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Is There an Accurate Way to Measure the Value of Financial Wellness?

Employers continue to show widespread interest in providing financial wellness programs to improve worker well-being and reduce financial stress, but there’s little agreement on what makes up a program and no clear way to measure its value, according to panelists at a recent policy forum.

The Employee Benefit Research Institute-Education Research Fund’s Dec. 13 policy forum in Washington, DC took a deep dive in exploring how financial wellness initiatives — such as emergency savings, help with budgeting, student loan debt assistance and others — can help move the dial on employees’ financial security and employment satisfaction.

In the forum panel moderated by Warren Cormier, Executive Director of DCIIA’s Retirement Research Center, panelists Jack VanDerhei, Director of Research at EBRI; Jana Baressi, Senior Director, Federal Government Affairs at Walmart; and Irene Skricki, Senior Financial Education Program Analyst, Bureau of Consumer Financial Protection (BCFP), offered varying assessments and data on the evolving industry.

Addressing the two lingering questions about financial wellness programs — about how return on investment is measured and what comprises a program — Cormier explained that financial wellness is not a “demographic,” but rather is a “psychographic” and can’t be measured. He noted that it’s a personal relationship with money, with respect to how one thinks and acts about it.

Cormier submitted that two people with same financial resources can have very different financial well-being, such that total resources is not necessarily a reliable measure. People with the same amount of money can have different standards of living, and giving them more money is not a solution, as you’ll just have a wealthier person making the same bad decisions, he explained.

Financial wellness comes down to the core of what you do and how you behave. “What people want in life is control, predictability, safety, access and freedom. Without these, stress rises and with stress we get all sorts of bad consequences,” Cormier noted.

Defining Financial Wellness

Irene Skricki with the BCFP echoed those comments, stating that “we all want to know what the ROI is, but it’s a lot harder than it sounds because there’s not a single goal to measure.” Skricki explained that the reality is that everyone has different objectives and goals with respect to financial wellness, and it isn’t clear how to measure.

To help provide some general guidelines, she noted that the BCFP created a consumer definition and developed a set of questions to help measure financial well-being. The resulting definition and related scale does not focus on overall financial numbers like income, net worth or credit score, but focuses instead on how people feel about things. Skricki suggested that the scale can provide data points to help organizations assess benefits strategy and track progress and outcomes.

She noted that the BCFP found that financial well-being includes four elements:

  • Having control over day-to-day, month-to-month finances

  • Having the capacity to absorb a financial shock

  • Being on track to meet your financial goals

  • Having the financial freedom to make the choices that allow you to enjoy life

“Another way to think about this is that financial well-being is the feeling of having financial security and financial freedom of choice, in the present and when considering the future,” she explained.

Pilot Program Stage

In reviewing findings from EBRI’s financial wellness survey, VanDerhei explained that, while financial well-being was of great interest to employers, the programs were typically in their initial stages and many employers had engaged only in pilot programs.

Among firms in the study’s sample, 75% with 10,000 or more employees offered financial wellness initiatives at the time, compared with nearly half (49%) with fewer employees.

VanDerhei noted that 4 in 10 employers considered their programs to be in the pilot stage, while only 2 in 10 consider their initiative to be a “holistic” program. Moreover, he noted that few firms are using metrics or assessments to understand their employees’ needs, while about half of firms use surveys to assess needs, which may make it difficult for employers to accurately evaluate their initiatives.

As for the top considerations of offering initiatives, employer cost, employee interest and value proposition were cited as the top three factors used by firms to determine whether to offer financial wellness benefits to their employees, VanDerhei explained.

He further observed that there appears to be little consensus on what “value proposition” entails. Interestingly, he noted that return on investment does not seem to be an overwhelming consideration for mid-sized employers, while the smallest and largest employers place a higher value on ROI.

Additionally, VanDerhei stated that a lack of data to quantify value added is one of the major challenges to employers. Overall, the top challenges with wellness programs include complexity of the programs, lack of staff resources, lack of interest and a lack of ability to quantify expenses.

VanDerhei noted that better data could help alleviate these issues and announced that phase two of EBRI’s research agenda on wellness programs will be to examine the types of initiatives and obtain data to determine the impact of participation decisions, contribution decisions, loan activity and hardship withdrawals.

Rainy Day Fund

Cormier also reviewed the results of a recent study he conducted with David John and Catherine Harvey from AARP that sought to test the appeal of a payroll deduction emergency savings program among employees — “Saving at Work for a Rainy Day.” While not directly tied to financial wellness programs, Cormier explained that the issue of having emergency funds has some relevance, as employers increasingly incorporate programs into their benefit offerings.

Cormier noted that the study found that 71% of respondents would be likely to enroll in such a program if offered through their employer. It found that attitudes and opinions are more important drivers of participation than demographic factors. More than two-thirds of the effect on likelihood of participation were related to stress over financial situation, trust in employer and confidence in their ability to pay for a $2,000 unexpected expense. Not surprisingly, employees with lower nonretirement savings and those who would have difficulty covering an expense equal to one month’s pay were more likely to participate.