September 10, 2010

Financial Finesse's Liz Davidson on Trends in Employee Stress, Financial Planning: The Weekend Interview

Liz Davidson, founder and CEO of Financial Finesse, explains some surprising trends in employee behavior

Over three-quarters of employees report some level of financial stress, according to a second-quarter research report from Financial Finesse, a financial education firm. Fully one-third of employees report feeling high or "overwhelming" stress.

There's an upside to all that stress, though. Employees are more proactive about financial planning and are focusing on long-term plans. In fact, 48% of all calls to the company's financial help line were regarding long-term planning issues, up from 37% last year. Calls about retirement increased from 14% to 20%.

As part of the shift to a long-term outlook, calls about debt management or budgeting and saving fell from 38% to 32%, a trend that started at the end of last year, according to the report.

Liz Davidson, founder and CEO of Financial Finesse, spoke with Investment Advisor on Friday, September 10, to talk about why employees are shifting their financial priorities.

What can you tell me about the results from your second-quarter research?

I study a lot of behavioral finance and psychology and there's a theory that stress leads to panic and people become paralyzed which leads to tunnel vision in their financial planning. But when employees aren't stressed enough they take foolish risks and overextend themselves. Employees are pretty stressed, but it's focusing them and causing them to prioritize.

Retirement is a top priority for employees. Is that a trend that will continue or just a condition of the current economic environment?

It's a surprising trend upwards, despite the persistent recession. Last quarter debt was the top priority. In a crisis you hunker down and focus on short-term worries. The shift in the ratio of long-term planning calls to short-term planning shows employees are more proactive. They have time to address the most pressing issues since we've been

in [the recession] for a while, and employees see they need to save more, and plan more. Emphasis on planning, investing and growing money in a tough economy is a sign of resilience.

Employees know they can't control the markets, and they can't control changes their employers make to their benefits, but they can control their saving habits.

Why the drop in calls about budgeting and debt management?

Some of it is a function of education. Employees have had time to address emergencies and are now calling to learn how to address issues in the future. They want to get things under control and begin planning long-term.

What's stressing employees out the most?

Honestly, I think retirement is the biggest stress employees have. Employees made changes to their benefit plans, cutting or elimination 401(k) matches, and employees see the volatile market and no growth in their portfolios. There's a general pessimism and employees are wondering "am I going to be able to retire?"

I would not have said that last year. Last year I would have said debt was the biggest stress for employees, but the emphasis has shifted.

What do these trends mean for financial advisors?

Advisors need to be aware of trends and what is sometimes missed is the psychology and mindset of consumers. This is a good opportunity to focus on retirement, but consumers are more pessimistic and more conservative and there's a lot of cynicism about the markets and advisors.

Advisors need to be aware they're dealing with more cautious consumers who may be closed to risk even if they need to take on more risk. People are scared and nervous and may need more hand holding because there's a lot of fear.

Financial education industry is growing because of cynicism but also changes companies are making to retirement plans. And the philosophy is changing. Now employees have to take on a lot more of the burden to fund their retirements.

This industry may be a good career opportunity for planners who want to educate as opposed to sell.

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