Employers are constantly trying to stay competitive, which means the average American worker has more benefits available to her than ever before: retirement options, tax-savings accounts—e.g., health savings accounts (HSAs), health reimbursement accounts (HRAs) and flexible spending accounts (FSAs)—and an increasing number of voluntary benefits.
That said—as their options have grown, employees’ understanding of how those options work …has not. And while most financial wellness programs give great advice on how to spend post-paycheck money, they completely ignore how pre-paycheck benefits choices relate to financial best practices. Which does the employees making those choices a huge disservice since the two are closely related.
This is why companies need a new playbook when it comes to employer-to-employee financial guidance. Here are some ideas to get one started:
Tip 1: Make finance-related benefits-guidance part of your financial wellness platform
Tax-savings accounts and retirement plans are financial products that carry the same complexities and consequences as any sophisticated financial product. However, they’re generally handed over to employees with a vendor pamphlet and log-in instructions. Giving employees a road map to the products that’ll drive their financial health—and, by extension, their physical and mental health—is a simple but necessary step for employees to take.
That might mean replacing a financial wellness program focused on how employees spend their take-home pay with one centered on helping them take advantage of payroll deductions in a way that makes sense for them. When employees automatically save money before it reaches their paycheck, it’s, unsurprisingly, much harder for them to spend it. As their employer, you host the platform for making those changes, which means you’re also in the perfect position to beat that drum.
Tip 2: Provide advice that weighs all of your employees’ financial concerns and is vendor-agnostic
Most of us aspire to attain what I call the nirvana state: a financially-responsible plane of existence that involves no credit card debt, a manageable mortgage that’s building equity, an emergency savings fund to carry us through a tough time, and contributions maxed out to tax-savings accounts, to avoid unnecessary taxes. However, back in reality, nearly half of Americans wouldn’t be able to handle a surprise $400 bill. On top of that, Baby Boomers, as a generation, are horribly underfunded for retirement, and HSAs are significantly underused and misunderstood.
While most HSA, 401(k) and financial wellness vendors already offer financial advice on those fronts, they’re usually not the best resource. Their advice tends to be heavily biased toward their product, doesn’t explain how different tax savings products relate to each other, and doesn’t factor in employees’ many other financial priorities.
Companies can add big value with more holistic, vendor-agnostic advice. In a perfect world, employers would match employees with financial advisers to help them create a unique plan. In reality, though, that’s generally not in the budget. Luckily, there are other simple strategies to try.
At Jellyvision, we describe this approach as helping each employee decide how to spend their “next best dollar,” whether that’s saving it, using it to pay down debt or investing it. Here’s one example of a talk track to give employees, including whatever caveats you need to include:
Priority 1: Create an emergency savings fund before you do anything else, so you’ll be able to handle that surprise $400 bill without having to use credit.
Priority 2: After you’ve done that, use your “next best dollar” to take advantage of the company’s retirement savings match (assuming there’s one available), as that’s an immediate 100% return.
Priority 3: When you’ve maxed that out, you may find yourself trying decide between investing in the stock market or paying down credit card debt. If so, consider this: Most credit cards have an interest rate of around 15%. An interest rate of 15% means that every dollar used to pay down that debt gets an instant 15% return. Compare that with the stock market, which historically returns 9% to 10% over the long term, and it’s an easy call: For a higher return, the next best dollar should go toward credit card debt.
Various other scenarios are possible, of course. An employee could put her next best dollar toward saving for a home or paying down student loans. The more such scenarios employers share, the more of their workforce they’ll reach.
Tip 3: Consider using a third-party vendor—your employees might actually prefer that
If creating something like the above feels too daunting or time-consuming, employers can consider enlisting a third-party vendor to provide the communications and/or decision support they’ll need. This relieves them of having to create the advice from scratch, and their employees might feel more comfortable using an outside resource, because they feel it’s more private, and possibly more trustworthy.
Fun fact: Here at Jellyvision, we conducted a survey to learn how employees really feel about financial wellness programs. Two main insights from that survey were: 1) One in five employees are uncomfortable getting financial advice from their employer, and 2) Most employees prefer to receive financial help from a neutral third party, the most popular source being online information.
Every year, HR departments spend huge amounts of time and energy putting together benefits packages to help their employees. However, many of these benefits are underutilized, which is a clear indicator that, as an industry, we’re missing part of the puzzle.
In taking the time to help employees understand their benefits within a larger financial context, companies show them how to better utilize each one, improving their employees’ lives—financially and otherwise—in a meaningful way.
This article was originally published in a slightly different form in PlanSponsor.