Levering tech for financial wellness
When employees struggle financially, their employers struggle. Recent research on short-haul truck drivers conducted at the University of Pittsburgh shows that when employees’ financial stress rises, companies experience a $1.4 million increase in costs due to preventable accidents, according to a report, The Cost of Financial Precarity. Intuitively understanding this, more and more employers are offering workplace financial wellness programs.
Unfortunately, many current wellness programs are ineffective. They focus primarily on providing information or access to additional resources, such as personal financial management apps, financial advisers or financial coaches. Because all three require significant time and effort, they are rarely accessed by employees and are rarely paired with actionable steps.
We suggest another strategy for workplace financial wellness programs that works across the employee lifecycle to leverage the tremendous power of existing human resources digital platforms.
New employees make many of their most important financial decisions during company on-boarding. As they traverse the HR setup, they choose a retirement plan, set up paycheck direct deposit and decide on health insurance.
The first leg of any good financial wellness program for employers should be to pay close attention to the platform defaults. For instance, is the retirement savings program opt-out? Ninety-two percent of new employees choose to participate in their employer’s 401(k) program when the program is opt-out, or automatic enrollment, compared to only 47% when it is voluntary enrollment, according to a report published last year by Vanguard Group
Do contribution rates increase automatically with pay raises? Auto-escalating contribution rates lead participants to increase their retirement savings contributions from 3.5% to 13.6% over 40 months, according to the book “Save More Tomorrow” by Shlomo Benartzi (Penguin Group, 2012).
Finally, are employees encouraged to set up paycheck direct deposits to both checking and savings accounts? An estimated 93% of employees who split their direct deposit report saving every month — yet only 21% of employees currently split their direct deposit into multiple accounts, according to the Electronic Payments Association. Companies should work with their HR platform providers to ensure good financial choices are the default option.
Promotions, job change
Promotions or job changes are another good area for financial wellness programs to focus on, since it’s at these key moments that employees should reset their defaults. While one-on-one coaching can work at these moments, it’s expensive to implement. Again, technology can help.