The average employee will stress over finances – but you can help.
By Rob Austin and Rob Pinkerton
There are few things more frustrating than automobile trouble. Not too long ago, my car simply stopped running. I’ll be the first to admit that I skipped preventive maintenance every now and then. After all, my car had been working properly, and it was all too easy to find more important things to do with my time. However, once my car broke down, I quickly realized that any time and money I was trying to save by foregoing the occasional trip to the mechanic would be dwarfed by this repair.
Like with maintaining a car, it is important to stay on top of overall financial health before getting into trouble down the road. This is particularly true at a time when many participants have likely seen good news in their 401(k) statements. According to Aon Hewitt research, the average participant balance in 401(k) plans is at an all-time high. Buoyed by high double-digit investment returns in 2013, the average account balance is now over $90,000, up from just over $57,000 at the beginning of 2009. Unfortunately, a more troubling picture emerges when we take a broader view of financial health.
Research from HelloWallet shows that almost two-thirds of participants in defined contribution (DC) plans have seen their debt increase at a faster rate than their retirement savings grew.
Moreover, between cashouts, loans, and withdrawals, nearly 25 cents out of every dollar leaks out of DC plans for purposes other than retirement, often times for an unplanned expense like the aforementioned automobile trouble. But when it comes to emergencies, only 21 percent of Americans understand the true cost of an emergency. Of these, only 37 percent have that amount saved.
Fortunately, plan sponsors understand the importance of a financially healthy workforce and are responding to these sobering statistics in innovative and proactive ways. According to Aon Hewitt’s 2014 Hot Topics in Retirement survey, 76 percent of plan sponsors indicated that they are very or somewhat likely to create or focus on the financial well-being of their employees in ways that go beyond the retirement plan. Sixty-one percent are very or somewhat likely to offer or promote services to help employees manage their day-to-day finances. Currently, close to 60 percent of plan sponsors facilitate one-on-one financial counseling with professionals, up from 22 percent in 2007, and the number of employers that offer managed accounts in their plan grew from less than 30 percent two years ago to over 50 percent today.
Why are plan sponsors interested in providing all this assistance? According to a 2013 whitepaper on financial wellness from Purchasing Power:
– Almost half of individuals spend two-to-three hours per week managing financial issues while they are on the job. Assuming a 40 hour week, this translates to 2.5 percent of payroll.
– Workers with financial stress tend to be absent from work more than their non-stressed counterparts.
– Financially stressed workers tend to be more unsatisfied with their pay. Ultimately, this leads to lack of pride in job and negative feelings about their employer. How are plan sponsors responding? Technology and data innovations have transformed almost every department in the modern enterprise, but until recently, HR departments have not had access to the tools and information that can help them meaningfully understand the financial needs of their workforce and respond accordingly. Now, HR has access to cutting-edge tools including:
- Mobile technology. Mobile and tablet based applications give workers access to tools that are literally carried in their pockets. These applications arm workers with insights and ideas for maximizing their salary and benefits in a timely, convenient and easily accessible way.
- Personalization. Advances in behavioral science have provided plan sponsors with new frameworks and applications to reach participants according to their behavioral preferences. For example, providing peer referencing as a means to communicating the financial relevance of an employer-sponsored benefit.
- Data analytics. Plan sponsors now have the power of data analytics to measure everything from communication effectiveness to workforce financial health. As a result, employers are testing and learning new comprehensive communications methods to help their participants maximize their financial well-being.
The adoption of new and emerging technologies is providing promising results for employers and their workers. One plan sponsor working with HelloWallet reported that communication through mobile technology was four times more effective than using the Web. Another sponsor saw 80 percent improvement in the take-up rate of HelloWallet using personalization and data analytics in their communication campaign.
Through a combination of tools and technology to help individuals improve their financial health today, employers are making it easy for employees to take steps now to avoid trouble down the road.
Rob Austin is director of retirement research for Aon Hewitt and Rob Pinkerton is chief marketing officer for HelloWallet.