Authored by Gerald Young, Senior Researcher, MissionSquare Research Institute
Higher pay can improve employees’ financial well-being, but budget constraints often limit how far governments can go with compensation increases alone. Fortunately, research suggests that employers have other opportunities to help employees build financial security while also supporting retention and workforce engagement.
MissionSquare Research Institute has performed a number of studies on financial well-being, including reports dealing with key drivers of financial well-being and the sources of information employees use to make financial decisions. These papers stem from a survey of both public and private sector employees.
The U.S. Consumer Financial Protection Bureau (CFPB) (PDF) defines financial well-being as the ability to meet current obligations, feel secure about the future and make choices that support overall quality of life. Higher financial well-being benefits employees and employers alike by supporting morale, retention and workplace performance.
Based on the Institute’s research (PDF), most employees in both the public and private sectors are at least at a medium level of financial well-being, with public sector staff slightly more likely to rank at the high end of the range.
Higher levels of financial well-being not only bolster morale — they also correspond to employees having a greater interest in staying (PDF) with their current employer.
So what can employers do to contribute to higher financial well-being? Three possibilities include:
- Addressing emotional labor and workplace stress
- Providing financial education and resources
- Encouraging good retirement savings habits
Employees in emotionally demanding roles experience greater financial insecurity. This effect is significant enough that it can actually shift employees (PDF) from one level (high/medium/low) to another. Where jobs entail a high degree of emotional investment, suppression of feelings or trauma, employers should acknowledge those realities, normalize open dialogue and consider other interventions in job design, counseling, and post-incident support.
Other factors that correlate to reduced financial well-being include higher debt and a lack of financial sophistication. Employees who use both professional financial advice and financial technology tools to manage their finances report substantially greater improvements (PDF) in financial well-being than those who do not. That does not mean employers need to provide such services directly — but sharing financial resources or training can help employees pay off debt, invest wisely and chart a more secure future.
Another nudge employers can provide is to suggest employees consider how or where they are seeking financial advice. Most of the top information sources are logical and expected: from family or friends, from employers or retirement plan providers, online tools and financial advisors.
- Where family and friends are the source of information, this might be an opportunity to promote awareness of the extent to which on-demand financial literacy courses are available to staff and their family members as well.
- And where 18 percent of public sector staff said they do not seek financial information at all, this might be an opportunity to reinforce that everyone can benefit from better understanding. This could include reputable resources on budgeting, credit card and student loan debt repayment, retirement planning and strategies to handle emergency expenses.
- Particularly among those new to the workforce, onboarding and open enrollment can be overwhelming. Repeat engagement in the months that follow can help ensure that employees establish positive financial habits and do not overlook employer matches, financial consultations, online courses or other benefits.
Nearly one-third of workers want access to a financial advisor but do not have one, and this group reports below-average financial well-being (PDF). Employers could help these employees by partnering with plan sponsors or advisory firms to make such services more accessible to all who want them.
Those who use a financial advisor regularly report higher well-being than those who use one only occasionally or not at all. And financial advisor users are also nearly twice as likely as social media users to achieve medium-to-high financial well-being (35 percent vs. 18 percent).
Does that mean you should steer employees to one information source over all the others? No. If anything, you might want to suggest they consider more than one source.
- Workers who include a financial advisor among their top three information sources report the highest financial well-being of any group. To put that in context, an employee earning $50,000 who uses a financial advisor has, on average, a financial well-being comparable to that of a similarly situated worker earning roughly $60,000 who does not.
- Workers who use neither a financial advisor nor AI/robo-advisors report the lowest levels of financial well-being and financial literacy. The most effective approach may be to suggest employees engage with both AI for entry-level understanding and human professionals for more complex planning needs. This is consistent with prior MissionSquare research on the complementary relationship between those technological and human resources
Employers can also influence financial well-being through retirement plan design. The Institute’s research (PDF) shows that employees save more when retirement options are easy to navigate and when employer matching contributions create clear incentives to participate. Customized plan features can help employees build financial security over time with minimal administrative burden.
Financial well-being affects more than employees’ personal finances. It also influences retention, engagement and workforce effectiveness. While compensation will always matter, employers can make meaningful progress by addressing emotional labor, expanding access to financial education and guidance and encouraging strong retirement-saving habits. As communities compete for talent and face ongoing recruitment and retention challenges, investing in employee financial well-being is not simply a benefit. It is a workforce strategy.
The data and findings in this post come from:
- Employee Financial Well-Being: Key Drivers, Constraints, and Opportunities
- Information Sources and Financial Well-Being: Who Uses What, and Why It Matters
- How to Help Retirement Plan Participants Make Optimal Financial Decisions.
To explore these reports and more, visit MissionSquare Research Institute’s website or subscribe to the Institute’s e-newsletter.
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