Heated dissention over tax cuts and health care for Americans are center-stage. But backstage, a relevant, worrisome and largely overlooked issue lingers: The average Financial Wellness Score for U.S. employees is a dismayingly low 5.4 on a scale of 1 to 10. Indeed, only about 6% of the overall workforce can be considered financially secure, defined as scoring at least 9 out of 10.
So says Cynthia Meyer, resident financial planner at Financial Finesse, a leading financial education and research company, in an interview with ThinkAdvisor. Driven by money behaviors, financial wellness means maintaining a lifestyle at or below one’s financial needs, keeping an emergency fund and carrying a reasonable level of debt, among other components.
In its study, “Optimizing Financial Wellness for a Diverse Workforce,” released in May, Financial Finesse found that only one in five employees of all ethnicities, including earners of $200,000 or above, had emergency savings.
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Focusing on disparities among ethnic groups, the study showed that 31% of African-American employees and 25% of Hispanic/Latinos are “struggling” or “suffering” financially. Further, unless educated and coached, these groups are likely to maintain behaviors that keep them in a “cycle of low financial wellness.”
With the U.S. workforce becoming more diverse, these matters are increasingly important to employers. For example, employees who are struggling or suffering financially are costly to companies because of absenteeism, tax issues, wage garnishment and delayed retirement. A 2016 Financial Finesse study of all ethnicities showed that, on average, the annual cost to employers totals $198 per suffering employee and $94 per struggling employee.
Consequently, companies are stepping up: 92% of them plan this year to initiate programs to help employees improve their financial wellness, according to a study by Aon Hewitt.
(Related: 3 Reasons Financial Wellness Might Sting)
The recent Financial Finesse diversity survey found that only 18% of black and 20% of Hispanic employees think they’re on track for retirement, though some individuals in this population aren’t aware they’re in fact moving ahead to reach their goal.
In our interview, Meyer, a former Merrill Lynch advisor who holds the CFA, CFP and ChFc designations, discussed profitable ways in which advisors can serve less-than-high net worth investors. (Financial Finesse planners give up their brokerage licenses.)
Based in El Segundo, California, the company aims to build a financially healthy society by providing companies with coaches that help educate employees about financial options and how to become better savers and investors, among other services. For those with investment accounts, the firm offers second opinions on their FAs’ proposed strategies.
ThinkAdvisor spoke with Meyer by phone one recent afternoon shortly before she hopped on a Financial Finesse call-in help line dubbed “Ask a Financial Planner a Question.” Here are highlights of our conversation:
THINKADVISOR: Why is your recent study important to financial advisors?
CYNTHIA MEYER: The financial services industry is becoming much more client-focused. If you’re an advisor competing against technology — robo-advisors or online discount platforms, for example — then your role becomes much more. It’s not just delivering alpha; it’s being a facilitator of the client’s financial security. That’s more than just investing.
But in relation to their own businesses, why should it matter to an advisor that African-Americans and Hispanic employees are struggling or suffering financially?
If they have a diverse client population, it applies to their own personal practices. Even higher income earners will have gaps in their financial wellness. One in five is still going to have issues of living beyond their means. I’m sure there are plenty of advisors who may have the millionaire client who’s spending too much every month.
Many FAs are competing for $1 million households. But there are obviously many other folks who don’t fit that demographic. How can they profitably serve people who have a lower level of investable assets?
Align with unbiased financial wellness partners. Offer holistic financial planning. Leverage technology but add human advice. Offer multigenerational planning. Form teams.
Just what does financial wellness entail?
A state of financial well-being that includes maintaining a manageable level of financial stress, a lifestyle that’s at or below financial needs, a strong financial foundation including emergency savings and basic insurance, a will or estate plan and low or not-high credit-card debt or other debt.
How do U.S. employees of all ethnicities score on financial wellness?
It’s so depressing. Our 2016 data show that only 6% of employees were in the “Secure” category. Our “Diverse Workforce” survey found that the overall average was 5.4. There’s a lot of room for improvement.
Why are the levels so low?
Financial wellness is about people’s behavior. Small daily activities lead to strong, robust financial wellness — being relatively restrained in spending, making sure you’ve automated your savings so that you have a set amount going to important goals. Risk management is a big component. So is making sure you put some money away for high-deductible health care plans.
Did your recent study include high earning African-American and Hispanic employees in the survey too?