Financial wellness refers to a person’s skill and knowledge for making sound decisions about short- and long-term savings and investments, household budgeting, tracking income and expenses (cash flow), company benefits, taxes, and debt including credit cards, mortgages, car loans and leases, and personal loans. Employees who are financially literate understand financial concepts such as the time value of money, the effects of inflation on savings, compound interest and the rate of growth, and the benefits of deferred income and reinvested capital gains and interest.
Employees who are financially well-informed are able to take greater personal responsibility for their financial decisions, are more proactive in their financial decision making, are more confident in their financial decisions, experience less stress at home and at work, have a greater sense of control over their lives, enjoy higher standards of living, and are more productive employees.
Financial wellness is not achieved by having the benefits plan administrator hold a workshop about the company’s 401(k) plan and investment options. While this is a valuable service, it is too narrowly focused. Consider the employee who has limited financial knowledge and whose household budget is stretched to the limit. This employee will not be able to find the money to contribute to a 401(k) — regardless of how compelling the case is to do so. Financial wellness is much broader than the financial and benefits education offered by most employers to employees today.