Data & Research September 12, 2017

Measuring Financial Wellness Program ROI Is Difficult

Ernst & Young says the best measure is employee engagement.
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Organizations expect the return on investment (ROI) to justify the expense of offering financial wellness programs, but calculating that figure is not an exact science.

A better barometer, according to Ernst & Young, and one which indicates employees value the benefit enough to use it, is employee engagement.

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Among the 200 HR professionals the firm polled, 14% said they do not have a program, and half of that group have never considered it. Only 16% felt they could justify adding a financial wellness program without knowing the anticipated ROI. Among those who already offer some type of benefit, 34% felt they could offer the benefit without knowing the ROI.

Most workforce populations cross several generations with varying perspectives on personal finance, Ernst & Young notes in its survey report. They also consume information differently. To engage them, leading organizations craft a multidimensional program and formulate a targeted communications plan to foster awareness and push employees to action. With those core components in place, employee engagement can then be measured. The firm notes that organizations often cobble together financial wellness programs by offering solutions for a specific personal financial wellness need, such as retirement, insurance or student loan debt. This siloed approach leaves gaps in the program that can limit the potential of a well-intentioned benefits suite.

Among employers who do not currently offer a financial wellness program, 59% say the biggest factor they will consider is price, followed by the ease of the program (53%) and breadth of the program (44%). However, employers that do offer a program focus less on cost (35%) and more on the breadth of the program (47%) and the quality of employee communications (45%).

The survey showed that those who offer financial wellness plans saw a direct correlation to employee retention (56%), well-being (50%), and productivity (45%). Most respondents considered those the main benefits of a financial wellness program. Those without a program had a more limited vision of the potential benefits, with 50% considering it a way to encourage employees to boost retirement savings, 38% seeing it as a means to help employees boost savings overall, and 31% thinking it could lead to greater employee retention.

Maximizing ROI starts with knowing the employee base—age, career stage and income ranges. But fostering engagement depends on more than demographics. It requires a deeper understanding of workforce psychographics—how employees think and feel about money, Ernst & Young says.

Employers should ask:

  • What are employees’ money habits?
  • How satisfied are they with their current personal financial situation?
  • Do financial concerns affect their family relationships?
  • How much time do they spend worrying about their personal financial situation?

A financial wellness assessment can help uncover these more subjective beliefs and enable employers to craft targeted communications to inspire action.

The Markets September 12, 2017

Millennials Missing Out on Growing Retirement Savings

Forty-one percent of Millennials are avoiding the stock market and using savings accounts to save for retirement, which LendEDU estimates will cause Millennials to miss out on more than $3.46 million by retirement age.
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Many Millennials may be missing out on stock market gains when saving for retirement, according to research from LendEDU.

The research found 41% of Millennials are avoiding the stock market and are instead using savings accounts to save for retirement. LendEDU estimates that avoiding the stock market will cause Millennials to miss out on more than $3.46 million by retirement at age 65.

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The company did an analysis comparing the expected performance of fully investing in a stock portfolio, fully investing in a traditional savings account and fully investing in cash.

The analysis showed financial markets can be volatile during the short term. However, over a long 38-year time period (the time to retirement for our average respondent) the stock market is confidently the best path of saving for retirement. The analysis found that the 502 survey respondents should expect to accumulate an account valued at $4.95 million at retirement, after fees.

On the other hand, over a long 38-year time period, LendEDU found that respondents who use a savings account to save for retirement will fall short, accumulating an account valued at $1.49 million at retirement. LendEDU notes that savings account interest rate data was unavailable for the full period studied and therefore nominal 3-Month Treasury Bill returns were used as a substitute.

The same analysis assuming that respondents kept their retirement savings in cash, or a non-interest bearing account, showed that after 38-years, individuals should expect to accumulate an account valued at $0.68 million, about $4.27 million short of the individual who invested in the stock market during the same time.

NEXT: Why Millennials Fear the Stock Market

More than half (52.30%) of Millennials report the 2007-2008 financial crisis has kept them from investing in the stock market. In addition, 58.60% said they would consider themselves to be “afraid of the stock market."

Among those who said they were afraid of the stock market, 60.41% said "I am worried about losing my money in the stock market," 21.16% said "I never learned about the stock market or investing, and I don't know how to get started," 14.33% said "I am worried about the volatility of the stock market," and  4.10% said "I don't trust the financial system."

Many of these answers and LendEDU's subsequent data analysis prove that many Millennials have an irrational fear when it comes to the stock market and investing, the company contends. LendEDU ran a Monte Carlo analysis 10,000 times to get the most accurate representation of one's chances of turning a profit on Wall Street. The analysis showed that individuals have, at the very least, a 98% chance of doubling their cash balance by investing in the market over the long-term. Furthermore, they have a 25% chance of turning $681,512.96 into $8,351,894 by investing.

“Ultimately, if you demonstrate a long-haul commitment to investing your retirement funds in the market, the chances of actually losing money are virtually next-to-nothing,” LendEDU says.

Complete results and the methodology used can be found here.

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