Decline Reported in Financial Inclusion Initiatives

U.S. employers reported an overall decline in policies and actions aimed at promoting financial inclusion within their workforce over the past 12 months, with larger businesses experiencing a more pronounced drop, according to an annual financial inclusion report by Principal Financial Group.

The study measures financial inclusivity in countries around the world based on support by governments, financial products and services, and employer support. When it comes to employers, the study considers what workers are provided in terms of guidance and support on financial issues, employer pension contributions, insurance offerings and pay initiatives, including delivery and flexibility.

In the U.S., the 2024 report found that smaller enterprises, specifically those with two to 10 employees, improved year-over-year in terms of financially inclusive measures. On a curved, 100-point scale modified to account for compensation changes, their overall score increased to negative 5.6 from negative 20.2. Despite the improvement, the report reaffirmed a prior pattern that, despite improvements, smaller enterprises score lower than larger companies in terms of financial support and inclusivity, according to Principal.

In 2024, however, larger firms slipped further in their offerings, with medium-sized enterprises (101 to 500 employees) facing the sharpest decline: a 29.4-point drop to 36.3. Medium-to-large enterprises (501 to 1,000 employees) and large enterprises (at least 1,000 employees) also saw significant decreases, with reductions of 18.9 and 18.6 points, respectively, down to respective scores of 57.8 and 54.0.

Most scores declined, driven primarily by reductions in employer contributions to retirement plans and fewer initiatives promoting pay flexibility. The largest declines for small and medium-sized companies were seen in employer retirement contributions, while larger companies experienced the greatest drop in pay-related initiatives.

Gap Narrowing

Principal noted that the gap between small and large firms is narrowing. In 2023, the difference in employer support scores between the largest and smallest businesses was 62 points; this year, it was 43.1 points. Chris Littlefield, president of retirement and income solutions at Principal Financial Group, says one area in which small employers made strides in comparison to large employers was the financial education tools and resources available to their employees.

“Financial professionals have been, and need to continue being, a guiding hand in helping smaller employers determine how to best structure their benefit offerings and even be early adopters of emerging technologies that may allow them to overcome scale and resource constraints larger employers may not have,” says Littlefield.

Overall, employers maintain a significant role in the financial well-being of employees, with more than two-thirds of Americans believing their employers act in ways that help them feel financially included, according to Littlefield.

“Whether working with employers or individuals directly, financial professionals can provide critical guidance to help employees feel more secure financially,” he says. “To effectively help businesses of all sizes, financial professionals must start with a deeper understanding of the diverse needs of employers and their workforce.”

Financial Inclusion Rankings

When looking across 41 other countries and regions included in the study, the U.S. maintained its financial inclusion score year-over-year, signaling resilience amid economic headwinds. However, the U.S. fell three spots in the global rankings, to seventh from fourth.

Employer support fell sharply in the U.S., to 20th from 12th. In that category, the U.S. scored 64 for financial guidance and support, 64.2 for employee pension contributions, 71 for employee insurance schemes and 53.2 for employer pay initiatives.

By comparison, Singapore, which ranked first in employee support, scored 97.9 for financial guidance, 79.6 for pension contributions, 94.3 for insurance schemes and 77.3 for pay initiatives.

Littlefield says that despite falling in the overall rankings, including within the employer pillar, the U.S. has not necessarily taken steps backward.

“The global economic headwinds of the past year have not been felt evenly across the markets [in which] we measure financial inclusion and, in comparison, the overall U.S. economy has held up well in light of inflationary pressures,” he says. “As such, there has been less need compared to other markets for governments, financial institutions and employers to step in and support their populations through the turmoil.”

Even so, the retirement and income head says employers play a critical role in the well-being of employees and notes the importance of continuing to provide strong benefits across savings and health.

“With the declines seen in financial inclusion and ongoing economic pressures, it’s important for employers to offer benefits that meet their employees’ evolving needs: paid family and medical leave, disability insurance, financial education and retirement,” he says. “To make a real impact, we must ensure people’s financial security throughout their lives, especially in retirement, when savings become more critical than earnings.”

The U.S. did see an improvement in government support, rising three places to 16th in the rankings. The country scored 53.7 on the state of public pensions, 52.7 on awareness and uptake of government-mandated pension and savings plans and 69 on finances in retirement.

In comparison, Singapore, which placed first in government support, scored 85.6 for public pensions, 69 for pension awareness and 92.2 for retirement finances.

The Global Financial Inclusion Index combines various data sources into one measure of financial inclusion at the market level, including publicly available data sources and survey-based research. Data points are combined to provide an indicator score, subsequent pillar score and headline index ranking.