Do Financial Well-being Programs Make a Difference?

Daily headlines highlight how poorly Americans save, fall further into debt, and fail to retire on time. Many employers see these signs and offer assistance in the form of financial well-being programs – perhaps as good corporate citizens or because they see the connection between financial stress and performance. Motivation notwithstanding, virtually all indicators suggest their efforts are unsuccessful.

As with any complicated issue, many contributing factors can be attributed to the lack of success of financial wellbeing programs. However, financial illiteracy is central to the problem. A lack of a financial education curriculum in our public educational institutions could be part of the problem, although I will admit teaching money management principles to a teen who’s unlikely to have held a job could be challenging.

Corporate America deserves credit for its efforts to fix the problem. However, the deck is stacked against us. Over the last several decades, there has been a gradual erosion of the unwritten employer–employee contract. Generally, that contract meant secure employment from companies and loyalty from employees. As part of that equation, employers provided financial security in the form of pensions. Although that represented a reliable source of retirement income and certainty, counting on a pension reduced the need for many workers to be educated on how to plan and save for retirement.

As the relationship between employer and employee weakened, introducing 401(k) plans after Congress passed the Revenue Act of 1978 did not help. Over the next couple of decades, U.S. companies aggressively reduced traditional pension plans in favor of 401(k) plans. The typical American, however, was unprepared for the responsibility that came with that shift.

Today, the circumstances do not appear to have improved. Individual debt continues to climb. Many report that they live paycheck to paycheck with little money for saving. Privatesector pension plans are scarce. Assets under management in 401(k) plans are well over $4 trillion, which sounds impressive. However, the average account balance is insufficient, leading many to fear they will outlive their savings in retirement. And, if we must rely on auto-enrollment and auto-escalation features of 401(k) plans for the answer, it can be argued that defined contribution retirement savings plans would be a failed experiment.

What is wrong with corporate well-being programs? 401(k) plans are here to stay. We are witnessing the rise of corporate financial well-being programs. In survey after survey, employees say they want these programs from their employers. Employers know financial stress distracts us from work. It makes sense for employers to offer education for managing personal finances. But despite the popularity among plan sponsors, participation is disappointing, their effectiveness in influencing behavior is limited, and employees continue to feel financially stressed. So, what's this disconnect?

One-size-fits-all financial education does not work. To start, the considerations seem endless; the concepts can be complex, and everyone's circumstances are different. It is almost impossible for a brief series of financial awareness classes to be the solution when, for example, the typical employee is now expected to determine how much to save, where to invest it, and make it last through retirement, given we are expected to live longer. Plus, knowing what we should do and actually doing it is not always a given, particularly when decisions that need to be made feel too big. Moreover, more is not always better. I have seen employers provide a financial well-being program through a dedicated partner, which competes with offerings from record-keepers, employee assistance programs, and so on. Not surprisingly, too many choices can sometimes cause people to fail to take any action.

So, how can employers help their employees save more, pay off debts or raise their credit score? In my experience, the answer is access to live financial coaches. Workshops, punch lists, and online calculators are no substitute for the one-onone interaction between a person and a coach. Coaches and counselors are used in many areas of our lives, so why not for some of our most important decisions? Different from traditional financial counseling, which is focused on providing expert advice and recommendations, coaches can collaborate with individuals to set financial goals, prepare action plans, and create accountability. Financial well-being programs that do not offer coaching are incomplete and will produce marginal results.

Most of us are not adequately prepared to make major financial decisions affecting our lives and families. Corporate America is doing the right thing by stepping up to fill this gap. However, programs primarily focused on financial education alone will not get it done. To make a difference, employers need to identify ways to integrate personalized coaching as part of financial well-being.