While the U.S. ranked second in overall global financial inclusion due to a strong financial system and employer support, this level of support isn’t equal across the board, according to new research.
A U.S.-focused analysis of the 2022 Global Financial Inclusion Index, sponsored by the Principal Financial Group and conducted by the Centre for Economics and Business Research (Cebr), reveals a clear association between business size and what financial support businesses provide their employees.
Specifically, larger businesses score considerably higher than small businesses on the level of support they offer to the workforce via financial guidance, insurance, retirement contributions, and pay initiatives, for example.
Of course, there are various reasons why large businesses can provide greater support than small businesses—many of whom lack dedicated resources and tend to overestimate the cost of benefits. As such, the research suggests that small businesses could benefit from additional support in offering these solutions to their employees, whether from the government or through the financial services system at large.
Why is this important? Principal explains that the pandemic, coupled with the rising costs of food and household essentials, has further widened the wealth and income gap, making it more imperative to foster financial inclusion, giving people and businesses with access to useful and affordable financial products and services.
“U.S. employers are critical in helping their employees access the resources necessary to make well-informed financial decisions,” said Chris Littlefield, president of Retirement and Income Solutions at Principal. “The importance of this analysis is the insight it offers employers to know where they stand in comparison to their industry and to consider how they can best support their employees with access to savings, financial education, and financial well-being programs,” adds Littlefield.
Three Pillars
Using data across public and survey-based sources, the Index ranks 42 global markets on three pillars of financial inclusion—government, financial system and employer support—which in turn consist of a varying number of indicators. Scores for each market are generated based on its performance as measured by the particular indicator, with an assigned value of between 0 and 100 to each market.
The analysis ranked the U.S. first out of the 42 markets in the financial system pillar and second within the employer support pillar.
Diving deeper within the employer support pillar, the U.S. generally earns high marks across the four underlying indicators measured—providing employees guidance and support around retirement contributions (first overall), pay (fourth overall), insurance protection (fifth overall), and financial issues (sixth overall). These support pillars help increase employee access to the solutions they need to enable long-term financial security, the research notes.
Industry Differences
When analyzing U.S. employer data by industry, the researchers note that opportunities were identified to enable more access to financial resources.
Across six broad industry classifications within the U.S., professional sectors with typically higher wages (i.e., finance, insurance, real estate and information management) were found to provide employees with more consistent support and tools to enable financial inclusion. In contrast, industries such as retail and hospitality that often employ more informal workers and tend to have lower wages registered much lower employer support scores.
For example, the research found that the average retirement account balance for employees in the financial services sector is 23% higher than the overall average, while the average balance for the retail sector is approximately 32% lower. Further, those who work part-time report substandard access to retirement, savings and investment products. In fact, only 46% of part-time workers say they have sufficient access to retirement planning services compared to 68% of full-time workers.
Employer Support Scores in the U.S. by Sector:
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Employer Support Scores in the U.S. by Business Size:
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“There’s a need to better equip small businesses with the right information and tools to enable greater financial security for their employees,” says Amy Friedrich, president of U.S. Insurance Solutions at Principal. “These businesses fight hard for top talent, and to retain that talent, have realized the importance of providing holistic benefits offerings. With greater education around benefits costs and the variety of offerings that exist, many are realizing they don’t always have to cut benefits to reduce budgets.”
“Achieving financial inclusion will require the right balance between employer, financial, and government systems’ support both in the U.S. and around the globe,” Friedrich further emphasizes.
Footnotes:
1 Relates to the level of support employers provide their employees.
2 Extent to which businesses/organizations support their employees in common financial practices.
3 Existences and scope of pension contributions.
4 Existence and scope of insurance provided by businesses/organizations.
5 Existence and scope of pay initiatives provided by businesses/organizations to support employees with their finances.
6 According to a Principal CC&G SMB Quantitative Internal Survey
7 According to the Principal Financial Well-Being Index Wave 2 (July 2022)
