Millennial employees who make small improvements in how they manage their personal finances can increase their lifetime retirement savings by 12 percent, according to a new study released today by Financial Finesse, a financial wellness firm which has helped more than 600 companies nationwide offer free financial coaching to over 2.4 million employees as a workplace benefit.
The 2016 – Generational Research Study reveals that younger employees who make modest changes in behaviors, such as having a small emergency fund in place, tracking expenses and paying down some credit card debt, are more likely to increase their average retirement plan contribution rate.
The findings are based on analysis of financial wellness assessments completed by over 35,000 employees in 2014 and 2015. The study determined that younger employees who improved their financial assessment by one point (from 4.0 to 5.0 on a 10-point scale) saw a 12 percent increase in their average retirement plan contribution rate. Increasing employee financial wellness an additional point to 6.0 is projected to result in an improvement in lifetime retirement savings of over 27 percent based on the model. Financial Finesse defines “financial wellness” as a state of financial wellbeing where employees have minimal financial stress, a strong financial foundation and a plan in place to achieve key financial goals.
According to Liz Davidson, the founder and CEO of Financial Finesse, the research confirms the critical role that workplace financial coaching programs can play in helping employees overcome the tendency to value satisfaction today over future satisfaction (“present bias”) and the tendency to neglect the value of compounding (“exponential growth bias”).
Among other key findings from the Financial Finesse study:
– Baby Boomer employees, defined in the analysis as those ages 55 or older, had an average financial wellness score of 5.7, demonstrating some personal financial skills, but with significant gaps in their overall financial planning.
– All generations are facing increased challenges paying off their debt, with significant risk of becoming over-leveraged, especially if the U.S. economy experiences another recession.Baby Boomers, who are already facing challenges saving enough to retire, are particularly vulnerable here. They had the biggest decrease in the percentage that have a plan to pay off their debt (64 percent to 58 percent) and the biggest increase in those that are experiencing late fees (11 percent to 15 percent).
– On the positive side, the report highlighted a growing trend towards employees becoming more proactive about their finances and taking steps to assess their personal financial situations—one of the most important predictors of future financial success. Across the board,employees of different generations are “running their numbers” to calculate where they are currently with key financial goals, and are beginning to understand what changes they need to make to their money management, savings, and investing strategies to reach these goals.This is in stark contrast to the head-in-the-sand mentality that has historically halted employees’ progress towards becoming financially secure.
The study shares the most effective ways to reach different generations with financial education and coaching tailored to their specific financial needs, as well as their preferred learning methods. It also includes a model employers can use to address the needs of a multi-generational workforce in order to realize improvements in financial wellness based on hundreds of thousands of employee interactions that Financial Finesse has studied over 17 years.
Click here to get the full report for free.