An analysis of financial wellness assessments completed found that employees with higher financial wellness scores also had higher contribution rates to an employer-sponsored retirement plan.
The analysis, conducted by Financial Finesse of financial wellness assessments completed in 2015, found that employees with a financial wellness score of 4.0, 5.0, and 6.0 (on a scale of 1-10) had an average deferral rate of 6.57%, 7.38%, and 8.37%, respectively.
Financial Finesse, a financial education company that provides financial wellness services and support, finds in these results support for the notion that incrementally improving the financial wellness of younger employees from a 4.0 to a 5.0 could lead to an improvement in lifetime retirement savings of more than 12%, while increasing employee financial wellness an additional point to 6.0 could lead to an improvement in lifetime retirement savings of more than 27%.
The firm infers that this improvement is because financial wellness programs help employees overcome two key biases: “present bias,” the tendency to value satisfaction today over future satisfaction, and “exponential growth bias,” the tendency to neglect the value of compounding.
According to Financial Finesse, Baby Boomers are the strongest generation in overall financial wellness (5.7 out of 10) and are most likely to have run a retirement calculator (50%) and have basic investment knowledge (78%). Generation X is the only generation to have a significant increase in the percentage knowing they are on track for retirement (22%, up from 20% in 2014).
Millennials, according to the report, are showing financial savvy at a young age, with most keeping on top of their credit report annually (61%) and utilizing Roth accounts (36%). That said:
- Just 59% understand the basics of investing (down 4% from last year).
- Less than a third (32%) know their investment risk tolerance (down 5% from last year).
- Nearly a quarter (24%) have 15% or more of the wealth in a single position (up 9% from a year ago).
- Only about one in five (23%) have used a retirement calculator (up 1% from the prior year).