The world of finances can be confusing for most people. Bank accounts, rent or mortgage payments, utility bills, investments, insurance, credit (and credit scores), identity protection, retirement savings, and of course taxes – it’s no surprise that financial anxiety is one of the most widespread forms of stress in America today.
Just as it’s no surprise that that stress is making it harder for people to focus on their jobs, to be productive and to face the day with energy and confidence.
Employers know this, and many have dipped their toes into the waters of financial education programs, financial wellness incentives, and financial advisor services for the workforce. But employers can get just as lost in trying to evaluate programs as employees do in trying to navigate their own financial currents.
Financial wellness is a hot topic in the world of HR. According to the Consumer Financial Protection Bureau, there are four key goals associated with financial wellness for most people:
- Control over day-to-day and month-to-month financial obligations
- The capacity to absorb a financial shock
- Being on track to reach financial goals such as the ability to retire when they want
- The freedom to make the choices that enrich life and make it enjoyable
So how can employers help their people get a grip on the welter of obligations, opportunities, and risks that daily financial life throws their way?
Build strategies for the 7 key dimensions of financial wellness
Follow the Money
To stay on top of personal finances, it helps to break things down into categories – seven strategic areas that help make finances easier to understand and manage:
- Earn. It all starts with income, whether from a paycheck, investments, inheritance or Social Security. Income sources are the genesis of the countless financial issues people have to tackle. Starting to build strategies on the income side of the equation provides a useful way to unclutter people’s conceptual wallet.
Once money is earned, it can be used in a number of ways, which in turn can result in further choices and the need to make additional complex decisions, all with their own interrelated implications. Sound confusing? Not really, if you trace the path money takes.
- Spend. The next logical thing to think about is how that money should be spent. At some point when we were young, we learned about needs and wants. Then came the idea of living within our means, which was followed by budgeting as we developed greater financial foresight. Of course, not everyone became proficient at developing spending priorities, fully embraced them, or retained them as they got older.
- Save. The money that is not spent is saved, which is often easier said than done. It has become increasingly harder for people to make choices about what to save for and how much to save.
- Invest. Once money is saved for things like retirement, college, a house, or an emergency, how and where to invest those savings becomes the next important strategy people face. Too many choices, however, can lead to procrastination and indecision.
- Pay taxes. Taxes are one of the few guarantees in life, especially when it comes to personal finances. While paying taxes is another form of spending, doing so typically requires separate strategies.
- Borrow. What would life be like if people couldn’t borrow money? It’s the antithesis of saving and can become a financial demon when abused. Used correctly and prudently, however, with a clear strategy for repayment, borrowing can be the lifeblood of people’s financial existences and enable them to eventually achieve the four key goals of financial wellness.
- Protect. There was a time when protection primarily involved insurance. While insurance is still a necessary part of everyone’s financial picture, protection strategies have expanded to include security, especially when it comes to people’s identities and credit information.
Bring Clarity to the Confusion
Decisions about money have become increasingly numerous and complex. This seven-facet framework serves as a useful means for people to get their heads around the interrelated and interdependent financial network they need to navigate. Employers can also use this framework to evaluate financial wellness solutions that are emerging in the market.
Doing so will help ensure they adopt solutions that will benefit their employees and bring value to their organizations.