Financial wellness programs are the shiny new toy among employee benefits, and the trend is not slowing down. According to an Aon Hewitt report, 77 percent of employers plan to offer at least one form of financial support in 2017. Fifty-two percent of employers plan to offer three or more types of financial wellness support.
While employers realize the benefits of financial wellness programs, many struggle to develop fully-integrated and effective programs. Are your clients in the same camp? If so, here are 10 tips to improve the design and effectiveness of financial wellness programs.
1) Broaden your definition of financial wellness and design a program that supports that definition.
Eighty percent of companies offer financial wellness programs to increase employee engagement, but a poorly-designed program will never achieve this purpose. Incorporate these four steps to improve program design.
1. Broaden your understanding of personal financial wellness. Consider this definition:
Financial wellness is a state of financial confidence characterized by having:
Control over ongoing financial responsibilities
Capacity to manage unexpected expenses
A plan to live within your means
Ability to meet long-term financial goals
Minimal exposure to risk
2. Provide resources and support that align with each element of your definition of financial wellness. Many financial wellness programs focus narrowly on retirement planning, which only applies to meeting long-term financial goals. What about the other four elements of financial wellness listed above? A financial wellness program should align with each element of personal financial wellness.
3. Focus on personalized support for employees rather than a one-size-fits-all approach. As with physical health, employees are at different levels of financial health. Some employees need assistance with estate planning and wealth management, while others need to create a budget or reduce their exposure to risk. A diversified program that allows multiple entry points will yield the greatest overall results.
4. Offer more than financial literacy. Does reading a book about physical fitness make you healthy? No. You need to exercise based on what you’ve learned. Have you tried starting an exercise routine? It requires developing skills and habits over time. It’s the same with financial health. Content-centered financial education has almost no effect on people adopting healthy financial behaviors. Move beyond education to skill development, confidence building and accountability.
2) Measure what matters.
When it comes to financial wellness, perception is often reality. Employers often think of financial wellness as a set of numbers that can be measured (e.g., percent of employees contributing to their 401(k), average deferral rate, average HSA contribution, etc.). If those numbers are high, employees must be financially fit, right? Not necessarily. Financial wellness is also a psychological state that cannot always be determined by numbers. Do employees have a sense of financial confidence? Do employees feel financially prepared for the future? Do employees feel confident in making purchases or investments? According to emerging research, “employees’ perceptions of their financial literacy are more important than their actual levels of financial literacy in achieving financial wellness.” Why?
Employees with low financial confidence often avoid making important financial decisions, avoid utilizing programs designed to improve their financial wellness and push away from conversations or group meetings related to finances. As a result, these employees continue in a state of financial stress and incapacity.
Low financial confidence is rarely detected in company-wide measurements such as 401(k) or HSA participation. When measuring a financial wellness program, use metrics that reflect employee perceptions of their financial state and quantifiable metrics that reflect actual financial preparedness.
3) Choose a vendor with the right program design.
Financial literacy accounts for only 0.1 percent of change in financial behaviors, yet many programs center on literacy initiatives (seminars, webinars, pamphlets, etc.). When shopping for a financial wellness vendor, choose one that uses proven principles to engender sustained, positive financial behavior. Ask these six questions:
- Does the program provide short-term goal-setting for employees?
- Does the program focus on building confidence through short-term wins?
- Does the program help develop healthy financial habits over time?
- Is the program self-driven and personalized to the needs and interests of employees?
- Will employees receive active accountability for engaging their financial health?
- Is the program designed around proven behavioral economics?
4) Help employees develop confidence and grow into new resources.
According to a 2016 PWC survey, employees with the lowest levels of financial confidence are least likely to work with a free financial advisor. Offer a program that blends technology-based support with human advisors. This allows employees with lower financial confidence to build up to working with an advisor. As their confidence increases, they are more likely to use other resources that will continue improving their financial confidence.
5) Move from education to skill development.
The most effective financial wellness programs are process oriented — they focus on developing sall financial habits over time. This requires more than a quarterly lunch and learn or webinar. Provide your employees with financial wellness resources that combine personalized goal-tracking, incremental skill development and ease-of-use.
6) Financial wellness is bigger than retirement planning.
Retirement is the holy grail of financial wellness. Financial wellness programs, however, often focus too narrowly on end-of-career financial needs. Expand your program by considering the full financial lifecycle of employees. Then, develop a program around unique financial needs in each lifecycle. Some needs are present in each stage of the lifecycle (e.g. budgeting, saving, investing, etc.). Other financial needs are limited to distinct stages of life (e.g. managing student loan debt, saving for children, planning for retirement, etc.).
7) Put all program details in one central location.
Financial wellness programs often function like an Easter egg hunt. The resources are out there, but employees either don’t know about them or don’t know how to find them.
By placing all elements of a financial wellness program in one location and organizing them based on the solution they deliver, you make it easier for employees to navigate what resources are available to them. Instead of listing all benefits as insurance products employees can purchase, categorize them around financial needs. For instance, present voluntary benefits as a resource to reduce exposure to financial risk and present contributing 401(k) or HSA programs as ways to help save for future financial goals.
One option to consider is designing and opening a microsite to house all benefits information. Instead of categories like medical, dental, vision, EAP, etc., use categories like My Physical Health, My Financial Health and My Emotional Health. Under My Financial Health, list all relevant benefits under distinct financial wellness needs, as shown in the examples below:
Controlling my month-to-month expenses
Budgeting tools through financial wellness vendor
Reducing my exposure to risk
Planning for my future financial goals
Student loan assistance
Improving my ability to absorb financial shock
Health savings account
8) Communication is critical.
How you get the point across to employees matters. Messages that create a sense of fear or urgency are effective at motivating short-term actions such as signing up for a 401(k) or opening an HSA. For example, one of my clients ran a campaign called “Rich Uncle.” Their messages centered on this question, “Will you plan for retirement or hope for a rich uncle to save you?” A lot of employees (especially young ones) were motivated by a sense of fear because they knew they don’t have a rich uncle. They responded to the campaign by opening a 401(k).
Messages that convey a sense of hope for the future are the most effective for inspiring long-term financial planning. Asking questions like, “What do you want to do when you retire?” or “How will you save today to enjoy tomorrow?” inspire long-term planning. Incorporate both types of messages throughout the year as you promote financial wellness initiatives.
9) Make it easy when motivation is high.
Increase engagement by aligning motivation with ease-of-use. First, identify when employees are most motivated to make financial changes (e.g. new hires enrolling in benefits, open enrollment, life events, etc.). Second, make desired change as easy as possible. Auto-enroll employees in 401(k) plans. Allow employees to sign up for financial coaching by checking a box during open enrollment. If someone adds a new baby to the plan, let them sign up for a 529 by clicking a few boxes.
Here’s where we can learn from Amazon. The motivation to purchase is highest when someone is looking at the product. The more clicks you can remove from the purchase process, the more likely it is that people will make the purchase.
10) Make the business case for financial wellness.
Some executive leaders view financial wellness programs as a nice benefit, but not an important business objective. Make the business case for financial wellness by applying research to the actual workforce. If you don’t know where to start, consider the examples below:
According to a 2016 PWC survey, 46 percent of workers spend three or more hours per week thinking about finances while at work, which results in $5,000 per year in productivity loss. That costs the average employer almost as much as tobacco use. Do the math. How much does lost productivity due to financial stress cost your company?
A study conducted by Financial Finesse found that the majority of employees believe they will not be able to retire by age 65. Every employee who works beyond age 65 costs their company an average of $10,000 more per year. How much are late retirements costing your company? If you could reduce the number of late retirements by only 15 percent, how much money would it save you? What is your average tenure and turnover? If few employees are going to be around long enough to benefit from retirement planning, don’t make this your main point.
Most companies have shifted to high deductible health plans, but only 38 percent of employees contribute to a health savings account. What impact does that have on your health plan? Does lack of understanding of an HDHP create dissatisfaction with your health plan? Are employees prepared to meet their deductible if a major medical event occurs?
Financial wellness programs have the potential to deliver meaningful business results while providing a valuable resource to employees. Take the time to develop a well-designed program that is relevant to your clients’ employees.