Close Close

Financial Planning > Tax Planning

Financial Wellness Slips in Q3

Your article was successfully shared with the contacts you provided.

Despite making some progress in their financial situations over the past couple of years, employees still aren’t on track and they know it.

The third-quarter Trends in Employee Financial Issues report found that financial wellness has dropped as workers become “more aware of their financial shortcomings.”

Those shortcomings include saving for retirement. More than 40% of employees said they weren’t sure they’d be able to achieve future financial goals, up from 34% in the third quarter of 2012. The economy is troubling them, too. Forty-three percent said they were worried about the effect the economy would have on their financial future.

Overall wellness fell from 5.2, where it held steady for the first half of the year, to 4.9. A score between 3 and 4.9 indicates employees “may be sabotaging” themselves due to poor financial behaviors and lack of basic information. The percentage of workers who say their stress is overwhelming or very high increased to 19% from 13% last year.

Older workers were especially likely to be stressed. Eighty-four percent of workers 45 and older reported some level of stress, the report found. One explanation is that workers in that age bracket may be facing several realities that put significant strain on their finances: paying for education for children, caring for elderly parents, continuing to save for retirement or meeting growing health care expenses.

However, increased stress has led to more engagement for some employees. Almost 40% of workers say they’ve used a retirement calculator, and 90% are contributing to their workplace plan.

“We believe employees are experiencing a reality check about their financial situations,” Liz Davidson, founder and CEO of Financial Finesse, said in a statement. “Obviously the recession and sluggish economy have provided a major wake-up call, but now we’re seeing more employees delving deeper into their finances — in particular, running a retirement plan projection, learning more about investing, how to minimize their taxes, and even key details like the interest rates they are paying on their credit cards.”

Financial Finesse noted that early adopters of workplace financial wellness plans tend to use the services regularly and identified significant improvement. Following the Great Recession, 31% of respondents said they were confident their assets were allocated correctly. When asked more recently, 53% said they were confident. In their first meeting, 44% of employees said they maximize all available federal tax credits and deductions, compared with 63% today; 45% had taken a risk assessment, compared with 64% today; and 41% understood tax implications of their investments and retirement accounts, compared with 57% today.

Although the percentage of workers who know they’re on track to meet their retirement goals didn’t increase by the same degree, there have been improvements. Following the recession just 18% of employees said they were on track. Today, 31% said they knew they would meet their goals. Furthermore, Financial Finesse identified a “second wave” of wellness tool users. The percentage of first-time users has increased steadily from the end of 2011 to the second quarter; it’s holding steady at 90%.

Financial Finesse anticipates seeing a similar increase in stress as employees who take wellness assessments for the first time become aware of where they are falling behind, but noted that a little stress is OK for workers if it leads to behavioral change. “The critical factor is that now that the second wave has this information, they need to make the type of dramatic improvements in behavior that we have seen from the early adopters,” according to the report. “At the same time, the early adopters will have to continue to adapt to an ever-changing financial landscape.”

Check out Financial Wellness Paves New Career Track for Advisors on ThinkAdvisor.