Looking back at 2011, employees continued to reduce their stress and worked to improve their financial situation, according to Financial Finesse. The financial education firm released on Feb. 28 its 2011 Year in Review which showed the number of employees reporting high or overwhelming levels of stress fell from 32% in 2010 to 19% in 2011.
Many employees are working to improve their day-to-day finances and consequently are shifting their focus to long-term planning issues such as retirement. Almost three-quarters of employees say they are managing their cash flow and spend less than they make every month. Over half have an emergency fund and 62% pay off credit cards in full.
Almost all employees (92%) say they contribute to their workplace retirement plan, and 78% say they have a general knowledge of stocks, bonds and mutual funds. Still, just over one-third say they’re confident their assets are allocated properly, and only 17% say they’re on track to replace at least 80% of their income when they retire.
The reason for this disconnect is simple; employees aren’t saving enough. “Employees have been so preoccupied with short-term issues in the past. That was their main focus, so they weren’t focusing on saving,” Erik Carter, a resident financial planner at Financial Finesse, told AdvisorOne on Thursday. Another factor is, naturally, the economy. Employees have seen “significant declines and are less optimistic. Their expectations for returns are lower. If they’re not saving and their balances are down, their expectations are going to be down.”
While equal percentages of men and women contribute to their workplace retirement plan, men are uniformly more confident about retirement and have a better handle on day to day finances than women. A fifth of male employees say they are on track to retire with at least 80% of their pre-retirement income compared with just 13% of women. Less than a third of women say their assets are allocated properly while 42% of men say their assets are well-allocated. Men are more likely to manage their cash flow well, regularly pay off credit card balances and have an emergency fund.
It’s fairly common knowledge that men tend to report higher levels of understanding and confidence regarding financial matters. Carter suggests that the gender gap in overall pay may be behind men’s higher rate of retirement confidence. “Men still make more,” he says. He also speculates that the difference could be psychological. Men tend to be more confident, sometimes to the point of overconfidence, which could potentially have a negative impact.
Despite these gaps, though, the report found many instances where the gap between men’s confidence and women’s is narrowing. In 2010, there was a 33-point gap between men who said they had a general knowledge of financial products. In 2011, that gap closed to 15 points. Similarly, in managing their cash flow, paying off credit cards, paying bills on time and maintaining an emergency fund, the gap between men and women is closing by seven to 12 points.
“Women are catching up,” Carter says. “Women are more likely to advantage of financial education, and as they learn more, their confidence increases.”
The report found that employees appear to have an appropriate understanding of financial priorities. A standard financial planning analysis found that not saving enough for retirement was an employee’s biggest vulnerability, followed by not saving enough to cover emergencies, investing improperly, spending too much from month to month and getting stuck in “serious debt.” Compared to priorities ranked by employees, though, they seem to recognize their own vulnerabilities. Employees ranked retirement planning as their top priority, followed by managing cash flow, debt management, investing and tax planning.
“The good news is that we’re seeing more interest in retirement planning,” Carter says, adding that the company's financial help hotline received more calls about long-term planning issues in 2011. “I expect as the economy recovers we’ll see people saving more and focusing more on the future and less on right now. If the economy does recover, they’ll probably start investing more aggressively.”