FINANCIAL WELLNESS
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The Pillars of Financial Wellness :
How Employers Can Use Them to Help Create More Productive Employees
Financial wellness is a hot topic these days among HR professionals . What exactly are the main components of a financial wellness program and why are many employers endorsing them ? We ’ ll explore why companies are adding this program to their suite of benefits and also look at some of the major components , or “ pillars ,” that should be considered to help build a program designed to foster a more productive workforce .
Several major studies have documented the relationship between employee financial stress and productivity including the following :
• An American Psychological Association study found that “ 70 % of employees are seriously concerned , if not seriously worried , about their finances .”
• A 2012 SHRM Research Spotlight on Financial Education Initiatives reported that “ 60 % of HR professionals say financial stress is having some impact on employee work performance .”
• A 2013 AON Hewitt Consumer Health Mindset Survey of 2,800 workers found that “ 51 % of workers surveyed said ( financial ) stress caused them to be less productive at work .”
While many employers already have or are planning to implement an employee financial wellness program ( 33 percent in the above AON Hewitt study ), the focus and the content delivery methods vary depending on the philosophy and culture of the company and the characteristics of its employees . Therefore , each employer should customize its financial wellness program to suit the organization ’ s unique nature and goals .
All employers , however , would do well to consider the seven pillars discussed here when designing a financial wellness education plan . Each pillar includes some “ braces ” that are critical to holding the plan together . This article is a brief description of each of the seven “ pillars .” ( A more thorough description can be found in a chapter on financial wellness in an Employee Benefits book that I co-authored . We ’ ll send a complimentary copy to you upon request .)
PILLAR # 1 : BUDGETING / LIFESTYLE PLANNING Having a system to track expenses and eliminate unnecessary items in an employee ’ s budget is an essential first step towards financial wellness . Keeping outflow less than inflow is critical . A budget is the cornerstone in building a solid financial structure .
PILLAR # 2 : DEBT MANAGEMENT It is important to carefully manage debt and be sure it is used wisely in any financial plan . Debt can be classified as “ good debt ” or “ bad debt .”
“ Good debt ” is used for positive financial leverage , which means an investment ’ s return can be increased by borrowing to finance it . Debt with a reasonable interest rate ( a rate less than the expected investment return ) may be incurred to buy an asset expected to appreciate ( e . g ., real estate ), and the interest is often deductible from income taxes as is true with rental properties .
“ Bad debt ,” on the other hand , is debt that is often used to fund a depreciating asset ( e . g ., sports car , clothes ) to support an employee ’ s lifestyle . The debt is frequently loaned at a high interest rate with no tax benefits . A survey by Alliant Credit Union underscored the need to keep bad debt under control . Thirty-seven percent of the survey respondents listed paying off credit cards as a top goal , and 22 percent said staying afloat with debt obligations is a major concern . When consumer and credit card debt is adequately managed , it is much easier to find money in the employee ’ s budget to begin building assets , starting with our next pillar .
PILLAR # 3 : SAVINGS It is important to accumulate funds to cover emergencies and have available for investment opportunities — and for peace of mind . The emphasis of a savings plan is on the return of money rather than the return on money . Keeping an adequate source of liquid funds , i . e ., money that is readily available without penalties or taxes , and with no risk of principal fluctuation is often overlooked .
PILLAR # 4 : ADEQUATE INSURANCE PROTECTION A well-designed insurance program plays the role of protecting assets through homeowners , auto , and other property insurance policies ; reducing liability through personal and professional liability policies ; and replacing and supplementing income through life , disability income , health insurance , critical illness and long-term care policies . Employer-provided benefits such as medical , dental , life and disability coverage provide a base level of protection . Every welldesigned insurance program , however , will require that the employee seek assistance from outside advisors for needed individual insurance products .
PILLAR # 5 : INVESTMENTS The investment pillar is the key to building long-term wealth and is also the most complex . There are many types of investments , each with its own risks as well as unique opportunities or upside potential . Some people are suited to a “ do-it-yourself style ,” that is , a hands-on approach to investing . This type of investor may buy and manage real estate rentals ; start a business ; or take an active role in creating an online brokerage account , buying and selling stocks , bonds , exchange-traded funds ( ETFs ), or mutual funds . The employee who actively
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