Financial Wellness Today, Readiness Tomorrow

Sep 08, 2020

Many employers find it difficult to prioritize their workers’ retirement plan preparedness right now while trying to manage day-to-day business operations and employee needs during the COVID-19 pandemic. Similarly, many workers have put retirement savings on the back burner while they’re managing changes at work and home and dealing with the impact the pandemic has had on their finances. However, most employers and employees would probably agree that if the employees’ day-to-day finances were under control, they would make retirement savings a higher priority.
 
Many Americans were not on a firm path to financial wellness before the pandemic and may fall even further behind during these challenging times. 
 

• 61% of workers report that preparing for retirement makes them feel stressed.[1]
• 35% report that the total value of their savings and investments, excluding the value of their primary home, is less than $25,000.¹
• 18% say they have less than $1,000 in savings.¹

As a financial advisor, you are uniquely positioned to help your plan sponsor clients and their employees through today’s challenges and beyond by providing financial wellness education and tools to help plan participants develop healthy financial habits. During these difficult times, they have an even greater need for your support to help free them from negative financial stress and meet their savings goals.
 
“Financial wellness” is not a term used to describe being highly compensated or financially well off. Rather, it’s a way to describe a healthy relationship with money and an understanding of core financial concepts. Being financially healthy means an individual incurs debt intentionally, pays bills timely, has a savings fund for emergencies, and builds enough savings to meet their retirement income needs. When employees are stressed about overwhelming debt or an unexpected large expense they cannot afford, the strain affects not only their personal relationships and health, but also their productivity at work and potentially their long-term financial outlook. Financial mistakes made today, such as high interest loans and late credit card payments, can have long-lasting effects.
 
To achieve financial wellness, individuals need the ability to:
 

• Make a budget and stick to it.
• Specify short-term and long-term savings needs and goals.
• Identify the steps necessary to achieve savings goals and make a plan.
• Follow-through on those financial action steps.

These may seem like relatively simple tasks, but studies show that adults of all ages need help understanding basic financial concepts. A financial literacy survey that has tested more than 53,000 Americans over the past six years shows that the average financial literacy score is less than 68%, and less than 59% of consumers get a passing score.[2] The top three questions missed are telling as to which topics are most challenging for many people:²

1. If I invest $100 per month starting at age 21, and that money earns a 7% annual return, how much will I have after 70 years?
2. How can I start setting personal goals now?
3. What is the safest initial step that I can take to start building my credit?

If people do not know how to set goals or are stymied from acting because of negative emotions associated with money, they won’t be able to effectively manage their finances now or takes the steps needed to plan and prepare successfully for retirement.

• 48% of workers have tried to calculate how much money they will need to have saved so that they can live comfortably in retirement.¹
• 44% of workers have estimated how much income they would need each month in retirement.¹

It’s clear many people would benefit from education and information on financial concepts that can help them understand how to achieve their financial goals. Financial wellness education topics that might benefit plan participants include:

• Budgeting
• Setting financial goals
• Investing
• Understanding financial concepts and products (e.g., compounding interest, mortgages)
• Calculating retirement income needs
• Managing debt
• Paying for education 

As you’re exploring financial wellness education solutions with plan sponsors, try to include a variety of delivery options for education, including in-person meetings, webinars, eLearning courses, calculators, and checklists. People have different learning styles, and delivering education in more than one way may make the education more meaningful to more people. Education strategies that include hands-on practice and follow-up check-ins or guidance can solidify concepts learned, spur action, and help ensure newly learned behaviors become habits.

Advisor Action Steps 

Use your expertise to help plan participants improve their current financial health, reduce stress, and save for retirement by providing financial wellness education, tools, and strategies. Newport can help by providing resources for educational materials. Our recently enhanced participant site, as well as our corporate website includes features designed to prepare participants for retirement and beyond, including an expanded financial wellness center. Read how Newport is helping participants prepare for financial challenges here.