Although things seemed to have improved in America since the financial crisis of 2008-09, savings levels have not increased proportionately. In fact, due to a 2016 report by the Federal Reserve Board, most Americans could not cover a $400 expense without using credit cards or some other form of debt.1 Additionally, most households carry at least $17,000 in credit card debt, with most unable to repay within a 2-year period.2 The unfortunate reality is that both employers and employees shoulder this burden. While many employers may not realize it, a good percentage of their workforce is likely distracted, stressed and burdened with this reality. Depending on the work environment, this can lead to safety issues, poor work attendance and performance and, in some cases, increased turnover.
Many experts agree that 3-6 months of liquidity in a non-market correlated account is necessary to handle things like unexpected emergencies, periods of unemployment, and health insurance deductibles. The challenge for many people is that there is a lack of financial organization coupled with a basic understanding of budgeting and cashflow. People just don’t know where they are spending their money and seem to often have more month than paycheck to cover. The answer lies in 1.) organizing personal financial information in one location; 2.) understanding “spending trends” over an extended period of time; and 3.) modifying behaviors and habits to proactively do things like save and eliminate consumer debt.
As an employer, you may be thinking “how do we as an organization address this problem?” One answer may reside in using non-traditional benefits such as payroll deduct savings strategies to create a new behavior. This done in tandem with a good financial coach can ensure that things are trending in the right direction. It’s apparent that this is outside of the standalone traditional 401 K model. In fact, many employers are scratching their heads wondering “why aren’t more people taking advantage of the match?” Based on statistics, it would be logical to surmise that a lack of liquidity combined with high revolving debt balances (both symptoms of a problem) are the culprits. With a large percentage of many workforces trying to decide whether to put food on the table or fund retirement, it’s apparent how the decision gets made. The core problems in many cases are: a lack of basic financial education and the confusion regarding how to modify a pattern of behavior. Attacking this problem must be done through the exposure of better personal financial information and changing the behavior using a balance of technology and coaching.
1 Board of Governors of the Federal Reserve, Report on the Economic Well-Being of U.S. Households in 2015, May 2016.
2 Bob Sullivan, State of Credit: 2017, Experian, January 11, 2018.