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Financial wellness has become a popular topic in the media. Multiple national surveys have documented that the number of employees experiencing financial stress is increasing. Many companies are looking for ways to help their financially stressed employees, not just because it’s the right thing to do, but because it also makes sense for their business. Absenteeism, presenteeism, turnover, and health-related costs can all contribute to reduced employee productivity, and these hidden costs can seriously impact business profitability. Some experts estimate that these combined costs can total as much as 15% to 20% of a company’s total compensation paid to its employees. Reducing these events and their associated costs even by 5% can result in considerable cost savings, improved productivity, and increased profitability.
As many solution providers seek to jump on the financial wellness bandwagon, choices among financial wellness and financial wellness technology solutions are proliferating. An authentic and effective solution provides more than just education to improve employees’ financial literacy, or calculators to track spending and saving—it should also promote behavioral change for employees. Research has demonstrated that education alone is not enough to change behavior when it comes to personal finance. Choosing and implementing an authentic, effective financial wellness solution that is the best fit for both employers and employees is a win-win: when employees have a greater sense of choice and control over their personal finances, they are happier, healthier, more productive, and more likely
But buying a solution doesn’t improve plan participants’ financial situations unless they actually use it. Based on our years of experience, this white paper provides guidelines for retirement plan advisors and plan sponsors on how to effectively implement a financial wellness technology solution to promote engagement among plan participants, and suggestions for setting up ongoing monitoring and evaluation of a financial wellness program’s effectiveness.
What is Financial Wellness Technology?
To understand financial wellness technology, it’s important to first define financial wellness. Financial wellness means that an individual understands their financial situation and is prepared for financial ups and downs. It’s more than reading an article about taxes or retirement planning, or even having an emergency fund. Being financially well means a person understands his or her financial situation in the context of their life and goals. It also means he or she has a plan, and is following through on that plan. This allows them to feel confident, handle unexpected expenses, make progress toward personal goals, and be positioned to live the life they want to live.
PWC partner Kent Allison, often referred to as the godfather of the financial wellness movement has said, “There [are] all these different definitions around financial well-being and financial wellness. [In this year’s survey,] we actually left it up to the employees to tell us...what they thought financial wellness was...retirement really wasn’t even mentioned. It was more about a state of being. It was more like relief from financial stress. [Being] debt-free. Financial freedom...So we look at it as...getting somebody to a peaceful state around their finances, where they are comfortable that they’re living within their within their means, they’re meeting their goals, and they’re thinking about the future comfortably.”
So, if financial wellness and financial well-being are states of mind, then the path to realizing these is different for everyone and requires not only education, but expert advice, personal context, planning, diligence, and consistency. The question becomes, how can we democratize such a personalized financial planning offering, and bring the value of a hybrid private financial planner/personal financial coach to everyone? The answer is: technology. Technology makes it possible for advisors to reach more participants with exactly this kind of consistent yet personalized advice.
A financial wellness technology platform powers configurable, personalized, comprehensive, financial wellness programs and experiences. It is software that is utilized to guide people to their self-defined state of financial well-being. Technology has the power to personalize experiences, scale the role of the advisor, and subsequently guide plan participants to successful behavior change and financial wellbeing. When participants increase their level of financial wellness, plan sponsors benefit through increased employee productivity and cost savings.
Being financially well means a person understands his or her financial situation in the context of their life and goals. It also means he or she has a plan, and is following through on that plan, so that they feel confident, can handle unexpected expenses, are making progress toward personal goals, and are set up live the life they want to live."
The role of the plan sponsor is integral to the successful deployment of any financial wellness program. By offering participants access to personalized financial plans, plan sponsors are in turn offering access to a new level of financial health. Further, plan sponsors can use this program to move the needle for the business metrics they care about, and ultimately improve their bottom line. As HR departments onboard their teams and engage them on their journey to financial well-being, here are a few guidelines and best practices.
Preparation & Planning
When preparing to release any financial wellness program, it is important to consider the company’s internal communication practices. What are the company’s normal modes of getting information to participants? Is it email? Who or what department sends them? Do participants open said emails? Are important issues discussed at all-hands team meetings? How often, where, and when are those?
To introduce a new financial wellness program, in-person meetings, if at all possible, are best, followed by emails from a single point of contact (ie: a person with a name). There are a few reasons for this. One, since holistic financial wellness programs are new and likely different from what participants have experienced in the past, verbal accompaniment and added explanations are key. Further, personal finances are often considered taboo among friends and colleagues. Offering added support encourages confidence, understanding, and increases the chances of consistent use. Finally, reminders will keep the program and its value top of mind for participants.
A few other elements that should be addressed in preparation and planning include:
Create a clear, written description of the financial wellness program along with expectations of every party or department involved. This way, everyone knows what to expect from whom at the onset.
Define success. Mutually agreeing upon a definition of program success is key. All parties will then understand what they’re working toward and how to assess progress and iterate along the way. Whatever success looks like, make sure to measure what is meaningful, not just what is easy.
Designate a single point of contact for plan participants, for example, someone from HR, preferably the same person who sends the emails mentioned above. This way, communication is streamlined and that person can update all stakeholders accordingly.
Keep it simple. Benefits offerings are complex at best, and participants will be pleasantly surprised if a new wellness program is not. Be succinct, have direct and digestible collateral, answer questions simply, and make it clear where people can seek out more information.
Build a feedback loop. Similar to the goal of automating top-of-mindedness and calls to action with email follow-ups, automate metric tracking and success measurement. This might take the form of setting a recurring meeting quarterly or annually, or sending monthly progress reports via email. Whatever it is, keep goals, progress, and success in mind.
Since holistic financial wellness programs like this are new to plan participants, it is important to be as detailed and clear as possible when explaining the program’s value. Whether this takes place orally or digitally, success relies not only on their understanding of the program and how it works, but more importantly, on the results they can achieve from participating in the program and the positive benefits it will have on their lives.
As mentioned earlier, in-person kick off meetings followed by email reminders are the most successful method to maximize program enrollment and adoption. If your company is too large for this to be feasible, or you simply do not conduct in-person meetings, consult with HR. Ask what internal communication strategies they find to be most effective and what they believe will work the best for this program.
Set plan participant expectations that emails with action-oriented, educational content may be sent at various points during the year. These emails may come from the person designated in planning or from the platform itself. Assure them that all program communication is strategic and important for plan participant progress.
Give people the option to enroll on-site immediately following an in-person kick off. Have advisors and program experts there and ready to answer questions. Consider walking participants through the sign-up process. This is especially helpful for employees who may not be as technically savvy. Be mindful of your internal email policies. Test your communication plan prior to kick off.
Some plan advisors or sponsors offer incentives for onboarding and engagement. Research shows that incentives can have mixed results. Large or constant incentives can actually decrease people’s intrinsic motivation to engage in desired behaviors. If incentives are part of a roll out strategy, it is best to make them small and random, and only offer them for one-time behaviors such as completing a specific task rather than ongoing participation. More detailed information about incentivizing follows in Part 2.
Once plan participants have been introduced to the program and onboarded, it’s time to consistently engage them on the road to their financial well-being.
It’s important to commit to the plan as communicated during kick off. Sending emails, encouraging people, and cheering them on are all supremely valuable engagement tactics and are important to long-term program success. Research shows that people need to engage in a new activity multiple times before it becomes a habit, so frequent reminders can help.
One-on-one meetings are a valuable part of any program. It’s important for the HR department or the appropriate party to encourage participants to schedule their first consultation meeting with an advisor, mentor or coach as soon as possible after logging into their account. Ideally, the participant will have taken an introductory assessment and aggregated at least some of their accounts. This is recommended for the advisor or coach to make the most efficient use of time, but not required.
Participants typically receive automated emails for various activities performed in most platforms, as long as they have allowed this feature where available. They may also email or chat with an advisor from within the program platform and even schedule a meeting. Evidence shows that the more people communicate, the more likely behavior change becomes, so encourage your participants to take advantage of this available resource.
For most people, making smart financial choices often requires more effort, time, or self-control, and is frequently less pleasurable in the moment. How can plan sponsors and advisors encourage people to make better financial choices, when these are usually not the most immediately appealing option?
One traditional solution has been to use some kind of incentive to reward the desired behavior. At first glance, incentivizing behavior seems reasonable. Many wellness programs, including financial wellness programs, use some kind of incentive to encourage program engagement and participation. But do incentives work? And is there a downside to incentivising behavior? The surprising answer is that while incentives often do work short-term, they can end up de-motivating employees over the longer term. Here’s why.
What we know about motivation
Researchers have studied motivation for decades, in an attempt to understand why people behave in the ways that they do. One of the most important things we’ve learned is that there are two basic types, intrinsic and extrinsic. It’s the difference between “I want to do this” (intrinsic) and “I have to do this” (extrinsic). Both intrinsic and extrinsic motivators have a role to play in encouraging more positive financial behaviors.
Rewarding employees for participating in a voluntary benefit program is a type of extrinsic motivation. Contrary to popular belief, rewards in and of themselves don’t necessarily decrease intrinsic motivation. Situations that involve boring, routine or tedious tasks can often benefit from the use of rewards because there is little intrinsic motivation around such tasks to begin with. But many researchers agree that rewards simply for participating in a task are likely to reduce intrinsic motivation, because these do little to encourage a sense of individual competence or autonomy.
So how can plan advisors and sponsors motivate participants more effectively? A range of incentives are often used to attract employees’ participation in wellness benefits. Small, intermittent rewards, such as being entered into a randomized drawing for a gift card once a task is completed, are often just as effective as larger ones, unless the reward is very, very large. In some cases, a large incentive can be interpreted to mean that a desired behavior is difficult or unpleasant, or it can seem coercive, which can actually decrease employees’ intrinsic motivation to change because it reduces people’s sense of autonomy.
Small incentives can often serve to increase attendance or completion of a program, but then once the incentive disappears, so does the behavior. So these are better used for one-time actions, such as getting participants to enroll or complete a financial wellness assessment, rather than to foster new habitual behaviors. For example: enter plan participants who set up their account within 30 days into a random drawing for a $100 gift card. Or, have a drawing for those who complete at least one action item within 30 days of kickoff.
In terms of more intrinsic motivation, there are several strategies plan advisors or sponsors can use to encourage participants to want to make better financial choices. Intrinsic motivation is inherently rewarding and lasts longer over time.
Advisors can build on participants’ existing motivation by helping people to focus on their own short and longer term personal financial goals, to persevere in the face of challenges, and to build confidence that they can achieve those financial goals. Setting a personally meaningful goal, along with tracking and celebrating progress toward it, can make it easier to resist the impulse to overspend day-to-day by transforming ‘I have to deprive myself of this’ into ‘I want to put my money toward that instead of this.’
In other words, encourage people to spend money on what brings them the most happiness—not just superficial entertainment, but genuine satisfaction. Identifying the smaller steps needed to meet a goal, and celebrating the ‘win’ as these steps are completed are also ways to build the confidence that change is actually possible. Technology solutions that offer comprehensive financial wellness and allow participants to automate these steps can help. The positive emotional as well as financial effects of successful behavior change can also help keep participants motivated to continue good financial habits.
Another strategy is to simply inform people of the choices their peers are making, based on our natural tendency to compare ourselves with those around us, and do what others are doing. The United Kingdom’s Behavioural Insights Team (BIT) has used this strategy successfully to get more people to pay their taxes on time. The BIT is a public-private partnership focused on making public services more cost-effective and easier for citizens to use and enabling people to make better choices for themselves through the use of ‘choice architecture’.
To encourage people to pay their taxes on time, BIT simply changed the wording of letters sent to taxpayers from the Inland Revenue, the UK equivalent of the IRS. Adding a true statement that ‘most people pay their tax on time’ turned out to increased compliance from 33.6% to 35.1%. Adding another statement that ‘most people in your area have paid their tax and you are one of the few that are yet to pay’ increased compliance to 39%, bringing in millions in unpaid taxes at almost zero cost.
A key component of the idea behind choice architecture is to help people create habits and systems so that it’s easy to follow through on decisions. Auto-escalation of 401(k) contributions is a good example. Employees looking to build better habits can be also encouraged to anticipate potential stumbling blocks, and create a plan to handle those, should one occur. Psychologists refer to this as an ‘if/then’ strategy, or “If a happens,
then I’ll do b.” Mentally rehearsing a plan of action in advance can make it easier to follow through.
A framework for applying behavioral principles BIT has published a framework for applying these behavioral principles. It’s based on the idea that if you want to encourage a behavior, make it easy, attractive, social, and timely— EAST. The framework is based on the company’s own research combined with insights from the wider academic literature. The principles are straightforward:
Changing financial behaviors and improving outcomes is possible through creatively applying extrinsic rewards and using additional strategies to build intrinsic motivation. These concepts can be used in designing incentive programs that work. Plan sponsors, advisors, and HR leaders can work collaboratively to engage and encourage employees’ intrinsic motivation to change, build financial confidence, and promote their sense of financial competence.
Employees cite their work environment as a key element in their level of satisfaction and happiness at work. Employees also indicate their level of happiness correlates with the strength of the connections they have with colleagues. By creating a strong, connected culture that focuses on happiness and physical, mental, and financial health, employers can directly impact employee satisfaction and ultimately behavior.
A great way for a plan sponsor or company to foster behavior change in personal financial health is by cultivating a company-wide culture that supports financial wellness. While it’s vital to have top down buy-in from the highest levels of leadership, it’s best to have this leadership support working in tandem with a grassroots, inside-out approach.
An obvious first step is for employers to offer access to financial wellbeing programs and resources. Adoption and real behavior change, however, demand a well planned rollout, an effective communication strategy, and both commitment and buy-in from employees throughout all parts of an organization. Peer influencers can play an important role by acting as Program Champions.
Program Champions are mission-driven, motivated people within an organization who have a passion for your program’s goals, in addition to being well-connected and trusted by their peers. Champions can be identified by others or invited to volunteer for their roles. A company can have a handful of champions or it can have hundreds, depending on the size of the company.
Once Program Champions have been identified, they should be asked for their involvement and support, even if they volunteered. It is important for these people to be consistently passionate about their role, so take the necessary steps to ensure they are excited, feel honored, and know that they will be well supported in their other job functions should they choose to be part of this select group.
Once a group of Program Champions have accepted their roles, it’s time for training. Champions should understand the bones and guts of the program at the onset. Their questions should be answered thoroughly and thoughtfully. Once they grasp the components, bandwidth, scope, and goals of the program, they move onto brainstorming about the best ways to implement the program.
Every company and company culture is different. This unique group is the best qualified to decide how to get their colleagues on board with program adoption, how best to communicate the value to them, and how to get them to engage with whatever they decide to implement. This phase will look different for every company.
This two-pronged approach—from leadership down and grassroots through an organization—is ideal. Getting buy-in from leadership and giving Program Champions the autonomy to do what they believe will work best encourages fellow employees to move towards adoption and ultimately behavior change.
Clear communication of program value is vital to program success, but it’s also important to meet people where they are. Allow people to ask questions they may previously have been afraid to ask and to come up with ideas that are fun and kept easily top of mind.
A great Program Champion group can have an immediate, measurable impact on the success of any financial wellness program. Financial health and personal finance-related issues can be difficult to talk about. But by creating a culture where employees can ask their peers program-related questions and understand goals and potential outcomes, onboarding barriers to entry can be softened or broken down all together. In sum, Program Champions, with their collegial relationships and influence, improve employee participation in any new financial wellness program and sets it up for success at the onset.
A large part of psychology and its history is focused on figuring out how to measure the intangible. The field of psychometrics measures abstract concepts such as intelligence, anxiety, and competence. And of course educators at all levels have engaged in assessing the effects of educational interventions, such as programs in financial literacy, for many years. There’s a great deal we actually do know about the costs of financial stress that can help us estimate the ROI of financial wellness. First, let’s understand a little more about how we can measure financial stress and its impact on a business.
Academics in the field of financial education and counseling, such as E. Thomas Garman, have been measuring the effects and costs associated with financial stress in the workplace for more than 20 years. Some measurement tools rely on what people say they think or do; these are self-report measures. Other tools rely more on what people actually do, based on direct observation of behavior or the results of behavior. Self-report measures are an effective way to quantify subjective experience, such as beliefs, opinions and feelings, while behavioral measures are effective at quantifying objective changes in behavior. But before we can measure something, we have to describe and define it. We need an operational definition.
That’s one of the problems when it comes to estimating the ROI of financial wellness as an employee benefit. Financial wellness is a somewhat elastic term. Most experts agree that financial wellness is multifaceted. A lot of people like the broad definition put forth by the Consumer Financial Protection Bureau, which is based on extensive research and includes both subjective and behavioral aspects. However, many of the tools offered by the increasing numbers of financial wellness providers focus on addressing only one or two issues in the bigger picture of comprehensive financial wellness. That’s not necessarily a bad thing, but it does make assessing the ROI of financial wellness more difficult when the term ‘financial wellness’ can mean many different things to different people. It’s not just comparing apples and oranges, it’s one big fruit salad.
What does the existing research on financial stress tell us? We know that almost half of employees experience financial stress and that financially stressed employees bring those issues to work with them, affecting their productivity. In the 2018 PwC Financial Wellness Survey, 30% of workers said that finances are a distraction for them at work, and of those, 46% admitted that their productivity suffered as a result, spending 3 or more hours weekly dealing with financial issues at work. In a 1000 person company, that equates to 138 financially stressed people spending 156+ hours per person annually stressed about their finances. With a blended hourly rate of $50, for example, that equates to $1,076,400 in lost soft costs due simply to financial stress and distraction. These numbers are consistent with what other academic researchers have found over the past 20 years.
Total cost of financial stress in the workplace ranges from 15% to 20% of total compensation paid, including benefits.”
Absenteeism and turnover rates offer additional quantifiable measures. Surveys have found that compared to non-stressed employees, financially stressed employees take off an additional 1.5 days from work annually to deal with financial issues. Using the same 1,000 person-company, for example, 30% of employees missing 1.5 days at a blended hourly rate of $50 costs $180,000. Financially stressed employees are also more likely to leave for higher wages elsewhere. This means more turnover.
Turnover can be very expensive, and rates of turnover vary by industry. The cost includes the time and fees associated with recruitment, interviewing, screening, hiring, onboarding, and training. The cost of turnover increases as a percentage of salary paid. As a rough estimate, about 2% of lower and mid-range positions turn over every year and 1% of upper salaried positions. For high-turnover, low-paying jobs (earning under $30,000 annually), the cost is only 16% of annual wages. For mid-range positions earning $30,000 to $50,000 annually, the cost increases to 20% of annual salary. For more complex, senior, or executive positions, the cost can range up to 213% of annual salary. For example, the cost to replace a $100k executive can be as much as $213,000, in part because it often takes longer for a new employee to get up to speed and be as productive, especially in more complex roles.
Financial stress also affects employee healthcare costs, particularly for those conditions related to or exacerbated by stress. The CFPB estimates that financial stress can increase healthcare costs by about $400 per stressed employee annually.
Taken together, these measurable costs add up. E. Thomas Garman and colleagues estimate that the total cost of financial stress in the workplace ranges from 15% to 20% of total compensation paid, including benefits. While additional factors influence productivity, absenteeism, turnover, and healthcare costs, incorporating a financial wellness benefit to reduce the costs associated with financial stress by even 3%-5% can improve a company’s bottom line simply through cost avoidance.
Another way to assess the ROI of financial wellness is through engagement. Traditionally, that’s been done by looking at employee participation rates in an optional financial wellness benefit, participation in the company’s defined contribution plan, and plan contribution rates. For a comprehensive financial wellness benefit, this is a reasonable approach—it’s difficult for employees who are struggling to pay monthly bills to save for retirement when they are barely managing day to day. We can also look more closely at measuring engagement. Is it just logging in and perhaps reading an article, or are financial goals being created? Are actions to meet those goals, like developing a personal spending plan, being completed? We know that education alone is not sufficient to change financial behaviors. A recent meta-analysis of 90 studies found that financial education interventions account for less than 1/10 of 1% of resulting financial behaviors.
When a financial wellness tool addresses only one aspect of the total financial wellness picture, look at more specific rather than global outcomes. Consider what the tool is intended to accomplish and then measure the outcomes related to that goal. As noted previously, other factors can affect productivity, absenteeism, turnover, and healthcare costs. However, if we know many of a plan sponsor’s employees are struggling with student loans, we can look at whether or not progress is being made across the company on paying down student loan debt. We can also look at 401(k) loan rates. PwC has found that those earning less than $75,000 annually struggle more to meet financial needs, especially with using credit cards as a substitute for an emergency fund, and are more likely to raid their retirement savings to cover an unexpected expense or pay off accumulated credit card debt. So, in addition to reducing 401(k) loan numbers, we would also look for changes in the percentage of employees who have or are contributing to an emergency fund and dollars of credit card debt being paid down.
Scientists know that it’s much more important to measure what is meaningful than what’s easy to measure. For a meaningful assessment, it’s critical to look at more than numbers. Providing an authentic financial wellness benefit should improve people’s lives through helping them meet their individualized financial goals. Evaluating whether a financial wellness program is worthwhile should also include some assessment of the impact the program is having, as evidenced by individual narratives. These can also serve as a form of social proof that positive financial change is possible; anonymized excerpts focused on how lives are being transformed could be shared to improve participant engagement.
Scientists know that it’s much more important to measure what is meaningful than what’s easy to measure.”
As more employees, particularly millennials, turn to their employers for help with managing challenging and complex financial issues, offering a comprehensive financial wellness benefit can help retain current employees and be an attractive recruiting tool for potential candidates. As the number of American employees quitting their current job to seek a better one hits an all time high, that’s a pretty good ROI in and of itself. Whether ROI is measured in terms of metrics such as productivity and reduced turnover, or participant engagement, financial wellness technology provides a new level of transparency that allows participants, sponsors, and advisors to see progress toward goals.
There’s no question that the level of employee financial stress is on the rise. The way people plan for their futures and their expectations for retirement are experiencing a fundamental shift. Pensions are no longer an option and people are not contributing enough to their 401ks because they simply can’t. A new approach that helps people address the basic health of their financial situation is necessary. The increasing focus on financial wellness in the workplace is a natural evolution of programs employers have developed over past decades to support the physical and mental health of their employees. Effective financial wellness programs can help companies significantly reduce costs, attract and retain top talent, and boost employee productivity.
By planning and implementing a financial wellness program supported by technology and human guidance, this gap the industry is experiencing can be bridged, and this bridge helps everyone. Comprehensive financial wellness programs create new revenue streams and deeper relationships from advisors to plan sponsors. Plan sponsors retain talent, optimize efficiency, encourage tenure, and lower costs incurred by financially stressed employees. Participants make the changes they need to make and are kept accountable while building a trusted relationship with a human when and if necessary.
Such programs however require planning, preparation, and thoughtful execution to be successful. Critical elements include:
Identifying all key personnel who will need to be involved;
Creating a step-by-step timeline for rolling out the program;
Developing a detailed plan for engagement;
Defining the metrics for success along with a plan for ongoing assessment.
Investing in financial wellness as a company benefit can produce tangible rewards for plan sponsors, participants, and advisors. The key is to choose an effective program that offers more than webinars and calculators and focuses on helping employees adopt and retain healthy financial behaviors. An authentic financial wellness solution should be the best fit for the plan sponsor, advisor, and especially plan participants.
Questis is a configurable technology platform that allows retirement advisors and financial service providers to easily deliver their own personalized financial wellness programs to their plan sponsors and participants — and generate revenue from them. With secure, scalable software, fueled by integratable features and advisor coaching, Questis gives plan advisors, sponsors, and participants a comprehensive, connected digital experience to reach and surpass their financial goals. Founded by financial advisors, created for advisors, Questis uses technology, strategy, and service to build configured programs that work within — and for — any advisor’s business model. Learn more at myquestis.com.