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1 Workplace Employee Wellness Basic Financial Literacy Budgeting, Banking, Reconciliation, Checking, Saving, Financial Goals, Understanding credit cards, Importance of Credit Scores, Home Ownership Down payment, Prepay penalties, Loan programs, Cash Flow, Equity management – Good debt vs. Bad Debt Financial, College & Retirement Planning 401(K), 403(b), Pension, 529 plans, stocks, bonds, Utilizing a financial planner Health & Nutrition Health insurance, exercise, diet, nutrition, (these topics addressed in later session)

Workplace Employee Wellness Basic Financial Literacy

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  • 1. Workplace Employee Wellness
    • Basic Financial Literacy
      • Budgeting, Banking, Reconciliation, Checking, Saving, Financial Goals, Understanding credit cards, Importance of Credit Scores,
    • Home Ownership
      • Down payment, Prepay penalties, Loan programs, Cash Flow, Equity management Good debt vs. Bad Debt
    • Financial, College & Retirement Planning
      • 401(K), 403(b), Pension, 529 plans, stocks, bonds, Utilizing a financial planner
    • Health & Nutrition
      • Health insurance, exercise, diet, nutrition, (these topics addressed in later session)

2. Benefits of Workplace Financial Education and Home Equity Management Planning

  • Attract, retain, reward and motivate the right employees to achieve a committed and productive workforce!
  • Improve productivity and reduce costs by addressing the work-life issues your employees face everyday.
  • Educate employees about cash flow, debt reduction, savings, retirement planning, their mortgage structure and how it affects wealth enhancement.

3. State of the Employee Financial Wellness

  • In December 2005, consumer debt in the U.S. reached $2.2 trillion. Credit cards account for almost 40% of that debt. 1
  • The average household has a combined balance of over $8,400 on credit cards and the average interest rate is just under 13%. 2
  • The U.S. Personal Savings Rate dippedbelow0% during 2005 and is now at -0.7%, which means personal outlays are exceeding personal disposable income. 3
  • 46.6 million American workers have no health insurance
  • 1.Federal Reserve Board, December2005, Consumer Credit Statistical Releasewww.federalreserve.gov
  • 2.Money Magazine, March 2006.
  • 3.Bureau of Economic Analysis, January 2006 www.bea.gov

Approximately 30% of workers report high work stress and among the five major risk stressors (relationships, work, health, crime/violence, and personal finance), workers rate personal finance the number one source of stress! 4. REAL WORLD EXAMPLE Jim & Sue Smith, 3 children

  • $135,000 house,15 yr., monthly pmt = $2,300
  • 1 st& 2 ndmortgage,$105,000 annual income
  • Monthly $825 2 car pmts, $1,300 credit cards
  • Credit scores are low, but not damaged
  • 5 hrs phone calls & meetings
  • Countless hours / days spent under stress
  • Solution:125% Loan to value refinance
  • Payoff all debts except mortgage & car loans
  • 8 months of saving, $2,000 cash flow monthly

5. Relationship between personal financial wellness and worker productivity!

  • Improving employee financial wellness can result in a 40% boost in your company's financial performance. Employees with money and credit card issues are more likely to be unhappy with their salary levels and/or change employers. Source: National Report on Work & Family, 2001
    • Financial Stress negative impact to the employer
      • Absenteeism
      • Workplace morale
      • Diminished productivity
      • Employee Theft
      • Primary cause of divorce and family breakdown
    • Work time used for personal financial matters Average employee with financial problems spends 27 hours a month worrying about financial issues.
      • Talk with coworkers about money related matters
      • Talked with a lender about refinancing home or car
      • Make calls regarding an overdue credit payment
      • Make calls to friends or relatives about financial matters
      • Make calls to a lawyer
      • Talked with a financial planner
      • Make calls to a credit or budget counselor

6. Reduce HR Administrative Costs

    • Financial education helps defray the costs of wage garnishment and payroll advances for employees in financial trouble.
    • Reduces the burden on internal HR staff from answering questions on financial benefits, communication and marketing around financial benefits.
    • Especially effective for companies with multiple sites and remote workforces
  • Increase participation in employee financial benefits programs
  • Only half of all workers who retire have any kind of private pension plan.And over half of 401(K) participants age 51-60 have $10,000 or less in their retirement account!
    • Knowledge is power! Employees who understand their benefits are more likely to participate in them.
    • Financial education can help your company pass discrimination testing by increasing participation.

7. U.S. Household Wealth Home Equityaccounts for almost one-third of all U.S. household financial wealth, yet it is the onlyunmanagedfinancial asset! 8. Incorporating Home Equity Management Planning into Workplace Financial Education

  • How employees handle issues of home ownership may well determine whether they achieve financial wellness.
    • Rent vs. Own Owning a home is the American dream
    • Credit Scores more powerful than money
      • Understanding credit scores
      • Credit repair
      • Identity theft
  • Mortgage Structure and Wealth Enhancement
    • Down payment
    • Prepay penalties
    • Loan programs
    • Equity management - Cash Flow
    • Debt Reduction Good Debt vs. Bad Debt

9. Best Practices

  • #1: Unbiased programs, designed to educate, not sell.
    • Clearly separate employee financial education plan from normal Retirement Plan Mtgs
  • #2: Incorporate multiple learning channels to accommodate different learning styles Enable employees to access the information in the way that is most helpful and convenient for them.
    • Offering multiple learning channels will result in a high percentage of employees utilizing the service.
  • #3: Personalize the financial counseling and coaching so that employees can get specific guidance on their own financial situations.
  • #4: Education should be on-going not just a one time event and by offering unlimited access, employees can use the service as often as their personal needs dictate.
    • Studies show that on average information has to be repeated seven times before people act upon it, reinforcement is a must.
  • #5: Market the programs as a new employee benefit,Personalized Financial Coaching Benefit.
    • Employees perceive greater value in an employee benefit than they do in an individual service. Employees will be more engaged.


  • Time
  • Do you have time to manage your portfolio?
  • Expertise
  • Are you an expert in investing and market trends?
  • Desire
  • Do you enjoy making investment decisions?

Considering Professional Advice 11. If you save $250 each month, how much could you have in your account after 30 years* ($90,000 total investment)? 6% - $251,128.76 8% - $372,589.86 10% - $565,121.98 12% - $873,741.03 *http://www.fandktitle.com/calcs/allcalcs/invest_return_calculator.htm.Sample shown for illustrative purposes only.Assumes that Interest is compounded monthly.Does not include the effect of any fees, reinvestment of dividends or additional contributions or withdrawals. Investing involves market risk, including possible loss of principal, and there is no guarantee that investment objectives will be achieved. Investment Performance 12. S&P 500 Index 11.9% Average Equity MutualFund Investor 3.9% Source: Quantitative Analysis of Investor Behavior 2006, Dalbar Inc. Equity performance is represented by the Standard & Poors 500 Composite Index, an unmanaged index of 500 common stocks generally representative of the U.S. stock market.The average investor refers to the universe of all mutual fund investors whose actions and financial results are restated to represent a single investor. This approach allows the entire universe of mutual fund investors to be used as the statistical sample, ensuring ultimate reliability. QAIB calculates investor return as the change in assets, after excluding sales, redemptions and exchanges. This method of calculation captures realized and unrealized capital gains, dividends, interest, trading costs, sales charges, fees, expenses and any other costs. You cannot invest directly in an index.Past Performance is not necessarily indicative of future results. Average Annual Returns 1986-2005 13. Influences on Participation Rates

  • Positive Factors
    • Age
    • Income
    • Tenure
    • Employer match
    • Loans
    • Company stock
  • Peer Influences

Source: Whats New From the Ivory Tower, Dr. Julie Agnew, William and Mary College Plan Design and 401(k) SavingsOutcomes, National Tax Journal on Pensions, James C. Choi, Brigitte C. Madrin, David Laibson, June 2004

  • Negative Factors
    • Age
    • Income
    • Tenure
    • Company offers a DB plan
    • Procrastination
    • Number of investment options
    • Lack of knowledge

14. Participation Source: Annual Survey of Profit Sharing and 401(k) Plans, Profit Sharing Council of America Is it acceptable that 1 out of 5 eligible employees does not participate? RATES: 78% 77% 76% 80% 2005 2004 2003 2002 15. Savings Levels

  • Behavioral reasons for undersaving
    • Determining appropriate savings rate is difficult
    • Lack of self control
    • Procrastination and inertia
    • Loss aversion
  • Individuals want to save more but procrastinate
    • 28% planned on increasing their savings rate after attending afinancial seminar
    • Only 8% actually did increase their savings
  • Majority have not tried to estimate how much money they will needfor retirement
  • Many underestimate how much money they will need

Source: Defined Contribution Pensions: Plan Rules, Participant Choices, and the Path of Least Resistance, Choi, Laibson, Madrain, Metrick, Nov. 2001, Updated July 2004Employee Benefit Research Institute, 2005 Retirement Confidence Survey 16. Save More Tomorrow Results Average Savings Rate Source: Save More Tomorrow: Using Behavioral Economics to Increase Employee Saving, Richard H. Thaler and Schlomo Benartzi, 2004 13.6% 11.6% 9.4% 6.5% 3.5% 162 Chose Auto Increase 8.8% 8.2% 8.9% 9.1% 4.4% 79 Accepted Consultants Advice 6.2% 6.6% 6.8% 6.5% 6.6% 29 No Consultation 4 thpay raise 3 rdpay raise 2 ndpay raise 1 stpay raise Pre-advice Initial participants 5.9% 6.1% 6.2% 6.3% 6.1% 45 Declined Auto Increase 17. Increasing Number of Investments Source: PSCAs Annual Survey of Profit Sharing and 401(k) Plans 18. Do Participants Take Advantage? Source: 2006 Fidelity Investments Building Futures % of Total Participants Number of Options Utilized by Participants 11 15 Options 16 30 Options 19. Participant Rebalancing is Market Driven

  • 88% of all participants made no trades (April 1994 August 1998).In 2003, 87% made no trades.
  • On average, one trade is made every 3.85 years
  • Most transfer activity
    • driven by a polarity factor.rebalancing between equities and fixed income investments
    • motivated by the contemporary performance of the market, rather than a long-term strategy

Source: DC Plan Investing December 2004, 20. Are Asset Allocation/Lifestyle Funds the Solution? Source:Hewitt Trends and Experience in 401(k) Plans, plansponsor.com, Iomas Annual Defined Contribution Survey 2005

  • Other survey:
    • 58% of plans offered this option in 2004
    • Only 5% of assets

Plans Offering Asset Allocation/Lifestyle funds Percent of Plan Assets 55% 2003 63% 35% 30% 19% % of Plans 2005 2001 1999 1997 Year 10% 2003 10% 10% 8% 10% % of Total Balance 2005 2001 1999 1997 Year 21. Are Lifestyle Funds Utilized Properly? Source: Hewitt Associates, 2003 Benchmarks20-29 Lifestyle Fund Utilization By Age 40-49 50-59 60+ 30-39 3 3.5 4 5.5 4.5 5 6 Percent of Participants Avg. Number of Funds 4.5 5.6 5.5 5.2 4.6 22. Managed Accounts Source: PSCAs 49 thAnnual Survey of Profit Sharing Plans Savings Rate Doubles for Those Who Use Advice and Managed Accounts, Managing 401(k) Plans, May 2005 NOTE: Results are based on an internal analysis by Charles Schwab.Schwab does not charge participants or the plan sponsor a fee for the advice service.Percentage of Plans Offering a Professionally Managed Alternative

  • More likely to sign up for advice (54%) when the service is presented in face-to-face educational sessions
  • 401(k) savings rate rose from 4.57% to 9.57% (2004)

23. Summary

  • Participation
    • 1 in 4 do not participate for various reasons
    • Automatic enrollment increases participation and gets participants in the plan sooner
  • Savings
    • Low savings rates are an epidemic
    • Automatic escalation is effective in increasing savings rates
  • Investment Decisions
    • Most are overwhelmed and need help