“Even the most sophisticated providers are focused almost exclusively on retirement readiness, with an emphasis on education and modeling tools needed to help participants understand what they need to save and plan for retirement, as well as to appreciate the accumulation needed over time.” – Ron Bush
Simply providing 401(k) savings programs to employees does not encourage them to participate, and it certainly doesn’t help to solve immediate personal financial problems. In the majority of cases, the root of the problem of low participation rates stems from poor financial literacy. If financial education programs are not offered, financial literacy remains low, and stress continues, resulting in prolonged problems with focus and productivity at work.
We have seen that financial stress in the American workforce is not only a persistent problem but increasing. Fifty-six percent of American workers cite that their stress levels today have increased over the previous year. This despite more savings options now available. It should make it clear that financial literacy must be actively addressed. Only then will employees have the knowledge, understanding, and extra cash flow to wisely invest in the provided savings vehicles.
A 2014 PwC survey showed that the Baby Boomers and Generation X tend to save more actively for the future and recover faster financially than the younger Generation Y. Forty-one percent of this group have trouble meeting household expenses, and 39 percent of those Generation Y workers with credit card accounts have trouble making minimum payments. Thirty-four percent of Generation Y employees withdraw money from their savings accounts to meet these and other pressing personal financial needs. Although 24 percent of American workers overall say that their financial problems distract them from work, 60 percent of that number is made up of the Generation Y group.
Covering health care costs is also a major concern of U.S. employees, with 33 percent of the overall workforce citing it as a problem.1 As a result of the newly enacted Affordable Care Act, 59 percent of workers believe that it will actually increase health care insurance expenses instead of lowering them, the majority of those being the older Baby Boomers.
I was once speaking at a wellness conference, and I asked a vice president, as well as the person in charge of human resources, the following question: “What type of financial literacy do you get from your company?”
Her response was that a 401(k) provider came to the company twice a year to tell them about investments to help them with planning for retirement. Here was a person who was supposed to be leading the charge, and yet she had no clue about financial literacy. Unfortunately, her response is a common one, which demonstrates the confusion between retirement plan vehicle presentations, and true financial literacy conversation. This has to change.
The cycle of poor spending habits, overused credit, and bad financial decision-making can only be solved by educating workers about how to apply financial tools properly, and utilize financial systems to their benefit. Companies that help distressed employees through challenging financial periods also help to increase their own bottom lines.
1 PricewaterhouseCoopers LLP (April 2014). Employee Financial Wellness Survey. Available from www.pwc.com/us/en/private-company-services/publications/financial-well-being-retirement-survey.jhtml
Mark Singer, CFP®, AIF® is the President and Co-Founder of Financial Literacy Toolbox. Mark is a leader in the world of financial education. Mark is the author of three books, a frequent speaker at events, and is the creator of The Financial Literacy Toolbox, a virtual resource center to help financial advisors, wellness providers, and institutional retirement services firms change the conversation about financial wellness.
