Minority employees struggling with financial wellness

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Employers that sponsor financial wellness programs can save money in the long run by getting employees who are struggling to pay their bills or debts more financially secure.

In its latest report entitled Optimizing Financial Wellness Programs for a Diverse Workforce, Financial Finesse looks at how fiscal behaviors over time can create a cycle of low financial wellness, which can affect the ability of different ethnic groups to build and transfer wealth to the next generation.

Different ethnic groups handle finances differently, according to Financial Finesse data gleaned from 38,000 financial wellness assessments completed in 2016 as part of Financial Finesse’s corporate financial wellness offering.

It found that a higher percentage of African Americans and Hispanics had lower financial wellness scores, compared with their Asian or Caucasian counterparts. Income does make a difference but overall, those two groups continue to show lower financial wellness scores, says Tania Brown, a certified financial planner with Financial Finesse and author of the report.

This disparity is one that employers can address quite easily, Brown says. It is just a matter of changing financial behaviors that put these two groups in a precarious position when it comes to saving for their futures.

Employees who took the financial wellness assessment through Financial Finesse were asked a series of financial questions. Based on their answers, they were placed into different categories. If they scored a 0 to 2 on the assessment, for example, it means they are suffering financially. If they scored a 3 to 4 on the assessment, it means they are struggling, or lack savings and are uncomfortable with their debt load.

A score of 5 or 6 means they are stabilizing. They have a handle on their cash flow but are not on track for their long-term goals. Those who score in the sustaining range of 7 or 8 are doing fairly well in all categories but lack wealth protection; and those who score a 9 or 10 are secure, meaning they’ve taken steps to build and preserve their wealth.

“Employees with low or no assets, uncomfortable levels of debt, and poor cash management behaviors cost employers money,” according to Financial Finesse.

In its 2016 ROI Special Report, employees with the lowest levels of financial wellness cost employers between $94 and $198 a year.

“A disproportionate number of employees in the “struggling” and “suffering” categories of financial wellness are from groups that exhibit the cycle of low financial wellness most frequently: African American and Hispanic employees,” the report found.

Fifty-four percent of African Americans were in the suffering and struggling categories, while 49% of Hispanic/Latino workers also fit into those categories. Only 23% of Asian Americans and 26% of Caucasians landed in those two categories.

The average wellness score for African Americans was 4.5; for Hispanic/Latino it was 4.7 and for Asian American and Caucasian it was 5.7. Very few respondents ended up in the secure category: Only 2% of African Americans, 3% of Hispanic/Latino, 6% of Asian American; and 7% of Caucasian.

“Employers have a unique opportunity to break this pattern by understanding the cycle, the money management behaviors associated with each phase of the cycle, and cultural differences that may influence this behavior,” says Financial Finesse.

Twenty-five percent of Hispanic employees and 31% of African American employees reported high or overwhelming levels of financial stress. According to Financial Finesse, those levels are “unmanageable and if left unchecked can result in lower productivity, higher health care costs, and higher rates of absenteeism.”

Forty-eight percent of African Americans and 36% of Hispanic employees said they don’t have a handle on their cash flow, which means they may be living above their means or dealing with competing priorities that make it hard for them to save for short-term or long-term financial goals, the report found.

One of the most concerning indicators for this group is the number of individuals who don’t have an emergency fund. According to the data, 63% of Hispanic employees and 74% of African American employees don’t have a pool of funds available to them to pay for unexpected car repairs or medical expenses, “which leaves a higher percentage of those ethnic groups open to crisis and exhibiting stress,” says Brown. “Over time, this can create what we call a cycle of low financial wellness.”

She adds that, “We believe an emergency fund is foundational, having an alternative rather than using credit card debt to pay for emergencies.”

The top financial priority for both ethnic groups is paying off debt, which makes it difficult for these employees to save for their futures, plan for retirement or purchase a home.

Only 18% of African Americans, 20% of Hispanics, and 30% of Asians and Caucasians say they are on target to replace 80% of their income at retirement.

To address the needs of struggling or suffering employees of all ethnicities, employers could do simple things like hold a class on basic finances, like budgeting or the importance of setting money aside in an emergency fund.

It is all about engagement, says Brown, “understanding the cultural differences and nuances may be a way to create programs to engage employees.”

Sometimes language is a barrier and it is difficult to convey meaning and tone through different communications with these groups.

It is important that employers work with unbiased financial wellness programs. That means programs that are not selling products or services but whose goal is to help employees get to a better state of financial being, Brown says.

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Financial wellness Financial stress Financial literacy Financial planning Retirement benefits Retirement planning Retirement readiness