May 3, 2011

Employees' Financial Wellness Up, Retirement Confidence Still Low

Increased financial wellness started in the 'middle of the recession'

A report released Friday by Financial Finesse found that although employees have improved their money management skills and have demonstrated an "increased urgency" in retirement planning, employees still have a long way to go to being financially secure.

Employees' cash management skills improve

The report, which is based on first-quarter 2011 data, found that more employees are taking steps to improve their financial situations like managing their cash flow, paying off credit card balances in full, maintaining an emergency fund, and paying bills on time. This trend began in the first quarter of 2010, and has been increasing steadily ever since.

“We first identified this trend in the middle of the recession, with employees developing better financial habits out of necessity. The good news is that it is continuing without the usual complacency that we typically see in an economic recovery,” Liz Davidson (right), CEO and Founder of Financial Finesse, said in a press release. “Every quarter that employees continue this momentum, the less likely they are to backslide and more likely that this is a lasting mind shift in how they manage their finances.”

Calls to Financial Finesse's helpline have focused on short-term planning issues, and callers have been proactive, asking questions about budgeting, establishing an emergency fund, and paying off debt to free up cash flow. Calls about bankruptcy, eviction, and financial emergencies have fallen, as did calls about long-term planning issues.

Despite these positive movements, just 15% of employees say they are confident they will meet their retirement goals. Just over one-third of employees say they are confident their investments are allocated properly, although 77% said they understand the basics of stocks, bonds and mutual funds.

Average 401(k) Deferral Rate

Over 90% of employees participate in their employer's retirement plan, and retirement is the top priority for almost every demographic (only employees who are under 30 and those who make less than $60,000 disagreed, naming cash flow and debt management as their top two priorities.)

One reason for employees' participation rates in employer-sponsored plans could be education; Financial Finesse found the average 401(k) deferral rate increased with the number of interactions employees had with retirement education programs, from 5.77% among employees with just one interaction, to 11% (twice the national average) among employees with five or more interactions.

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