What Financial Wellness Really Means

Liz Davidson, founder and CEO of Financial Finesse, in El Segundo, California, says, “We must ensure that all financial wellness providers act in the best interest of employees by following an established set of standards, or we run the risk of this movement becoming a euphemism for financial services companies, payday lenders, high-interest-rate purchasing programs and others who want to rebrand themselves to gain back trust they have lost. This pollution of an industry that has collectively changed millions of lives for the better is not only unacceptable, it is dangerous to the financial security of millions of Americans.”

In a recent paper, Davidson defined a state of financial well-being as one where a person maintains:

• A manageable level of financial stress;
• A lifestyle at or below his financial means;
• A strong financial foundation including adequate emergency savings, no high-interest debt, and a sufficient insurance and estate plan to protect assets, income and loved ones; and
• An ongoing plan to achieve future financial goals.

A person who is financially well makes good financial decisions, has a higher level of satisfaction with his current financial situation, and a greater level of freedom to pursue life on his own terms.

Aditi Gokhale, chief marketing officer of LearnVest and head of LearnVest@Work, in New York City, says LearnVest defines financial wellness as the ability to feel confident about your money and optimistic about your future by having access to the proper technical tools as well as human support. It requires having a simple, actionable and realistic financial plan that is personalized to the individual and focuses on protection, optimization and growth.

“Financial wellness is not just about numbers—it’s about knowing you have control over your finances in the short term, and that you’re set up to achieve your long-term goals, whether that means paying down debt, retiring on your own timeline, buying a home or taking a dream vacation. Moving closer and closer to those goals over time is a strong sign of financial health. And, as we often say at LearnVest—it’s about progress, not perfection,” she tells PLANSPONSOR.

In her paper, Davidson says workplace financial wellness programs must meet the following criteria to be considered a financial wellness benefit, versus financial education or financial advice:

• Be unbiased—i.e., free of sales pitches or conflicts of interest, delivered by a financial education company not a financial services firm;
• Be designed and delivered by qualified experts who have extensive financial planning experience;
• Be delivered as an ongoing process, to provide the support and accountability employees need in order to make, sustain and build upon positive financial habits and behaviors;
• Be holistic and comprehensive in nature—i.e., cover all aspects of financial planning from debt management to advanced estate planning;
• Be personalized to the employee based on his specific needs;
• Integrate all employee benefits, with guidance on how employees can most effectively manage their benefits as part of their overall financial plans; and
• Be offered as a benefit available to all employees, regardless of age, income, gender or job classification.

Brian Hamilton, vice president of SmartDollar, in Nashville, Tennessee, agrees with Davidson’s definition, and he stresses that financial wellness programs should include a clear plan and motivate people to apply what they are learning. “For us, it’s all about behavior change. Employees know what to do; the hard part is doing it,” he tells PLANSPONSOR.

Hamilton says three things drive behavioral change. First, information should be simple and clear. Being confronted with a lot of complicated, unclear information causes confusion, and employees, being overwhelmed or lazy, won’t know the best way to go about changing behavior.

Secondly, he says, an employee wellness program should build in inspiration and motivation. “Our company drives motivation. Every financial wellness provider says ‘get out of debt’ and that’s the extent of it. We show them the best way to get out of debt is to list the smallest to largest and pay off the smallest one faster, then roll over that payment to next smallest. We show them exactly which debt to pay off, and they keep seeing progress, so it inspires and motivates.”

According to Hamilton, the third thing is to move people into an environment for success. “Most employees don’t want to sit with colleagues and talk about money problems, so things such as lunch-and-learns are not effective,” he says. He adds that including a spouse is necessary, as well as offering packaged tools in a mobile-friendly way. “They can use the tools off-hours. A budgeting tool is key to winning with money. Employees should be given tools, whether paper forms, worksheets or banking tools,” he says.

Davidson tells PLANSPONSOR, the point Financial Finesse is making is financial wellness needs to be unbiased. Financial services firms can have conflicts of interest.

She says the difference between recordkeepers and advisers and a financial wellness company is that recordkeepers and advisers may be tempted to steer employees toward certain products. Even the sale of programs for a fee has to make a difference for individuals to continue, she adds, because the mission for financial wellness is to achieve results.

Davidson adds that she is “exactly” calling out providers of such offerings as employee credit cards and purchasing programs. “Employees may be buying something they don’t need and going into debt they don’t need,” she says. “We don’t want people to roll their eyes when they hear ‘financial wellness’ because so many out there are doing things that will make them worse off, not better off. We need to get standards out there, so the financial wellness movement is not hijacked by firms not doing it the right way.”

Gokhale believes there is a danger, because employers should be enlisting the help of an organization whose core competency is financial wellness and where financial wellness is the objective. At LearnVest, all planners are trained in behavioral finance, as there is a correlation between one’s behavior and spending habits. In addition, she says, for education to be successful, there must be a call to action and that action needs to be measured.

Gokhale notes that many providers simply offer tools and general information about personal finance and they’re not going to move the needle. “Education on broad financial topics can be informative, but personalization is paramount. The ability to speak with a financial planner who is licensed, acting in his or her client's best interest, and trained in behavioral finance simply can’t be replicated with online tools alone,” she says.

Hamilton agrees that programs should be personalized to be successful and there should be no solicitations. He says SmartDollar is teaming up with others who think behavioral change is a solution.

Davidson adds that psychology and behavioral finance are woven into financial wellness. What people do day in and day out matters more over time than one discrete decision. “That is sometimes missed because the adviser industry is focused on investable assets,” she says.

According to Gokhale, with new “financial wellness” providers popping up daily, employers have their work cut out for them when it comes to determining who the strongest players are in this space and which is the best match for their company. “In order to effectively roll out a program, employers need to think critically about the problems they’re trying to solve and what success actually looks like. For example, if you’re looking simply to check off the box, then perhaps an existing provider makes sense. But if you want to drive action and have an impact on important issues such as retirement, health care costs, absenteeism, productivity and benefits optimization, then you’ll be choosing from a much smaller pool,” she concludes.