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Getting to the Bottom of Financial Wellness

Recently, I had the opportunity to collaborate with a wonderful group of people at the Retirement Advisor Council to produce a comprehensive position paper, “What do You Mean When You Say Financial Wellness?” While a hot button term, if ten different people were asked to define financial wellness/independence, there would likely be ten different answers. Without assistance from groups such as the Retirement Advisor Council, it would be nearly impossible to get to the bottom of the issue, in order for retirement plan sponsors, advisers, recordkeepers and other service providers to effectively move forward with financial wellness initiatives. While I encourage everyone to read the piece in its entirety, here are some of the key points to help demystify the concept of financial wellness/independence:

  • There are multiple components of financial wellness/independence — The position paper cites the Consumer Financial Protection Board definition, which consists of several elements:
    • Control over day-to-day and month-to-month finances
    • The capacity to absorb a financial shock
    • Being on track to meet financial goals (e.g., retirement)
    • Having the financial freedom to make the choices that allows one to enjoy life
  • The barriers to achieving financial wellness/independence are significant 57% of employees have less than $1,000 in emergency savings, and nearly half of employees find it difficult to pay all of their monthly expenses on time.
  • Effective financial wellness programs incorporate many components — The Retirement Plan Adviser piece identifies 15 separate and distinct program components, including:
    • A design to reduce employees’ financial stress
    • Assistance in developing employees’ financial skills to improve financial security
    • Delivery of a personalized assessment of current financial wellness, a personalized action plan, and a mechanism to monitor progress
    • Delivery of an enhanced retirement plan experience or knowledge development, including topics such as debt management, budgeting, and emergency savings
  • Accessibility is key — Financial wellness/independence programs are not going to educate employees unless they are accessible. Thus, the programs must be usable by anyone, regardless of literacy, wealth, or earnings. A variety of delivery media (online, print, in-person, video conferencing, podcasts, etc.) is also essential.

As we progress though the COVID-19 pandemic and discover a “new normal,” successful financial wellness/independence programs will be critical to help employees get back on their feet.

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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. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.

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