American employees in 2016 made gains in overall financial wellness, powered by an increase in repeat usage. More employees reported running retirement projections, revealing improvement in overall retirement preparedness. There continues to be wide disparities between employees in the lowest and highest financial wellness levels, driven by differences in financial behavior.
Financial wellness improved for the average American employee in 2016, aided by an increase in the percentage of repeat usage of workplace financial wellness programs. Repeat users in 2016 recorded higher levels of financial wellness in cash flow and debt management, retirement preparedness, and investment confidence. The average overall employee financial wellness score1 improved to 5.4, up from 4.7 in 2015.
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Increase In Retirement Projections
Retirement preparedness has improved, driven by more employees running retirement projections. This is good news for employers that face significant costs due to delayed retirement from employees that are underfunded or don’t have an idea whether or not they have enough to retire. The simple act of running a retirement projection may be the single most important step employees can take to reach retirement goals. By running a retirement projection, about four in ten discovered they are underfunded and in need of making changes with respect to how much they save, how they invest, and how they prepare for retirement. The remaining six in ten discovered they are on track for retirement, increasing confidence in their ability to achieve retirement goals. Despite the progress, over half (51 percent) of employees that completed a financial wellness assessment in 2016 remain in the “unknown” category (i.e., they haven’t run a retirement projection and don’t know if they are on track to reach retirement goals).
Behavior More Than Demographic Is Key Difference In Financial Wellness
Despite overall improvements in retirement preparedness, there continues to be wide disparities between employees in the lowest and highest financial wellness levels, driven by differences in financial behavior. This disparity between employees at different sides of the financial wellness range may be influenced by differences in age and income, but improving behavior is the key to improving financial wellness. Certain employees face high or overwhelming financial stress, with urgent financial problems preventing them from preparing for retirement.
Employees with financial wellness scores of 0 to 2 are “suffering,” facing difficulties paying bills and dealing with debt. One unexpected expense could set off a series of cascading negative consequences that can lead to retirement plan loans, hardship withdrawals, and wage garnishments. Employees on the high end of financial wellness (i.e., have a financial wellness score of 9 or 10) are “secure,” exhibiting solid financial behaviors and progressing towards financial goals. Moving from one financial wellness level to the next is an incremental process that requires a gradual adoption of better financial behaviors.
Improvement in Financial Wellness
Employees who took a financial wellness assessment in 2016 reported progress in cash flow management, which freed up funds to apply towards other goals. Seventy-three percent of employees overall reported they had a handle on cash flow, up six percentage points since 2015. Those who reported having an emergency fund rose four percentage points. Ninety-two percent of employees reported making retirement plan contributions at work, up from 87 percent in 2015.
Increase In Repeat Usage
Repeat usage of workplace financial wellness programs is gaining momentum. Repeat users made up 29 percent of all users analyzed in 2016, up significantly from 16 percent in 2015, 15 percent in 2014 and six percent in 2013.
Financial wellness scores improved for repeat users in all major demographic groups. When broken down by age, gender, and income, the highest levels of improvement were reported by users ages 45 to 54, female, and with household incomes under $60,000.
Compared to new users of workplace financial wellness programs, repeat users in 2016 were nine percentage points more likely to be comfortable with their debt levels, 10 percentage points more likely to have an emergency fund, and 15 percentage points more likely to be on track for a comfortable retirement.
As a result of better cash and debt management, repeat users reported lower levels of financial stress. In particular, repeat users reported a seven-point lower level of “unmanageable” financial stress, which is financial stress reported at high or overwhelming levels.
Key Areas Of Improvement Of Repeat Users
Repeat users showed significant improvement in key areas of financial wellness, along with an overall improvement of nearly 23 percent in their average financial wellness score from their initial assessment to their most recent assessment:
Best Practices To Drive Repeat Usage
The majority of employers represented in our sample use a variety of techniques to drive employee engagement in their workplace financial wellness program, including:
- Marketing their financial wellness program as an employer-paid employee benefit
- Positioning financial wellness as a key component of an overall wellness program
- Offering wellness incentives to participate
- Offering unlimited one-on-one financial consultations via phone, in-person, or both
- Marketing the financial wellness program as part of other benefits communications, such as displaying information prominently on the internal employee benefits site and reminding employees during open enrollment or benefits changes that coaching is available
Improvement in Retirement Preparedness
Twenty-seven percent of employees that took a financial wellness assessment in 2016 reported being on track for retirement, up from 19 percent in 2015. Despite this improvement, employees across the board aren’t saving enough to meet retirement needs. Ninety-two percent reported participating in their employer-sponsored retirement plan, but only 77 percent are contributing enough to earn the full employer match. The problem of retirement under-preparedness continues to be systemic, with insufficient percentages of virtually all demographic groups saying they are on track for a comfortable retirement.
Retirement Projections Increased
Improvement was helped in part by a larger percentage of employees having run a retirement projection. Forty-nine percent of employees reported taking this step, up from 35 percent a year earlier. This progress was influenced by repeat users, 38 percent of whom reported having run a retirement projection and finding they were on target.
Employees who are not prepared for retirement fall into two categories:
- The unknowns – employees who don’t know if they are saving enough to retire comfortably, don’t have the resources, or don’t know where to begin.
- The underfunded – employees who have taken some initial steps to plan for retirement, such as running a retirement projection; they realize they are not saving enough for retirement but can’t or aren’t likely to due to other competing priorities.
Six In 10 “unknowns” Gain Confidence With A Retirement Projection
The percentage of employees that reported running a retirement projection increased 14 percentage points to 49 percent in 2016. Nearly six in ten (57 percent) employees that make up this increased percentage report being on track to retire comfortably. The remaining four in ten (43 percent) discovered they were not on track, thus allowing them to take steps to save more or adjust their retirement income assumptions. The increase in retirement projections may be supported by users who repeatedly engage in their financial wellness program or who interact regularly with a financial coach. Repeat users were 12 percentage points more likely to have run a retirement projection than new users (58 percent versus 46 percent).
Lowest & Highest Financial Wellness Levels
Although income is strongly correlated with financial wellness, it’s not the only influence. A review of the demographics and financial behaviors of employees in the lowest and highest financial wellness quintiles shows other differences which contribute to the disparity between the two groups.
The Suffering Employee
Employees with the lowest financial wellness levels are more likely to be age 44 and younger, women, and have incomes lower than $60,000 per year. It’s important to note, however, that one in ten employees who is struggling is age 55 and over, and 14 percent have household incomes exceeding $100,000 per year. These employees tend to live paycheck to paycheck without emergency savings to handle an unexpected expense. Forty-one percent report having taken a retirement plan loan or hardship withdrawal, compared to 29 percent of employees overall. According to our 2016 ROI Special Report, improving the financial wellness of suffering employees to the median financial wellness level of “stabilizing” could save companies as much as $198 per employee per year.
The Secure Employee
By contrast, employees with the highest financial wellness levels are more likely to be age 45 and older, men, and have household incomes greater than $100,000. Employees in this category have excellent financial habits, with 100 percent reporting they have a handle on cash flow, and 97 percent indicating they have an emergency fund. One-hundred percent report contributing to their retirement plan and 92 percent are confident they are on track to retire comfortably. Per the 2016 ROI Special Report, these secure employees can add up to $143 per employee per year to their employer’s bottom line, making the return on investment for moving employees from suffering to secure as much as $341 per employee per year.
Employee Financial Wellness: An Incremental Process
Improving the overall financial wellness level of an organization is a process that requires coaching and motivating employees to change entrenched financial behaviors.2 Employees with the lowest levels of financial wellness, along with those requesting a 401(k) plan loan or hardship withdrawal, may benefit most from financial coaching that centers on cash and debt management.3 While it is unrealistic to expect an employee in the “suffering” category to move to the “secure” category over the course of a year, it is realistic to see short-term advancements as employees move from a state of overwhelming financial stress to a higher level of financial wellness.
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