04/15/2014 04:06 pm ET Updated Jun 15, 2014

How to Help Keep Employees From Living on the Financial Edge

Despite an improving economy, many American employees are still strapped for cash, living off credit to pay for monthly necessities. During Financial Literacy Month, while many experts concentrate efforts on educating students and retirees, it's important to consider how employers can lead the charge in improving and educating their employees to be financially healthy. Just like health and wellness, employee personal financial fitness is an important aspect of overall well-being. In fact, financial stress can impact absenteeism, employee productivity, retirement and health care costs.

Employees across the United States are struggling to lead financially healthy lives, and 24 percent admit that personal finances have been a distraction at work, according to PwC's 2014 National Employee Financial Wellness Survey. Of those surveyed, 39 percent say they spend three hours or more at work each week thinking about or dealing with issues related to their personal finances, ultimately impacting an employer's bottom line.

What are these employees most concerned about? Cash flow issues rank atop the list of financial concerns among workers. In fact, three of the five most frequently cited concerns according to PwC's survey were cash flow related, including not having enough money set aside for emergencies, not being able to meet monthly expenses, and not being able to keep up with debts. With a number of employees living paycheck to paycheck and unable to set aside emergency funds, it's likely that many would be unable to withstand another near term decline in the market, a layoff, a rise in expenses, or some other unexpected financial event.

Health care continues to be a concern in the U.S. with the majority of employees believing that health care costs will rise and less than half of all Baby Boomers feeling confident that they'll be able to cover their medical expenses in retirement. According to the survey, the majority of employees say they are familiar with the Affordable Care Act (ACA), and less than one in five have looked into using a health care program from a marketplace or exchange. More than half responded that the ACA will increase their health insurance costs, and nearly half replied it will lower the quality of their healthcare. As with any change, some employees may have questions or concerns regarding the ACA, and employers should consider ways to educate their employees on the impact ACA will have on individual healthcare, if any.

How can employers help? Over the past decade, we have watched companies try to solve the growing retirement savings deficiency by adding features to the 401(k) plan like auto-enrollment and auto-escalation, which essentially forced employees to save more. While it certainly had an immediate impact on 401(k) participation, what employers didn't anticipate was the percentage of employees pulling the funds back out via loans and withdrawals. Some have reported plan leakage at rates as high as 50 percent. While some companies are considering tightening their loan provisions to solve the problem, employers should consider attacking the underlying issues that are preventing employees from saving, such as stagnant wages, crippling debt payments and rising expenses. Many employees are having difficulty balancing their own budgets, living on the financial edge. To help employees achieve financial well-being, employers may need to rethink their strategy for how to get employees to save more.

Progressive employers are recognizing that employee financial concerns vary and that narrowly focusing on just retirement will not only overlook some of the more pressing financial needs, but may actually miss the mark in terms of helping employees meet their retirement goals. As a result, there has been an emergence of employee financial wellness programs that focus more holistically on the overall financial well-being of employees. Whereas some may just put a new name on an existing financial literacy program, those truly committed to helping employees improve their financial well-being recognize that, like its health counterpart, true financial wellness programs need to focus on educating to drive behavioral change.

To be effective, a financial wellness program must provide highly-personalized guidance. Thus, targeting communication, education and guidance based on existing employee behaviors is essential. Employers can start by examining the data already available to them: how much employees are saving; do they have plan loans, withdrawals, or garnishments; are they experiencing any major life events; do they have high health care costs; do they have children? For a complete picture though, employers need to gain insight as to the decisions and actions employees make outside of the work environment. To do so, they need to engage employees in the process. While, employee engagement can be a challenge, common approaches are emerging including:

  • Embracing gamification, the creative application of game design to engage and motivate employees
  • Utilizing social media and interaction
  • Rewarding good/desired behaviors
  • Providing personalized coaching and ongoing support

As more and more employees become involved, a corporate culture that embraces and supports healthy financial behaviors begins to form. As this occurs, employers will begin to realize the beneficial impacts that a financially healthy workforce has on both the top and bottom line.

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