Billboards, airports, sporting events—financial wellness, as a concept, is popping up everywhere. Long the domain of the advisor space, it’s made its way to consumers, and more workers and employers are now aware, and adopting, financial wellness solutions.
Yet while the phrase is repeated ad nauseum, how good are the results? With financial scarcity, consumer debt, student loans and other well-tread fiscal worries on the rise, are workplace financial wellness offerings making a difference (or even a dent)?
Is there even a consensus as to what financial wellness really is?
They’re critically important questions that demand comprehensive answers, so we turned to Ric Edelman, author, syndicated radio host and co-founder of blended powerhouse Edelman Financial Engines.
Ric Edelman patiently took us through where we are currently with financial wellness utilization, where we’re headed and what constitutes a solid plan-sponsor offering for participants.
Q: There’s an awful lot of talk about the importance of financial wellness, but are we seeing results? Is it too early?
A: The evidence, so far is, anecdotal because, as you noted, it’s still early. But the early data, as well as sentiment, is very strong.
The advantage of putting this conversation into a wellness category is helping people relate this subject to their overall lives. It’s helping provide context and meaning as opposed to simply trying to accumulate money for some unknown purpose (or worse, have to sacrifice by reducing your paycheck for some unknown or intangible future need).
This helps people place it in a proper framework to realize that this can help them achieve their goals. It can help lower their stress. It can help give them a higher degree of confidence about the management of their finances. It also helps them feel better about their employer because, by focusing on wellness, it demonstrates a concern for the employee in a way that is selfless because it is in the employee’s best interest to do so. It’s a virtuous cycle where everybody wins.
But as you noted these programs are pretty new, we don’t have long-term, hard data yet demonstrating the improvement in retirement savings accumulation. We’re confident that data will come based on the early evidence we’ve seen.
Q: How do you define financial wellness?
A: We define financial wellness as the overall financial status of an individual and their family. Are they handling all aspects of their personal finances correctly? Not merely their retirement savings, which is traditionally the focus of the 401k, but also, do they have adequate cash reserves to handle unexpected expenses?
Last year the Federal Reserve made a big splash when it revealed research showing that 40% of U.S. households can’t afford to pay a $400 unexpected bill without selling something or going into debt.
Is your family properly protected with insurance? Life insurance, homeowner’s insurance, long-term care insurance, disability insurance, umbrella liability insurance; not merely health insurance, which the typical company is offering, or a 401k. Are you handling your will correctly?
Aretha Franklin was just in the news because they just found three wills that she had written over a four-year period resulting in now massive lawsuits.
So is your estate planning in place? Are you managing your home mortgage correctly? Are you saving for college effectively for your children? So financial wellness is the same approach that the health care community deals with health wellness.
It’s not just treating you if you show up at the doctor’s office with a sprained ankle. It’s a question of looking at your blood pressure, cholesterol, diet, exercise program, etc. so that you are the total patient, and handling everything correctly.
Q: How do health wellness programs directly translate to financial wellness, if at all? Was there anything that worked particularly well?
A: Yes, many elements. No. 1 is education. The reason that people tended to eat poorly is because we didn’t know any better. We didn’t know that those sugary soft drinks were bad for us. So, one is education and helping people understand the various issues of their personal finances.
The second is gamification, helping to turn these challenges into games. For example, providing rewards to employees for achieving goals. In many companies, they turn them into team sports where groups of four or six employees collectively determine how many steps they can walk in a given week and they compete with other teams in the office for fun prizes that makes it collaborative and collegial.
We can do the same thing in the case of 401k savings. If you’re surrounded by coworkers, all of whom are saving the maximum in their 401k and all of whom are openly talking about how much they’re saving, it helps give you positive reinforcement and motivation to do the same.
Many of the behaviors we learned in health wellness, for example, employers often provided cash bonuses to employees who quit smoking, or who engaged and other health improvement programs. It was beneficial to the employer because of lower health care insurance costs as well as better for the employees.
Well, we’re doing the same in one case by the employer match. It’s the same kind of motivation, if you will work toward your retirement, we will provide you with money to reward you for that and to motivate you for doing so. So, there are lots of lessons and opportunities that we have learned from the health care wellness campaigns to provide that to the financial wellness campaigns.
Q: What should a good financial wellness program entail?
A: Part of it depends on the unique nature of your company.
Some companies have hundreds, even thousands, of office locations around the country. Others are more centralized. Some have a very heavy commuting workplace, and others have everybody showing up in the same building all day long. So, it partly depends on the organization’s environment and culture.
That said, we need to recognize that everybody has their own individual way that they like to digest content. Some people prefer group meetings, and others prefer print, others video, others audio, others private one-on-one counseling.
Some like to go on their own pace where they can go through digital content at their own speed. Others want to follow a prescribed course that is scheduled with dates and deadlines for completion.
So, companies should provide all of the above to be able to make it easy for people to obtain the information at their own pace with incentives and guidance to help ensure participation.
Q: You recently wrote a children’s book to promote financial literacy. How did it come about?
A: Ken Dychtwald is a good friend of ours. He’s the founder of Age Wave and Ken motivated us to write a children’s book.
He wrote one as well. Ken is an expert in aging. We were having a conversation one day and talking about our financial literacy activities and most of our activities are aimed at adults and folks in the workplace.
We’ve done some work for high school students, but we’ve never done anything for young children, and Ken encouraged us to do that.
With his inspiration, we began the process. We had never written a book aimed at 4-to-8-year-olds before. There are not very many books out there to teach 4-year-olds about money, and yet it’s not too early to teach them.
Studies show that children make their first assisted purchases starting at age 3 and that they begin to acknowledge the aspects of money at age 5. The problem is that most parents don’t know how to talk to children about money and they don’t know what or how to teach them.
The book, The Squirrel Manifesto, by Ric Edelman teaches the very basic concepts that help young children build a healthy relationship with money that can last them a lifetime. And it teaches them the four basic principles of money that it’s important to spend a little, save a little, give a little and tax a little. They can grasp those concepts.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
