Why 401Ks Aren't Solving Your Employee Financial Wellness Problem

employee financial wellness

The following post comes from Bright Horizons Marketing Manager, Sean McCarthy.

What's your organization's financial wellness strategy? If you said 401k, you've got lots of company.

Census data shows that more than three quarters of employees work for a company that offers retirement help. Unfortunately, the same data shows that only 41% of employees are actually using it.

Free money for retirement, and yet nobody's biting? What gives?

Simple - to save, you have to have extra cash. And to have extra cash, you have to be solid on today's expenses. Without discretionary income, a healthy future retirement account sounds a little like that old joke about how to become a millionaire: first step, get a million dollars.

It's why 401k-driven attempts to affect employee financial wellness often fall flat. Which is a shame because more than half of employees told one study they have money problems; and money problems, as one writer put it, "can be as bad for workplace productivity as back pain."

To give people the grounding of solid savings, you have to address the issue of over-spending first.

Budgeting

The above study said a third of even upper earners are having trouble making ends meet. And the absence of financial control is terrifying ; and distracting. Yet many people are too afraid of what they'll find to investigate. Budgeting seminars -- like our own "Save Smart" series - enable employees to take charge of their bank statements and overcome distracting fear.

Old student debt

Debt in this country is a $1.4 trillion problem. How hard is it to get a handle on? When MIT offered help for employees to figure out debt, people arrived with envelopes ; piles of them -- that had never been opened. "Having financial wellness experts sit down and open those envelopes with employees and show them that they really can get control of their finances," wrote our CHRO Maribeth Bearfield, "offers incredible ROI."

New student debt

A family profiled in the New York Times mortgaged their house to finance their daughter's private college education, despite her full ride to a state school. It's symbolic of how people throw financial caution to the wind when it comes to kids' college, and why education advisors (who can guide people to more practical, cost-effective decisions) are so valuable.

Raiding 401ks

We know people need support to help them save. But they also need support to avoid big mistakes ; like taking money out of retirement before it's time. "Leakage from retirement plans," said one retirement professional who admits to losing sleep over this issue, "can severely impact the growth of a nest egg at retirement age. It's really hard for people to recover from that once they have done it."

Addressing the above has another benefit - it crosses generational lines, tackling financial issues for everyone from newly minted grads to older families. And it's got a big success rate. Our Save Smart series and other financial wellness benefits not only answered a need we learned about from our own employee survey, the fiscal control clearly had legs, upping our 401k participation to higher rates than we'd ever before seen. So how effective can addressing the roots of financial wellness really be? We'd say...pretty darned effective.

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