Supporting Financial Literacy in Young Professionals
Young professionals just entering the workforce must learn to balance immediate financial demands with long-term goals. Building financial literacy is a critical foundation for long-term success. You have the opportunity to help your employees build strong habits for a healthy journey toward retirement. Here are five ways you can help guide younger employees toward a firm financial foundation.
Begin with a Budget
About a quarter of millennial and Gen Z workers don’t know how much they need to save to retire comfortably. Establishing a realistic budget is a great first step in working toward long-term savings goals. As an employer, you can offer resources to help employees build a straightforward spending plan that includes saving for retirement and health care expenses.
Emphasize Saving Early
Young professionals have the advantage of a long savings horizon. Help them understand the importance of establishing savings habits early to capture the power of compound interest over time. Aside from the company retirement plan, though, there are other vehicles to support financial goals – like health savings accounts (HSAs).
Educate on Health Savings Accounts
A successful savings approach considers possible medical expenses. HSAs offer trip tax savings and can be used to pay for current eligible health care expenses. But unused funds roll over annually to cover future medical expenses, offering employees a dedicated pool of savings to help them prioritize wellness right into retirement. Despite their clear benefits, there’s still tremendous opportunity to help young professionals engage with their HSAs more fully – nearly one-third of employees under 30 are not contributing anything. Employer contributions can help encourage young professionals to contribute as well. Encourage employees to monitor their accounts and make incremental changes until they are maximizing their HSA contributions.
Promote Building an Emergency Fund
While saving for retirement is crucial, it is equally important to have liquid savings for immediate, unexpected expenses. Encouraging younger employees to establish an emergency fund ensures they have a financial cushion for unforeseen circumstances like a medical emergency or job loss. Challenge them to save three to six months’ worth of living expenses in an accessible account. This reduces the risk of dipping into long-term savings and provides financial security.
Make Wellness Part of Workplace Culture
Gen Z has the least positive life outlook and may be less proactive overall in seeking care. Encourage your younger employees to make routine care a priority and help them understand their role in paying medical expenses. Help them establish wise habits to build their financial literacy and take control of their personal goals.
Let’s Talk About #FinLit
Sir Francis Bacon is often attributed with saying, “Knowledge is power.” While agreeing with the general sentiment, we have learned firsthand that knowledge is often not enough when it comes to personal finances. April is National Financial Literacy Month, and our team believes this is a critical and timely subject. Financial literacy is more than just a general knowledge of money: it is both the education and understanding of how money is made, spent, and saved, as well as acquiring the ability to manage one’s financial resources effectively.
In our industry, it is clear to see how a lack of financial literacy impacts both individuals and the companies for whom they work. It has been well-documented that financial stress increases absenteeism, decreases productivity, and negatively affects retirement and health care costs. So while the issue is personal, it seems naïve to believe employers should have no say in the matter. Considering its impact on physical health, financial wellness needs to have a natural place in the overall benefits package.
When it comes to retirement plan design, adding features like auto-enrollment and auto-escalation are important steps to help employees save (and save more). But plan sponsors should also consider how loans and withdrawals may cause plan leakage – when faced with financial difficulties, if employees can easily pull money back out of the plan, they probably will. However, simply focusing on increasing savings in the company retirement plan as the only financial goal could also be part of a two-fold problem – first, employees may have a variety of more pressing financial needs; second, improving financial well-being must begin with driving actual behavioral change. This involves communication, education, guidance, and resources that are customized for your employees.
Using plan and participant data (ages, current deferral rates, loan balances, etc.) can help dictate relevant strategies for your company. These targeted strategies can have a significant impact on long-term financial security. But keep in mind that creating financial literacy is not a one-time event. Instead, it must be developed over time – for example, learning how to set and achieve personal goals can positively change attitudes toward saving and spending, which can in turn help build a better budget that will actually be followed. It’s also important to engage with employees in ways that matter to them, perhaps by utilizing technology, gamifying financial behaviors, offering rewards, and incorporating overall wellness into the company culture at large.