10 Reasons Why You Need a Financial Wellness Program
The idea of providing a financial wellness program to employees seems like a recent development, but it reaches back already several generations. The great change in financial wellness programs of the 2020s will require CEOs and HR directors to move beyond the notion that a financial benefits program involves the sole offering of retirement account contributions. In the wake of the Great Recession and the COVID-19 pandemic, employers are recognizing the value of adding personal financial services and products to their employee benefits packages, not only as a way of attracting and retaining the best talent but also to support their employees in reaching their personal goals that turn them into loyal, long-term staff members.
Why should you add a financial wellness program to your benefits package?
Financial wellness benefits packages are much more than feel-good add-ons to employee health insurance. These programs promote greater employee stability, productivity, and loyalty while reducing the time employers spend on garnishments and paycheck advances all at little to no cost to the employer.
Additional food for thought: while previous generations would likely have appreciated personal financial services in their employee benefits packages, the sheer size of the Millennial generation means that they have the power to exert pressure on the workplace to provide options they find attractive. As Millennials have moved from the dorm room to their parent’s basements to apartments and now into their own homes, employers are seeing the value of offering financial wellness programs that attract and retain skilled and dedicated workers.
Here are 10 reasons why CEOs, HR directors, and other company decision-makers should add an employee financial wellness program to their benefits packages, going well beyond a mere 401k investment option.
Improved employee productivity
Number one on most employer lists of positive results stemming from financial wellness programs is the bump in employee productivity that a well-rounded financial wellness package can provide. In addition to retirement account options, a program that offers budget counseling, credit building assistance, debt reduction programs, student loan repayment support, home ownership preparation, and even options for basic banking will allow the employee to prevent or minimize personal financial hardships along with the distractions they create.
Comprehensive financial wellness programs reduce the disruptions of the employee’s time due to concerns over debt, such as collection agency calls, extended breaks to take care of missed credit card payments, and extra days off to deal with poor credit scores when looking for appropriate housing.
Moderated Employee Stress and Improved Health
This one appears so obvious that we too often overlook it. Surveys regularly show that finances are the leading cause of stress for Americans, above family obligations, health, and even work. While sweaty palms and increased heart rates might be symptoms of situational stress, chronic stress leads to increased fatigue, an inability to concentrate, heightened irritability, not to mention the physical manifestations of headaches, and greater susceptibility to serious diseases. Additionally, many employees with chronic stress turn to very unhealthy habits as coping mechanisms, such as smoking, overeating, and drinking. When we consider our physical and psychological reactions to stress, it is no wonder employers are turning to financial wellness programs to help their employees minimize and eliminate financial stress. For employers that offer health insurance plans, financial stress is no longer a personal matter since its consequences can lead to an increase in plan premiums.
Increased Employee Satisfaction
Employees report greater personal and professional satisfaction when they have access to tools that help them set and achieve personal financial goals, including building an emergency fund, preparing for vacations and holidays, paying off student loans and consumer debts, and contributing to an investment plan.
An employee who prepares financially for expected and unexpected eventualities will exhibit greater engagement at work with less worry about their finances. Conversely, employees who regularly borrow money because their spending and their bills amount to more than their income will report much greater dissatisfaction with their job.
Greater Employee Longevity and Retention
By offering financial wellness programs that include budget counseling, credit building, and debt reduction services, employers are helping their employees to build more stable and secure financial lives. One likely result is an increase in homeownership among employees, which, in turn, leads to greater longevity in the workplace.
It makes sense when you think about it. Most financially stressed individuals believe that greater income (not controlled spending, despite its principal role) will solve their financial problems. Finding another job seems most likely to result in increased pay.
Reduced Paycheck Garnishments
When employees regain control of their finances through healthy financial habits such as budgeting and the appropriate usage of credit and debt, they are less likely to overextend themselves with a large car loan, truck loan, or other personal loans. Too often, such situations result in a court judgment against the employee, whose wages are then garnished by the creditor. Garnishments require extra time and effort on the part of human resources to process, decreasing their own productivity.
An ADP study found that nearly one in fourteen employees had a garnishment on their paycheck. For a small business with 100 employees, that means the HR department has to deal with seven or eight employee wage garnishments at any given time. Just under half of these garnishments resulted from non-payment of child support obligations, but the rest involved consumer and student loan debts. Financial education and services help employees address the causes of their debts so they are less likely to encounter the same issues again.
Fewer Payroll Advances
Similarly, improved personal finance behaviors among employees lead to fewer payroll advances, saving HR time and lost productivity. Managing payroll advances may or may not be time-consuming in your organization, but they can feel disheartening and even embarrassing for employees. Financial wellness programs need to promote basic personal finance habits that minimize the chances that the employee will need a payroll advance.
Some employers mistakenly believe that the recent rise of payroll advance services, often paid for by the employee, will resolve this issue. Unfortunately, the truth will come out soon enough. The problem is not with the time of the month when the paycheck arrives. The problem rests with the reality that too many employees incur bills and spend money at a higher rate than they earn money.
Fewer 401(K) Loans
Even more costly than payroll advances, loans against the employee’s 401(K) savings can lead to frustrating scenarios for the employee. An NBER study found that one in five current employees with a 401(K) plan at their place of employment has an outstanding 401(K) loan. That’s 20%!
For the employee, once fees and interest start to add up, the employee may need to supplement his or her income by seeking additional employment or a higher-paying job elsewhere.
Even more disturbing, 86% of the 21% of employees with a 401(K) loan will leave their place of employment still owing money on the loan. Many of them will never repay those loans, meaning they have reduced their retirement fund, incurred early taxes, and likely been charged a penalty fee for accessing those funds before age 59½.
Stronger Employee Recruiting
In times of low unemployment or other difficulties finding qualified applicants (e.g. the COVID-19 pandemic), employers seek all available options to attract and keep the best talent. A 2018 Harvard Kennedy School study found that the cost of losing an employee and having to train her or his replacement equates to 16% to 20% of the position’s annual salary (p. 12).
Benefits matter to a lot of job seekers who understand the value of good health insurance. Additionally, companies show they value potential employees through their willingness to provide support for the employee’s personal financial life. Feeling valued is a common job requirement among Millennials.
Reduced absenteeism
One result regularly noted in studies on the impact of financial wellness programs is the decrease in employee absenteeism. Employees are not going to miss work because they are researching the best stock to add to their 401K plan. However, if their car is being repossessed, if their bank has frozen their account for an overdraft, or if they need to seek a new apartment because their rent payment bounced, they will probably miss at least a half if not a full day or two of work. Debt management, budget counseling, and bank account education can help minimize such scenarios.
Employee Loyalty and Commitment
What good does it do to offer paid vacation days if the employee is not able to afford travel because, like 60% of the US population, they have not progressed beyond the paycheck-to-paycheck subsistence level? Offering a financial wellness program that promotes the centrality of saving for emergencies and short-term goals, in addition to the important long-term investment opportunities, allows the employee to develop healthy financial habits that will permit him or her to take advantage of other benefits. An employee that can afford to enjoy a vacation or two each year will be much more likely to stay loyal and committed to the employer that helped them get to that point.
Whatever the reason or reasons you choose to add a financial wellness program to your employee benefits package, the great news is that you open yourself and your company up to benefit from all the reasons listed above. In a world whose short-sighted views on the housing bubble and related investments led to the Great Recession, isn’t it about time your company took the long view of helping your employees to a better place financially? It will only result in helping them become better employees.
Related Questions
How expensive are employee financial wellness programs?
While some financial wellness benefits programs will charge the employer a per-employee fee, others – particularly those offered by nonprofits – come with no costs to the business. Unless the program involves substantial one-on-one counseling, you should avoid services with fees.
How much time do employee financial wellness programs take to set up?
Employee financial wellness programs that require each employee to sign up and sign various privacy and disclosure forms can take months or even a year depending upon the company size. Those that simply involve the addition of an intranet portal can take as little as an hour to implement.
