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Why talk about personal finance has turned to talk of ‘financial wellness’

A financial wellness programme looks at ways for the various cohorts and demographics in the workplace to better manage their benefits

Employees are now more likely to be in a defined contribution occupational scheme or self administered personal pension plan – if they have a pension at all. Photograph: Istock

Employees are now more likely to be in a defined contribution occupational scheme or self administered personal pension plan – if they have a pension at all. Photograph: Istock

 

A healthy body in a healthy mind is something to aspire to. Healthy finances can help.

Given the centrality of money in our lives – bills to pay, mouths to feed, mortgage payments to meet – it is little wonder that the management of it is increasingly recognised by employers as having a bearing on our overall health.

The result has been a growing move from talk of personal finance, to talking about “financial wellness”.

“We did a study last year that showed that 61 per cent of US workers aged 21 to 65 were moderately to severely stressed about their finances,” explains Megan Yost of StateStreet Global Advisors, an investment manager.

“US employers are also recognising that employees are facing competing financial needs. The workforce has become multigenerational and the needs of younger members of staff may not be the same as those of older ones. A financial wellness programme looks at ways for the various cohorts and demographics in the workplace to better manage their benefits.”

Age appropriate

“It’s about being smart about how to package those benefits and, in particular, doing so in a way that is more age appropriate. Young people, for example, may rate such issues as reimbursing tuition or day care assistance more highly than older people, who may have a greater interest in healthcare or how to build savings with a particular focus on retirement,” says Yost.

At its core, financial wellness programmes are about helping staff, wherever they are in their life cycle, “to think about the savings they have accumulated and the best ways for them to draw that down later,” she says. Moreover, the overarching challenge facing all age groups right now is how to do it at a time of low growth.

While the actual content and execution of a financial wellness programme varies from company to company, for the individual, the aim is the same – “less anxiety about your financial and economic situation”, says Yost.

The obvious solution, from an employee perspective at least, is for their employer to pay them more. Problem solved? Not so, she says.

“A lot of it is psychographic in so far as financial anxieties are not necessarily about how much you have in the bank,” says Yost. They are just as likely to be a function of an individual’s attitudes and personality.

“In fact, anxieties are income-agnostic. Regardless of where you are on the salary scale, the same anxieties arise.”

That will be cold comfort to those who think simply moving up the pay scale is going to solve their financial stresses.

Employers in the US are therefore providing financial wellness programmes as a way of helping employees figure out how best to manage their finances right now.

“We’re seeing a co-ordinated effort to bring awareness of this topic to employees in terms of seminars and workshops. In one case we see a company that, every three years, provides a three-day bootcamp for employees that covers all sorts of financial wellness information, including lectures on such topics as the psychology of spending,” says Yost.

“And whereas in the past all of this employee education centred on retirement, now it’s a much broader affair, encompassing things like savings and the need for rainy day and emergency funds along the way. It’s about continual education and opportunities to learn about and plan for your financial wellbeing.”

The need for such hand-holding has increased as the world of work has changed. Previously all that was typically required of an employee was to log a lifetime’s worth of service in order to be guaranteed a pension. No investment decisions were required in order to pick up a defined benefit retirement package typically amounting to two-thirds of final salary.

Today’s employee is far more likely to be in a defined contribution occupational scheme or self administered personal pension plan – if they have a pension at all – with, as a result, far more of the funding for retirement risk resting on the individual’s shoulders.

“And it’s not just retirement accounts that have become self directed, but careers have become self directed too, and that’s all part of the anxiety people feel,” says Yost.

Such programmes are particularly valuable where they involve access to an independent third-party advisor. “People don’t want to admit at work that they are not managing their finances more effectively,” says Yost. It’s why such programmes are best handled at arm’s length from the employer.

“HR doesn’t get involved, in my experience. It’s typically a financial coach brought into offer a confidential service. In some cases there are programmes offered on a virtual basis, where people can get the help they need online.”

And such programmes are becoming an important tool in the armoury of large corporate looking to hire and keep good people.

“Companies are looking at ways to attract and retain talent. An employer showing they know and understand their employees’ needs is one way of doing that,” she says.