Employees taking proactive approach to finances

Employees get proactive with retirementEmployee financial wellness improved in the first quarter, continuing an upward trend that began in 2010.

According to Financial Finesse, the general improvement may be related to employees becoming more proactive about their own finances.

Financial Finesse’s data is drawn from the phone calls and interactions it receives from plan participants needing help making financial decisions as part of the company’s financial education services.

In the first quarter of 2013, it found that 75 percent of questions received by the company’s team of certified financial planners dealt with making financial plans and improving financial behaviors rather than dealing with financial problems or emergencies.

Employee utilization of financial education is also increasing, as employees seem to be actively taking control of their finances rather than waiting for a financial problem to happen.

They also became more proactive toward retirement planning and investing, according to Financial Finesse. Forty percent of employees reported having used a retirement calculator to see if they were on track for retirement, up from 37 percent in the first quarter of 2012.

Forty-nine percent of employees reported having taken a risk tolerance assessment, up from 43 percent last year and 39 percent said they felt confident in the way their investments were allocated, up from 33 percent in 2012.

Employees also improved the diversification of their portfolios, with only a small percentage of callers saying they had 15 percent or more invested in a single position. A greater percentage reported rebalancing their portfolios and reviewing combined assets to develop a master allocation strategy.

These improvements could be a result of plan design innovations, including better communication of target-date funds and investment advisory tools, Financial Finesse said. Strong recent investment performance may also have an impact on the recent uptick in confidence.

Employees are engaging more in financial wellness programs. The job, housing and stock markets have all started to improve and employees are dealing with fewer financial crises which allows them to spend more time thinking about their financial futures.

There also have been improvements in cash flow and debt management over the past two years, although those have declined slightly the last two quarters. Financial Finesse believes the dip can be attributed to the elimination of the Social Security tax holiday in 2013, which reduced paychecks by 2 percent and also the fact that retirement loans have increased over the last few years, lowering take-home pay for employees as they pay back the money they borrowed.

Improvements in financial wellness were the most pronounced in lower income households, those making below $60,000 a year. More than half of them said they have a handle on their cash flow and spend less than they make each month and three-quarters said they capture company matching funds in their retirement plan by saving up to the matching percentage.

But while more people are saving, they still aren’t saving enough for retirement. According to Financial Finesse data, 81 percent of employees are at risk of not saving enough, down from 86 percent in the first quarter of 2012. Seven out of 10 employees selected retirement planning as a top priority in 2013.

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