Courage, not Literacy, Key to Financial Wellness

Helping employees become more confident about engaging in financial matters—improving their financial courage—is more critical than employers providing benefits that focus solely on financial education, a survey from Mercer suggests.

The Inside Employees’ Minds financial wellness survey found that, irrespective of objective financial knowledge (employees’ actual level of financial knowledge), perceived financial literacy (employees’ subjective assessment of their financial knowledge) was a significant factor driving whether or not workers engage with financial planning resources. It also had a significant effect on overall sense of financial well-being.

Those employees with a more favorable self-rating of their financial knowledge were more likely to engage with a financial adviser and seek guidance in improving their financial well-being. Confidence, therefore, likely has more bearing than actual financial acumen on a worker’s ability to improve his or her financial situation, Mercer concludes.

Employees who aren’t confident tend to default to employer provisions, which work on the average but may not be right for all individuals. Employees who lack confidence may be paralyzed by inertia and may fail to take even simple actions that could help. And individuals with low financial courage are likely to avoid financial discussions, particularly group discussions (since they’re not in their comfort zone), to avert potential embarrassment. 

The survey results suggest that change is most likely to occur through small steps—that is, by making small financial decisions and building courage gradually. Traditional approaches (such as trying to build financial literacy by giving employees as much information as possible) are less likely to promote financial wellness than simply providing employees with tools that enable them to make good decisions and take action—on their own—without needing a high degree of financial literacy.

Mercer says effective approaches might include personalized, curated communication that points employees to the programs that best fit their situation. Employers can also leverage defaults—not just to get employees on a positive path, but to build courage. Finally, offering tools like budgeting and coaching, as well as benefits like student loan refinancing, credit management, non-retirement savings vehicles and income protection, can help employees manage their finances more holistically.

The survey also found that though financial wellness is impacted by a whole variety of factors it is a personal experience. Financial concerns are not consistent for any one group based on gender, age, income level or other factors. In addition, financial difficulties can occur at any level of income. As an example, some individuals with high Mercer Financial Wellness Index scores had household income below $25,000, and some individuals had lower Mercer Financial Wellness Index scores despite having household income exceeding $150,000.

Based on its survey findings, Mercer created a Financial Wellness Index and Financial Courage Index, which can be used by employers to assess their employee’s current state of financial wellness, as well as their financial courage. “Through this survey and the indices, employers have the chance to identify sub-groups or clusters within their organization, which in turn can help them to better assess how a financial wellness program should be directed within their organization for maximum positive impact,” Mercer says.

More information about the survey and the indices can be found here.