A Conversation About Financial Wellness
At the recent 2019 PLANSPONSOR/PLANADVISER Excellence in Retirement Awards Dinner, I had the opportunity to discuss financial wellness with fellow advisers at a pre-dinner roundtable. Here are some of the key takeaways from that session:
- “Financial Wellness” is not the best term to use - People do not like to consider themselves “financially sick.” Therefore, many of the advisers agreed that “Financial Independence” is a better alternative.
- Financial Literacy is a hotly debated topic - I started the discussion by saying that I was not a fan of the term, since studies have shown that most adults are not financially literate and have little desire to be so. But I was immediately countered by the argument that the term does carry weight with young adults and children, and financial literacy coursework in secondary schools and colleges is clearly an area of growth. After considerable debate as to the merits of such courses, we came to a consensus that with the right instructor, financial literacy coursework could be of tremendous benefit to children and young adults, since they many may not learn good lessons about money from their parents.
- “Financial Independence” has a clear definition - One advisor stated a definition that was echoed by all of us: “The ability to do what one wants to do in life without having to worry about money.”
- There is disagreement on some of the necessary actions to become financially independent - While we agreed that cutting expenses and increasing income is a winning formula for improving one’s financial situation, there was considerable disagreement on the underlying tasks - the “fine print,” if you will - necessary to improve the expense-income equation. My opinion is to start slow on some easy expense reductions (cord-cutting, electronic rebate sites, etc.) and build momentum from there, but others argued that people could become easily discouraged if some of these things don’t work out. Some advisors indicated that the first step should be working on big-ticket items, such as home and auto, rather than smaller-ticket items, as much more measurable progress can be made. And others said that the expense side of the equation should be secondary to increasing income. However, we all agreed that promoting budgeting and tracking expenses should be an important component of any financial independence plan.
- Plan sponsors, recordkeepers, and advisors need to work together in order for a financial independence campaign to be successful - Even the best financial independence portal that a recordkeeper can provide will not engage participants all by itself (and, per this Top of Mind post, some of these portals leave a bit to be desired). The plan sponsor, adviser, and recordkeeper need to work in concert to “move the needle” on financial independence, as they all bring various strengths to the table that can ensure the success of the program.
Thanks to PLANSPONSOR for hosting this conversation!
Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
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