Financial Wellness: “The ability to successfully manage the material needs of life through thoughtful and well-informed decisions. Financial Wellness assumes financial literacy.”

While just now coming to the surface, financial literacy education is beginning to catch on across the country. Companies have been knee-deep in implementing health wellness programs, but only recently has the idea of integrating financial wellness training into a holistic approach to wellness begun to take hold. The fact is that American workers are significantly more likely to rate themselves as physically healthy (53%) than financially healthy (31%), according to research from the Principal Financial Well-Being Index. The time for greater emphasis on employee financial wellness is now.

The following article headlines all appeared in various financial publications during the second half of 2012:

  • U.S. Poverty About to Hit Highest Level in 40 Years
  • U.S. Economy Going From Bad to Worse
  • Second-half outlook is for growth to remain sluggish
  • “U.S. families’ net worth falls to level of early 90s.”
  • Eurozone economy now contracting, recession likely
  • Eye popping retiree medical tab seen
  • Wall Street’s Soothsayers See Darkening Clouds
  • The ‘fiscal cliff’ would lead to U.S. recession and 9% unemployment in 2013
  • U.S. Middle Class has ‘worst decade in modern history’
  • Double-digit medical cost increases expected worldwide
  • ‘Food insecurity’ up in households last year (About one-sixth of Americans didn’t have enough to eat at times

With headlines like these, is it any wonder that people are anxious about their financial futures, and the anxiety that goes with being insecure about one’s financial future can play out in many ways in the work place. We know, for instance, that financial stress, a leading stressor, can result in physical problems that can show up in the form of depression, severe anxiety, muscle tension/back pain, stomach ulcers, high blood pressure, and insomnia. These physical problems can have a devastating effect on the claims experience of employers, and can increase the employer’s financial burden for employee health insurance by hundreds of thousands and millions of dollars for larger employers.

Apart from the physical anxiety and cost that goes with financial insecurity, we know that financial stress can lead to reduced employee productivity, less engagement while on the job, reduced morale, more disability claims, poorer family relationships, and fewer profits for the employer and subsequently less shareholder value for the company’s investors.

These issues take on particular significance in light of recent survey findings coming out of the Employee Benefits Research Institute in which the following question was asked of Human Resources professionals: What are the biggest challenges facing your company right now with regard to the management of human resources and employee benefits? The tops two responses to this question were 1) Managing health insurance costs (70% of respondents), and 2) Employee engagement and morale (30%).

We’re told in MetLife’s 10th Annual Study of Employee Benefit Trends, released in the first half of 2012, that more progressive employers have begun to see the light and are moving to financial wellness initiatives. From this report we read the following:

Employers are aware that a distracted, stressed workforce – one that is preoccupied by money worries – is less likely to perform at desired levels. Progressive employers appear to be more aware than others of the effects this has on company productivity and health costs. There is no reason to think that these employers have a greater incidence of financially insecure employees; rather progressive employers may be more tuned into some of the more important dynamics of today’s workforce.”

So what do employees need to know – a lot more than they do today. In two recent issues of Employee Benefit News magazine, the following was reported from survey findings:

  • Only one-third (of the respondents) claim they could tackle the task of diversification, although two-thirds acknowledge they know diversification is important when investing for retirement.
  • Sixty seven percent know that adjusting their investments over time is important, but only thirty percent say they know how to do this.
  • Forty percent expressed uncertainty about the risk and return characteristics of common investments found in 401(k) plans, including international equity funds, stock index funds, and stable value funds.
  • Eighty-two percent said they think it’s important to know how to make retirements savings last a lifetime, but just twenty-eight percent said they know how to achieve this.
  • Twenty-eight percent of workers have less than $500 in savings for emergency expenses while 51% have less than $1,000
  • When asked how they would pay for out-of-pocket expenses due to an unexpected illness: 57% of workers said they have to tap into savings, 30% would have to use a credit card, 19% – nearly one out of five people – would have to withdraw funds from their 401(k) plan.

The aforementioned is just a sampling of where employee knowledge comes up short when it come to financial education and wellness. This list could be pages long given the space.

Complicating things for employees is the fact that employers are not easing their employees’ financial burden by continuing to pass on greater cost to employees through increased health plan cost sharing, stagnant wages, and the ongoing elimination of defined benefit plans in favor of defined contribution plans. With the potential for an increase in the U.S. tax base and changes to capital gain taxes beyond 2012, the employee’s financial situation becomes even more tenuous.

Again, the good news is that employers are becoming more aware of the benefits of a financial wellness program and more are attempting to do something about it. However, like the introduction of health wellness, it will undoubtedly take some time to convince those in charge that the benefits outweigh the investment costs. Hopefully, the path to financial wellness will be shorter, because the benefits of health wellness programs have been well documented.