Financial Wellness Programs Difficult to Define – Fred Talks

Financial Wellness Programs Difficult to Define

Financial wellness programs at the workplace are gaining exposure and acceptance.  But do the results of workplace financial wellness programs support the time, effort and expense?

In this weekly FRED Talk Mr. Fred Barstein, Founder and CEO of 401kTV discusses the interest that has been demonstrated in financial wellness programs throughout the country.   As more and more companies look to implement financial wellness programs, it makes sense to also look at the success rates that the programs have brought-to-bear on corporate America and it’s employee base.  Defining financial wellness programs has become difficult since now there are so many variations of financial wellness programs being delivered.

Full Transcript Here

This is Fred Barstein with the weekly Fred Talks, and today, I wanted to talk about financial wellness, making the case for financial wellness but also being realistic. There’s a lot of interest in financial wellness among advisors, plan sponsors, providers out there, but we’re not really seeing a lot of results from it. I want to talk a little bit about financial wellness, make the case for it, but also not hide the fact that maybe what we’re doing today isn’t working.

What is financial wellness? It’s not really easily defined, and is it limited to the retirement plan, whether it’s a 401(k) or a 403(b)? Is it just financial literacy and education? Is it investment advice? Is it counseling on budget and spending and saving? Depending on who you ask, the answer is yes, and there are issues if you’re doing things outside of the plan, like estate planning, but paying for it with plan assets. The DOL is … doesn’t look really kindly on it.

Why is there growing interest in financial wellness? 401(k) and 403(b) plans have brought almost 100 million people into the stock market, so they’re now investing where, before this whole revolution, very, very few invested in the market, but also with the 401(k) and 403(b), we’ve shifted the liability for people to save on their own for their retirement while trying to make ends meet now. There’s a real issue between, “Should I take care of my present self, or should I take care of my future self, and who is more important?” Usually, the present self-becomes more important. There’s a growing expectation among workers that financial education, advice, and counseling should be available at the workplace. Most don’t have access to an advisor outside of the workplace, and many do not trust their finances to a robo or just a computer.

Companies are stepping up for financial wellness because there’s the argument that less stressed employees are more productive. I’m not sure we’ve really shown a definitive number on that, but that’s generally conceded to be true. If people are able to retire on time, it’s less costly to employ younger workers than older workers, especially those that don’t want to be there, but that’s more of a long-term issue. I think a current issue, why people are interested in financial wellness and making their retirement plan more attractive is because of recruiting and retention. We’re at historically low unemployment rates, and hiring good people and keeping them is really important. Financial wellness can make a difference. Then, finally, it just feels like the right thing to do, to help people to be able to save and to budget.

Is it working? Is financial wellness today, as we know it, changing behaviors or improving outcomes? The first thing is financial wellness pales in comparison to behavioral finance or the ideal plan. The things you can do through the auto plan and the results you can get, financial wellness is going to have a hard time even getting a small percentage of the improved outcome. There was an academic study in 2012 that looked at many, many financial literacy and education programs, and they show that there was only a 0.1% change in behavior. Then, finally, who is paying for financial wellness, because in my mind, if somebody’s not willing to pay for it, I’m not sure how much it’s worth, but we’re at a critical stage in the 401(k) and 403(b) industry. We can’t give up on financial or engaging participants, and financial wellness is a way to do that.

Let’s be realistic about what’s working and not and not give up because maybe some things that we’re doing today aren’t working. There is some hope. What we’ve found is that just-in-time training or education is much more effective. There’s a lot of really great stuff going on with artificial intelligence, which means we need big data, and we’re starting to get to the point where we can actually get big data. What I’m most encouraged about is advisors who are trying to figure out and doing a pretty good job of how can they engage with participants using technology, but really, it is the advisor who is the key, especially the advisor who knows how to work in the 401(k) and 403(b) system. I’m a big advocate of financial wellness, but I also think as an industry, we need to be realistic about what’s working and what’s not working. Thanks for watching Fred Talks. Stay tuned.


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