Financial Wellness Programs Necessary, but Not Sufficient to Eliminate Racial Wealth Gap

Employee financial wellness programs have made necessary strides in creating financial security for workers of color and their families—whether providing financial coaching, educational materials or student debt repayment benefits. 

However, John Kalamarides, a fellow at the Bipartisan Policy Center think tank, argued in a recent paper that financial wellness programs are not sufficient to eliminate racial wealth disparities due to their scope, coverage, features and effectiveness. 

Kalamarides identified that while financial wellness programs can improve workplace-based asset building, risk management and “decision support solutions,” they cannot completely resolve the racial wealth gap because they do not address major underlying financial issues like homeownership, entrepreneurship and access to capital. 

Long-Standing Inequities 

“No matter how good we make employee financial wellness programs … they’re not good enough because they don’t make up for the cumulative past differences,” Kalamarides says. “You really need something like child savings accounts or Baby Bonds to close the gap completely. But [the workplace programs are] absolutely necessary for sustaining and building wealth.” 

Income disparities between African Americans, Hispanics and whites stem from the cumulative effect of generations of structural barriers and biases undermining Black and Hispanic Americans’ ability to gather and build wealth, Kalamarides wrote.  

In addition, he argued that financial wellness programs fall short in access because only about half of all workers receive financial wellness resources from their employers. Blacks and Hispanics disproportionately lack access to retirement savings and wellness programs because they are overrepresented in jobs that pay low wages, such as essential services; they are sole proprietors; their small firms lack benefits; they work part-time; or they are gig workers ineligible for benefits. 

“We’ve got to come up with new solutions,” Kalamarides says. “This is really where policymakers can get involved. We have opportunities that can be bipartisan in approach for public and private partnerships to expand defined contribution plans, to expand paid family medical leave and to create child savings accounts.” 

Opportunity in Financial Wellness Programs 

Kalamarides acknowledges the significance of the SECURE 2.0 Act of 2022 in offering solutions for expanding DC plan coverage, building emergency savings and reducing student loan debt, as well as enabling DC plans to offer lifetime income solutions and expand the Saver’s Credit to a refundable Saver’s Match. 

With credit card debt and student loan debt both on the rise, many employees are under increased financial stress, and Kalamarides says financial wellness programs can address some of these pain points. 

“Individuals are spending the same amount but don’t have the same amount of assets available; therefore they are accumulating more debt, and they have to start paying back their debt as well,” Kalamarides says. “That is putting a strain on the financial system, especially for low-to-moderate income families.” 

According to Kalamarides, this is where the idea of “decision support” is important for workplace plans. Helping workers decide how to spend money on savings, debt reduction and risk management is arguably the “fastest growing area” of financial wellness programs among large, public and nonprofit organizations, according to Kalamarides.  

“It turns out that workers trust their employer more than they trust the government [and] financial institutions,” Kalamarides says. “It’s really important that employers offer tools but also the decision support. What I’ve seen them doing is offering financial counseling, access to financial planners and things like credit rehabilitation approaches and identity protection.” 

AI ‘Holds Promise’ 

To assist workers, many benefits administrators are turning to artificial intelligence tools to recommend a package of benefit solutions most suitable for individual workers’ circumstances. Kalamarides says AI holds promise, especially for employees that are unresponsive to nudges and automatic enrollment and escalation. He also sees several challenges. 

One challenge is that because benefits and retirement providers’ datasets do not currently include information about a participant’s racial identity, AI algorithms may reinforce existing systematic discrimination patterns. There is also the issue of privacy and allowing permission for AI-assisted benefits advice providers to access participants’ personal wealth and race information.  

Many plan sponsors are wary of collecting participant data on race and wealth because they do not want to expose themselves to risk as fiduciaries, Kalamarides says.  

“They’re wary to collect that data in case it points back to them making a bad decision along the way,” he says. “This is an important spot for policymakers to relieve them of that burden so that we can actually get to the data and understand the data so we can make improvements.”