Financial Wellness: The Future of Work

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Financial Wellness: The Future of Work

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Speaker: Jake Spiegel Senior Research Analyst HelloWallet Lee Eliav Digital Marketing Manager Morningstar

Moderator: Sarah Sipek

Associate Editor Workforce magazine


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Sarah Sipek Associate Editor Workforce magazine


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Jake Spiegel Senior Research Analyst HelloWallet


Lee Eliav Digital Marke=ng Manager Morningstar

Financial Wellness The Future of Work

September 2015

What to Expect

1 2 3

What

What is financial wellness?

Why

Why does it matter for employees & employers?

Does It Work

Are financial wellness programs

having impact?

1

What

What is Financial Wellness?

For employers, a basic definition:

o  Financial wellness is a program or set of programs designed to

improve employees’ financial behavior and outcomes while also driving business impact


For employees, financial wellness is defined by health, not wealth It includes the following elements across an individual’s financial life:

ü  Spending ü  Emergencies ü  Guidance ü  Benefits ü  Investments

We look at these elements as rungs on a ladder

Investments

Benefits

Guidance

Emergencies

Spending

PRIMARY NEEDS

SECONDARY NEEDS


o  Specific rung elements to consider include: •  Spending less than you earn •  Having sufficient emergency savings •  Holding enough in a checking account for credit card bills •  Having enough savings for out-of-pocket health

expenses •  Carrying loan balances appropriate for your income •  Holding sufficient insurance coverage •  Saving enough to have sufficient income in retirement

2

The Why

The Roots of Financial Wellness

By addressing the anxieties workers had about their future economic security, the hope among policymakers was that workers would feel more comfortable spending their paychecks instead of saving. It worked.

EXAMPLE 1

1935 Social Security Act

1950

11%

2015

5% PERSONAL SAVINGS

RATE ONLY

15%

of workers list retirement as their top financial priority

FOR EVERY

$1 Contributed to Social Security

THERE IS A DECREASE OF

$.50 In Private Wealth

FINANCIAL PRIORITIES

EXAMPLE 2

The National Housing Act of 1934

By subsidizing the housing market, the hope among policymakers was that workers would feel more comfortable buying homes. It worked.

HOME OWNERSHIP RATES

SHARE OF GDP GOING TO HOUSING

SHARE OF INCOME GOING TO HOUSING

59

60

61

62

63

64

65

66

67

68

69

70

1965

1969

1973

1977

1981

1985

1989

1993

1997

2001

2005

2009

2013 24%

25%

25%

26%

26%

27%

27%

28%

28%

29%

29% 1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012 0%

1%

2%

3%

4%

5%

6%

7%

8%

1947

1952

1957

1962

1967

1972

1977

1982

1987

1992

1997

2002

2007

2012

EXAMPLE 3

Agricultural Adjustment Act of 1933

By subsidizing corn, soybeans, and cattle feed, the hope among policy-makers was that demand for these products would increase. It worked.

2X The Average American Consumed Nearly

MORE CORN

In 2000 than in 1950

7X MORE CORN SWEETENERS

Are consumed per capita each year in the US

85 LBS

OF CORN SWEETENERS

AND

Unfortunately, this helped to also make workers much less healthy and much more expensive to insure.

Than they were in 1950

30 POUNDS HEAVIER

The Average U.S. Worker in 2000 was

From what it was in 1950

TRIPLED

The American Adult Obesity Rate in 2000

2 3 OUT OF

American Adults are now Obese

EXAMPLE 3

Agricultural Adjustment Act of 1933

Bottom Line

The Financial Wellness Market is decades in the making. It grew out of deliberate policy decisions that had unintended consequences.

Why Now? We’re Approaching a Perfect Storm

Benefits •  Increasing Costs •  Consumerization

Wages •  Remain Flat

•  Not Optimized

Behavior •  Spend Economy •  No DB Security

Benefit Costs are Skyrocketing

0%

20%

40%

60%

80%

100%

120%

140%

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Retirement Spending Health Spending

Percent Change in Spending Since 1988

Efficacy Increasingly in Doubt

23

24

25

26

27

28

29

Avg Male BMI Avg Female BMI

0

5

10

15

20

25

1992 1995 1998 2001 2004 2007 2010

Average BMI Median Months of Annual Income Saved

2% 2002

54% 2010

73% 2014

In Response to These Trends: Employers Are Consumerizing Benefits

Share of Large Employers Who Offer Consumer Driven Health Care Plans

Employees Lack the Foundation

Investments

Benefits

Guidance

Emergencies

Spending

SHORT-TERM NEEDS

LONG-TERM NEEDS & CORPORATE SPENDING

State of Consumer Finances

15% HAVE A BUDGET

Workers can’t know how much to save for healthcare and retirement, if they don’t even know how much they

spend on groceries

55% SPEND MORE THAN EARN

Workers don’t feel like they can afford savings increases

or manage this financial responsibility if they spend

more than they make

60% GROW DEBT

FASTER THAN SAVINGS

Workers cannot hold onto accumulated savings if they are accumulating

more debt than savings every month

Financial Wellness Has Come Out of Nowhere

0

20

40

60

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200

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-14

Number of Media Stories About Financial Wellness

And It’s Gaining Momentum

2014 Aon-Hewitt Survey

2015 Aon-Hewitt Survey

76%FINANCIALWELLNESS

OF COMPANIES ARE PLANNINGTO FOCUS ON EMPLOYEE

Why Think About a Program?

A thoughtful financial wellness program: o  Is a “win-win” for both employees and employers

For Employees: •  Reduces financial stress •  Reduces time spent on

financial matters •  Improves retirement readiness •  Improves benefit optimization •  Improves financial confidence •  Increases job satisfaction

For Employers: •  Reduces absenteeism •  Increases employee

engagement •  Reduces compensation and

healthcare costs •  Reduces payroll taxes •  Increases job tenure

What to Consider

5 Important Components: ü  Behavior Change ü  Holistic Consideration ü  Personalization ü  Independence ü  Data

Areas of Caution

Top 3: ü  Standalone Education ü  Free! ü  One Size Fits All

How Programs Differ

There are many different types of “financial wellness” offerings: o  Think of these in terms of focal area and delivery method

Focal Area (Ladder): •  Spending •  Emergencies •  Guidance •  Benefits •  Investments

Delivery Method: •  Software •  Advisors •  Content •  Consulting Services

3

Does It Work

HelloWallet Impact

Overall Financial Well-Being Influences Tenure Rates

Emergency Savings Insufficient >> Sufficient

Credit Card Debt Revolving >> Not Revolving

Increase in Job Tenure 28% 10%

Increase in Job Tenure

Leads to a Leads to a

HelloWallet Impact

Increasing Retirement Readiness Has Implications on Long Term Compensation Spend

Younger Workers

Replace Them

Reduction in Compensation

Spend

Older Workers Retire

ROI Insurance Industry*

Average compensation for employees aged 60-65 Average compensation for employees aged 22-30

Net replacement impact

*Source: Federal Reserve

$30,906

$70,436

$39,530

Questions? Comments? www.hellowallet.com [email protected] [email protected]

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Transcript of Financial Wellness: The Future of Work