What’s Behind the Growth of Financial Wellness Programs

James Mahaney is the leader of the Thought Leadership practice at Prudential and writes on topics impacting the financial wellness of Americans.

“Financial wellness” is the hot new buzzword in employee benefits. Of course, helping workers save for retirement remains important, employers are starting to recognize that their employees also need help with a wide range of other financial challenges, including rising costs of healthcare, housing, college educations for their children, and, for a growing number of employees, their own student debt.

Financial Wellness Programs Have Arrived

While generations of Americans have struggled with these expenses, the challenge for many has grown significantly over the past decade. Look no further than healthcare costs and student loan debt for a snapshot of where financial stress can originate.

According to the Kaiser Family Foundation, employee contributions to their family health insurance coverage increased 71% from 2009 to 2019, rising to $6,015 from $3,515. The average deductible for that same family coverage rose 100%. Meanwhile, total student loan debt has skyrocketed to $1.5 trillion, with both students and parents taking on higher amounts of debt than earlier generations of college attendees.

In short, despite the continued positive growth by the U.S. economy, only 29% of Americans are financially healthy.

Why the Growth and Interest in Financial Wellness Programs?

By helping employees manage key aspects of their financial lives including student debt and budgeting, employers can also remove impediments to saving for retirement.

Several factors drive the movement to financial wellness programs, but two worth highlighting are an increased recognition of employee financial stress and technological advances.

Financially stressed workers are burdened by what one economist calls a “cognitive tax,” meaning that they don’t perform at their highest level due to their constant worries over finances. As a result, financial wellness programs that help reduce financial stress can benefit both employees and employers.

Meanwhile, technological advances are now making financial wellness programs accessible to all employees. So-called robo-advisors are making it possible to customize messaging and financial assistance to workers based on their individual goals and finances. This is particularly valuable to middle-income and low-wage workers who typically lack access to professional financial advice.

Looking Ahead

The national shift from corporate defined benefit to defined contribution plans is largely over. Drawing on numerous careful research studies, many new plan design features have now become standard, including automatic enrollment, automatic contribution escalation, and target date funds, and these have increased participation, savings levels, and diversification in defined contribution plans. The passage of the Pension Protection Act also raised contribution limits and helped low-paid workers save more.

Yet many employees are still being left behind. Overburdened by student loan debt, credit card debt, or overspending, older workers are often not in a position to save effectively. Accordingly, employer-based financial wellness programs are intentionally designed to go beyond retirement plan saving assistance to help workers get their entire financial houses in order. And they also deliver the much-needed benefits of reducing employees’ stress levels and improving their ability to save for retirement.

Views of our Guest Bloggers are theirs alone, and not of the Pension Research Council, the Wharton School, or the University of Pennsylvania.