“Financial wellness means freedom from financial stress and debt, peaceful life, and being prepared for emergencies.”
In a fast paced business world, organizations and their employees are being stretched to overachieve their business goals. In the process employees face a huge amount of stress that affects their health and longevity which could be attributed to work related stress. One of the other stresses that is much ignored is the ‘financial stress’ faced by employees. Employees may be stressed over organizational shifts, market conditions, personal life events, or benefits changes.
It has been proven that one of the many reasons for bad health & low productivity among employees in any organization is “financial stress” due to lack of, and/or, bad financial planning. This aspect has a big impact on the productivity of employees as they carry this stress to the workplace. In fact, financial stress leads to mental stress which impacts health and not the other way around as many believe.
How does it impact your organization?
Employees who are stressed about their finances are both less productive and in worse financial shape than other employees. Four out of five employers report that their employees’ personal financial issues are impacting their job performance somewhat, very much or to an extreme degree, according to the IFEBP survey. This is resulting in:
An increase in stress among employees (reported by 76 percent of employers).
Workers’ inability to focus at work (60 percent).
Absenteeism and tardiness (34 percent).
ArthaYantra’s own research has proven that financial stress impacts productivity of at least 40% of the employees and the financial preparedness levels are very low. It has also shown that 58% of employees are unable to meet their monthly expenses and 3 out of 4 employees are not prepared for loss of job. In a world where retirement age is fast shrinking, it is only adding to the stress. Organizations across the world are now waking up to this new reality. It would be prudent for organizations to focus on this aspect to help/ enable their employees to be financially secure and stable. A happy and stable employee is a productive employee.
What should organizations do?
Organization’s goal should be to empower employees to make educated decisions to improve their financial well-being. While most of the organizations have health wellness programs for their employees, they do not have a financial wellness program that takes care of their financial wellbeing. The reasons given are as follows:
- Personal finance is a personal domain of an employee, so why get involved?
- Market related movements in the employees’ portfolios could back-fire on the management, so why take the risk?
- “ We pay salaries on time, what they do with their salaries is not our business”
- There is too much work and too little knowledge/ expertise to roll out a financial wellness program.
- Mis-selling by many advisors in the past has not helped the cause.
Most of the organizations do not want to take the risk of stepping on an area which they believe is not in their domain of understanding. Sadly, they also don’t realize that financial stress has the highest impact on the productivity of their employees. This is mainly because 90% of the financial decisions are taken at the workplace and hence it affects their productivity. In fact financial stress leads to health stress.
Organizations should step up and make financial awareness and counseling as a part of their “employee benefit program”. They should no longer shirk this responsibility and pass it off as not a part of their domain or an unwanted risk. Helping employees’ deal with this stress far outweighs the risk that is perceived by the organization. The ROI in the long run is immeasurable. It has a direct impact on the bottom line.
How should organizations implement it?
Financial wellness program should be an end to end solution and not just a 2 hour talk session. This should include sessions, financial counselling, monitoring and reviewing. This would mean time commitment from management and employees to make it meaningful. This should be more than a mere ‘lip service’.
Management commitment: “Financial stress of employees has a direct impact on the bottom line.” A well-meaning program should have the blessing and the commitment of the top management. It should come from the top. If there is no buy in or push from the top, then, no matter how well the program is designed it is bound to fail as managers down the line would not take it seriously to implement the same. It should be a part of the management committee reviews and should be monitored with the same rigor as they would monitor their business numbers. As productivity of the workforce has a direct impact on the bottom line, it should be a key KRA for the HR teams.
Financial wellness to be packaged as an Employee Benefit Program:
A well designed financial wellness program (FWP) goes a long way to deal with this challenge. This should include education and counseling. The effectiveness is most when it is sponsored by the organization as a part of the employee benefit program. We have seen, in a voluntary based approach, employees normally do not take it seriously as it is not verified or endorsed by the organization. A well designed FWP program sponsored by the organization is seen as credible, supportive and perceived to be a great engagement tool by the employees. It’s a good way of showing that you really care.
Identifying the need:
Before rolling out any FWP program, it is best advised for an organization to conduct a financial wellness survey amongst its employees to understand the state of financial knowledge, preparedness or stress that the employees are in. Collecting data at the beginning of the program gives a useful measuring tool for any organization to evaluate the effectiveness of the program as they take this journey into the future. As they say, “what you cannot measure, you cannot manage”.
Selecting a partner: Due diligence
When selecting a partner for FWP, organizations can use their internal resources from Finance & HR or other internal experts to do a due diligence of the partner that they want to work with. This is a very important part of the process wherein the organization can filter the service provider based on their track record, their ability to deliver an unbiased advice, financial advice delivery process, ability to cover large and small organizations, use of technology, multi locations coverage, accessibility and employees support etc. This is important because an employee does not have the time, resource or expertise to identify the right financial partner at an individual level. Therefore, they become victims of wrong advice or mis-selling and in the process become financially vulnerable. This is the most important step in the FWP process and an important responsibility for an organization to identify the right partner.
Rolling out the program:
Financial education: Any program should start with a financial education and awareness session. This is a good platform to help employees to improve their awareness quotient. The education program should deal with the basic concepts, importance of financial planning, information on various products, risk of wrong decisions, how to be retirement ready etc. These sessions could also be used to set expectations on the outcome of the program. Management can also use this platform to inform their employees why they are rolling out this program and how employees could benefit from the same. They could also highlight the efforts put in by the management in designing the program, selecting a partner and the expected outcomes. In this way, they can demonstrate the sincerity of the management in ensuring the wellbeing of their employees. Sharing the survey results can help employees realize that they are not alone in this journey. This would help employees deal with the stigma of financial vulnerability in a better way.
Financial counselling or advice delivery: Once the awareness level has improved, an employee is better prepared to go through a counselling session. Here the organization should ensure that the advice or counselling is delivered by a qualified financial planner who is a CFP (Certified Financial Planner) or is a “Registered Investment Advisor (RIA)” with SEBI. This is important because delivering advice is an expert’s job and cannot be left to an unqualified person. It is like choosing between a quack and a qualified doctor for a medical advice. The counselling session’s main objective would be to evaluate the current financial status of each employee and design a financial plan which is tailor made to suit their individual goals and needs. One cannot have a “one size fits all” approach to financial planning.
Financial Plan execution: Many organization leave the execution of the financial plan to the individual employee. This is a recipe for disaster. Most of the mis-selling happens at this stage. The partner who is identified by the organization should be given the responsibility and should have the execution capability to implement the financial plan recommended by them. The efforts taken to build a FWP program comes to a naught when the last mile is not completed. A FWP partner identified would be held responsible for an end to end solution and execution of the program so as to minimize risk and maximize responsibility.
Employee support and financial plan reviews: Any FWP program should have a financial plan review on a periodic basis. This could be half yearly or on an annual basis. Many Financial advisors are interested only in delivering the plan and execution but do not have the capability or interest in delivering a periodic review. A periodic review of the financial plan is important because the progress of an employee in his/her journey to financial nirvana happens over years and NOT overnight. Thus, handholding and regular review is an important part of the FWP process. In this way, the progress can be monitored and measured over the journey period.
How does the organization benefit?
For employees: We have seen financial wellness score of these employees improve over a period of time thereby leading to reduction of stress. A financially stable employee is always a productive employee. Having taken care of one of key elements of an employee’s life, he remains engaged at work and free of stress.
For employers: The impact of this program is multi fold when the management sponsors the wellness program on behalf of the employees. This is an excellent tool to demonstrate the honest intent of the organization to show their employees that they are concerned about their well-being. This improves the stickiness of the employees and enables a strong bonding with the organization. An engaged employee is always a productive employee. This has a direct impact on the bottom lines giving an immeasurable ROI in the long run. Employer profits are negatively impacted by employees who carry the stress of financial problems onto the job. This cost can be substantial. Dollar cost to an employer for an employee who is stressed about money matters is $400 annually according to one award-winning study, primarily in work time wasted and absenteeism. Other studies show that 15 percent of employees are so stressed about money that it affects their productivity, and that percentage rises to 20-30 percent for employers whose wages are below average.
Therefore, a financially stable employee has an immeasurable impact on the profits and ROI of an organization