Society for Human Resource Management (SHRM) report found that 25 percent of employees report personal financial issues as a distraction at work. Forty percent spend at least three hours each week thinking about or having to deal with money issues. And that results in 150 productive work hours lost to money-related issues.

• The average credit card debt is $16,000 per household.
• The average student loan debt is around $38,000.
• Only around one-third of Americans pay off their credit cards every month.

And all of that sets the circle in motion:

Employees borrow money. Then they react to an emergency. Which causes them to borrow more. They can only afford to pay minimums. Interest rates go higher. Debt mounts. And they borrow more. Which simply causes the cycle to resume and even grow.

Twenty-five percent of employees have borrowed from their retirement fund for everything from unplanned emergency expenses to paying off IRS debt to medical bills to prevent eviction. And that causes an average of 30 percent less in total retirement savings.

Speaking of retirement funds, approximately 60 percent of American workers don’t have a single retirement asset. They either don’t have access to retirement savings programs or they aren’t able to contribute enough to receive a match from their employer. With 10,000 baby boomers retiring every day, imagine the stress that can produce.

In addition, the impact of student loan debt has been profound. It has caused 40 percent of employees to avoid saving for retirement, delayed 33 percent from buying a home, and at least 16 percent are not able to receive the health care they required. And student loan debt isn’t simply affecting millennials; it’s a problem for everyone, all the way up through the baby boomers.

Also, nearly 40 percent of employees are currently providing financial support to adult children. And almost 25 percent provide direct financial support to their aging parents.

Have you met ALICE?
 “ALICE” is an acronym created by the Michigan Association of United Ways that stands for Asset Limited, Income Constrained, Employed. These employees earn too much to qualify for government assistance, but not enough to cover their basic needs – housing, childcare, food, transportation and health care.

Here again, the problem is a vicious cycle. If you don’t have enough money to fix your car, you may lose your job. If you can’t get the health care you need, you could miss work — and possibly lose your job. If you can’t afford childcare, someone has to stay home with the child. Too many episodes such as that, and you can lose your job.

The “ALICE” category is not a small minority either. Forty-three percent of U.S. households do not earn enough to afford to cover their monthly needs. Why? Because two-thirds of all jobs in the U.S. pay less than $20 per hour. So, low unemployment is a nice political talking point, but too many of those jobs simply aren’t paying the bills. And the cost of living is growing far faster than wage or salary increases.

Financial wellbeing is made up of a lot of connections.
People bring their entire world to work — where they grew up, where they went to school, who their family is, etc. It’s why you have to take into account their personalities and their attitudes towards everything, not just finances.

How do they make decisions? What knowledge and skills do they bring to the problem as well as the solution? What options do they have, based on who they are and where they live? What do they actually do when called upon to act? And, finally, how satisfied are they with their current financial situation?

Those determinants contribute significantly to each individual’s health status:

Genetics & Biology: Genes, body structure (height, weight), body function (blood pressure, bone density), movement and balance, fitness

Medical care: Access to health care (distance, availability, quality of insurance), quality of health care, affordability, health literacy

Environment: Pollution (tobacco use exposure, air and water quality, lead exposure levels), location (access to healthy foods, crime level, transportation quality, job opportunities, educational opportunities, walkability), exposure to firearms

Individual behavior: Psychological assets (life satisfaction level, self-efficacy), negative mood and affects (stress, anxiety and depression level), gun behavior, motor vehicle behavior, physical activity, sleep and diet patterns

Social circumstances: Social connectedness (quality of relationships and quality of family, friends and community support), social status (income level, language and literacy level, education level, occupation), culture and tradition (religious involvement, community and family cultural norms), race and ethnicity, citizenship status, military service, history of incarceration, discrimination and work conditions

Each and every one of these factors contribute to an individual’s financial wellness.

If all you see are nails, then all you can think about is a hammer.
If employees are struggling to meet basic needs, how can they think about higher level needs, let alone create strategies to address them?

When employees face the possibility — or the reality — of not having enough money to feed their families or having enough time to take their children to the doctor or even having the ability to take a break and rest, then that’s all they can think about. The immediate necessity confronting them is what takes priority.

That means they’re not concentrating at all on their own physical health or their job productivity or being engaged at work or saving for the future.

The truth is, having to manage your life without the proper resources uses so much energy and emotion, there simply isn’t enough left for much of anything else. Research indicates that the more an employee’s “personal bandwidth” is called on to handle the problems brought on by poverty, the less IQ they are able to muster. And for many of these employees, this is a chronic, ongoing state. 

That single-minded focus on managing scarcity is referred to as “tunneling” and it can even cause employees to ignore long-term needs such as insurance, medication and more. Those longer-term issues can be right in front of them, but they are so focused on solving the problem caused by scarcity, they don’t even recognize them.

And, like being alone in a long, dark tunnel, it feels as though you’ll never get out.

Maybe that’s why a lot of employees ignore longer-term benefits?
You may have at some point wondered why employees aren’t bothering to earn incentives for healthier behavior. Or why they don’t invest more in a 401k when the company is matching them dollar-for-dollar. Or why engagement appears low.

It’s probably not that these benefits aren’t appreciated; it’s more likely a matter of employees not being able to focus on anything beyond the problems that are right in front of them, right at that moment.

How can you help employees address these problems and achieve financial wellness?
Because each person’s situation is unique and in many ways subjective, it is hard to describe financial wellbeing using only income, net worth or credit score. And it’s why people with similar incomes, financial experiences or education can have very different levels of financial wellbeing.

Whenever it’s possible, you can offer several relatively simple ideas that would allow them more time and ability to increase their “bandwidth”:

• Adjust shifts to match transportation options
• Offer consistent scheduling
• Simplify communications
• Offer resources to help them juggle less

But mostly you need to get to the root causes.

First, understand what’s going on:

• Do a health assessment that relates to financial health
• Use the Consumer Financial Protection Bureau’s Financial Wellbeing Scale
• Use your HR data
  • Employee demographics
  • Any wage garnishments that impact take-home pay
  • Time-off trends
  • 401k contribution rates
  • 401k loans
  • Salary/wage data and how it aligns with living wage where employees live

In other words, let your people tell you their stories.

Next, ask managers and supervisors about who may be struggling with financial issues, including absenteeism problems or particular employee behaviors that might indicate financial problems. These can include difficulties finding reliable transportation, childcare or family care issues and more.

You also need to consider that your employees have substantially different needs based on the stage of life they’re currently going through. For example, younger employees may need help with loan repayment, tuition reimbursement or affording a house; older employees might need support to care for aging parents, paying for college or retirement.

Connecting employees to the right resources.
That doesn’t necessarily mean hooking everyone up with a financial planner either. It can mean helping employees find and make use of the right food shelf or creating a resource of your own. It can mean helping employees find consistently available, affordable transportation. Or convenient childcare options. Even free or reduced cost services like medical care, job training and more through resources such as Employee Assistance Programs.

And, while financial planning isn’t the answer for every employee’s problems, there are options that can help many of your employees better understand how to handle their issues with less stress and more success:

• Investment Advising
• Financial Education
• Financial Coaching
• Cash Flow Management
• Loan Repayment / Assistance
• Short-Term/Hardship Loans

Will employees listen to you about finances?
The 2019 Edelman Trust Barometer Global Report discovered that Americans believe employers are more trustworthy sources of information than the media or even the government.

Sixty-eight percent of working adults feel that their employers care about them and how they’re doing and 79 percent trust employers when it comes to personal finance issues.

So, yes…they’ll definitely listen when you offer advice and assistance.

MMA can help you help your employees.
If you need help creating an approach to better understanding the make-up of your employee population, MMA is experienced and ready to help. We can help you prepare surveys and provide analysis as well as recommendations for how to help all of your employees achieve financial wellness. To learn more, contact your Marsh & McLennan representative.