Retirement's Elusive Comfort

Measuring The State Of Our Financial Wellness

The personal liquidity and retirement readiness for so many consumers reflect a financial security that is becoming alarmingly less attainable

by Judy Dougherty

Ms. Dougherty is the chief financial wellness officer at Prudential Financial. Visit www.prudential.com

When it comes to financial health, most Americans are fighting an uphill battle. Today, a picture has emerged where roughly half the population struggles to meet daily living expenses—let alone save for retirement or other long-term goals. Two-thirds of Americans live paycheck to paycheck1; 40% of households lack the savings to weather a financial shock2; and 57% of employees say that financial matters are the source of more stress than anything else in their lives.3 These are the sobering results Prudential’s 2018 Financial Wellness Census.

The growing problem of financial insecurity

What’s driving this financial wellness crisis? While some level of personal responsibility cannot be discounted, the fact is, large swaths of the population live with economic realities that make it nearly impossible to achieve financial security: jobs that pay less than a living wage, long-term underemployment and significant income fluctuations throughout the year. The confluence of these realities creates a perfect storm of tough choices for many people—Do I pay the rent or the car note? Can I fill my prescription? What bills can I put off paying this month?

Achieving financial wellness can only happen when people adopt the behaviors that underpin financial security: managing day-to-day finances, saving and investing to achieve important goals, and protecting against key risks. To help employers enable financial wellness for their employees, we use a multipronged approach, including developing solutions that address the needs of individuals throughout their life stages, working proactively to help employers and workers navigate the evolving employment landscape, and advocating for public policy that will broaden access to savings, retirement, and income protection vehicles for all Americans.

While the statistics on the average American’s liquidity and retirement savings are alarming, companies that take steps to make the workplace a wellness place can help workers become less financially stressed and more productive.

The workplace as the frontline of financial wellness

Employees already trust their employers more than government, financial institutions and friends, according to the 2019 Edelman Trust Barometer. Our own research validates this and points to another reality—87% of American workers say employers should provide them with access to solutions that help them build and grow their savings.

Guided by these insights and the understanding that employers have unique needs, we spend a lot of time partnering with benefits brokers and other intermediaries to analyze workplace demographics in order to identify employees’ financial needs and their greatest financial risks.

We developed the Prutection ScoreSM in 2015 to provide employers with a glimpse into how financially prepared their workforce would be if faced with the premature death of a loved one, a disabling illness or injury, a critical illness or accident that results in medical debt, or the likelihood of outliving assets in retirement. The model analyzes the resources available to an employee population relative to the resources needed, based on an estimate of employee demographic information, household expenses, insurance benefits, Social Security benefits, Prudential survey data and a variety of credible external industry and government sources.

Using this data, we then design programs and solutions to optimize outcomes and overcome behavioral challenges by inspiring employees to take action. That can mean anything from maximizing core employee benefits and updating their beneficiary, to creating a budget, rebalancing their portfolio, or speaking with a financial advisor. What we’ve found to be most critical in getting individuals to take action is helping them identify the next best steps for their own personal situations and providing them with help when, where and how they want it, whether that is online, via video, on the phone or in person.

For example, our signature workplace financial education program, Prudential Pathways, is accessible to employees of our customers. This free program covers a multitude of personal finance topics and has been adopted by nearly 600 employers. More than 95% of employees who participate have taken action to improve their financial situation. LINK by Prudential, an interactive, personalized resource connects customers to solutions and financial professionals. Debt-management offerings like our student loan assistance program help employees better manage their student debt.

Building a financial wellness program for the changing workforce

Today’s workforce can no longer be defined in traditional terms. From corporate employees to small business owners to gig workers, being financially well means different things to different people. Some will measure it by how well they can provide for a family. Others want to build and protect their wealth. Many independent workers need help managing finances (such as paying and filing quarterly taxes), while others struggle to meet financial obligations and achieve their goals due to constant income volatility. Low unemployment rates and the trend toward self-employment and startups also make attracting and retaining top talent even more challenging, especially as workers become more inclined to switch jobs every few years. For all these reasons, a successful financial wellness program must create a personalized experience that engages employees and motivates action.

How employers can make financial wellness part of their human capital strategy

Today’s workforce can no longer be defined in traditional terms. From corporate employees to small business owners to gig workers, being financially well means different things to different people. Some will measure it by how well they can provide for a family. Others want to build and protect their wealth. Many independent workers need help managing finances...

Enabling overall wellness is an important component of any human capital strategy. When employers invest in their employees’ physical, emotional and financial health, the reduction in illness and stress creates greater capacity for workers to concentrate on their families, careers and long-term goals including education, buying a home and on-time retirement. By aligning financial wellness metrics with business outcomes, employers can achieve a significant “Return on Wellness,” measured by

  • A more focused, productive and engaged workforce.
  • Reduced productivity losses from missed work, saving employers $225.8 billion each year, according to the CDC.4
  • A more optimal benefits spend, lowering healthcare spending and retirement plan leakage.
  • A competitive advantage that helps retain and attract top talent
  •  Improved workforce management efforts by helping to prevent delayed retirements.

While several financial services companies are attempting to compete in the financial wellness market, where they generally fall short is in depth of experience and breadth of expertise across financial advice, investment, individual life, group benefits and retirement solutions, including retirement income, all of which are critical to creating outcomes for employees. We have seen firsthand how the right financial wellness tools, coupled with a comprehensive benefits package that is implemented thoughtfully and holistically, can create better outcomes for employers and employees, starting in our own backyard.

As part of our own financial wellness journey and commitment to talent, in 2007 Prudential adopted an employee health risk assessment to assist our employees in identifying key opportunities to improve their physical and mental health. The following year, we expanded the analysis to include risk factors for financial stress. While workers across the U.S. were dealing with the consequences of the economic downturn, we found that despite being offered a relatively generous benefits package, Prudential’s employees were experiencing higher levels of financial stress than their counterparts at benchmark companies.

Based on those findings, between 2009 and 2015 we launched a number of initiatives to address and support the financial well-being of our workers—including the Prudential Pathways program and access to professional advice through Prudential Advisors On-Site; an increased allotment of hours under our discounted backup child care and adult care program; and 401(k) auto-enrollment and contribution escalation features.

Reducing Financial Stress

Through these efforts we have been able to help employees reduce their overall levels of financial stress. What we’ve learned was that Prudential employees with lower levels of financial stress on average missed one week less of work than those with higher levels of financial stress. Additionally, workers who were able to reduce their financial stress experienced a 47% improvement in life satisfaction, a 25% reduction in overall stress, a 23% reduction in depression indicators, and a 19% improvement in job satisfaction.

In 2018, we saw further proof of the impact of a strategically planned and well implemented financial wellness strategy through our work with one of our customers, a major university in the northeastern United States.

We worked with the university to help them understand the benefits of integrating financial wellness solutions into their larger wellness strategy. Based on data provided by the Prutection ScoreSM tool, participation analyses and insights gained from our Health and Productivity Data Analytics and Consulting Practice team, the university made the decision to partner with Prudential to devise a financial wellness strategy that addressed the needs of its multigenerational workforce. As a result of the strategy, the university observed:

  • A 31% increase in enrollment for its Optional Long-Term Disability Buy Up.
  • A 6% increase in enrollment for Optional Term Life Insurance.
  • 300 individual actions taken by employees to help close coverage gaps and improve their financial wellness.

Not only did the university help its employees achieve higher levels of financial wellness, but it achieved these results without increasing costs.

Financial wellness programs will continue to grow in popularity in the years to come. More than 80% of employers with at least 100 full-time employees already offer some form of financial wellness program and 14% of employers who don’t offer a program plan to do so over the next one to two years.5 Many who already do say they are looking to expand them. Group benefits brokers, plan advisors and plan providers have a valuable opportunity to provide guidance and assistance to help employers bring these programs to life.◊

 

 

 

 

LINK by Prudential is an umbrella marketing name for Prudential Customer Solutions LLC (“PCS”), an SEC registered investment adviser, Prudential Annuities Distributors, Inc. and various subsidiaries of The Prudential Insurance Company of America, Inc.
Endnotes
1. Prudential, “The State of Financial Wellness in America,” 2017.
2. Prosperity Now Scorecard, Vulnerability in the Face of Economic Uncertainty, 2019.
3. Prudential, “The State of Financial Wellness in America,” 2017.
4. Centers for Disease Control and Prevention, National Center for Chronic Disease Prevention and Health Promotion, Workplace Health Promotion, 2016, https://www.cdc.gov/chronicdisease/resources/publications/aag/workplace-health.htm.
5. Prudential, Benefits & Beyond: Employer Perspectives on Financial Wellness survey, 2017 (fielded), 2018 (released)