How Much $ Could A Company Save By Implementing Financial Wellness?
In Part 1 of this series, I presented an overview of the research documenting the magnitude of financial stress affecting American workers. Recently, the academic focus on financial stress has shifted towards the concepts of financial wellness and financial well-being, similar to the increasing emphasis in health care on health promotion and disease prevention. While the term ‘financial wellness’ has become popular, no clear conceptual definition of just what constitutes financial wellness or well-being has become commonly accepted. A useful definition, based on a comprehensive review of existing research literature, expert panels, and open-ended interviews with consumers, has been proposed by the Consumer Financial Protection Board. According to the CFPB:
Our research suggests financial well-being can be defined as a state of being wherein you:
Have control over day-to-day, month-to-month finances;
Have the capacity to absorb a financial shock;
Are on track to meet your financial goals; and
Have the financial freedom to make the choices that allow you to enjoy life.
Because individuals value different things, traditional measures such as income or net worth, while important, do not necessarily or fully capture this last aspect of financial well-being.
This definition encompasses both more objective measures, such as an income that exceeds expenses, and the more subjective perception of satisfaction with one’s financial situation overall. Many experts refer to financial wellness as the way or means to achieving a state of financial well-being.
How does financial wellness help employers?
Effective financial wellness programs can help companies avoid direct costs related to absenteeism, presenteeism, and indirectly through reducing health-related costs associated with the negative health effects of stress. Attracting and retaining skilled and talented employees can also reduce the significant costs associated with turnover.
Because the concept of financial wellness is still relatively new and many companies are only beginning to implement programs, hard data documenting a definite return on investment is difficult to come by. Estimates vary, and no studies to date have been able to definitively answer the ROI question. But extrapolating from the literature on other forms of workplace wellness, current estimates of ROI for financial wellness programs range from $1 to $3 for every dollar invested.
Companies are not waiting, however — Aon Hewitt reports that nearly all employers (89%) surveyed in 2016 indicated they are very or moderately likely to add tools, services, or communications to expand their financial well-being focus. And 55% of employers already offer help in at least one category of financial well-being while 38% have at least three categories covered. By the end of 2017, these percentages are expected to grow to 77% and 52%, respectively.
How much money could implementing a financial wellness program save my company?
Let’s take a hypothetical example, and calculate an estimate based on existing data from the previously cited studies. Imagine a technology company with 1,000 employees. Eight hundred are salaried, with an average compensation of $84,000 annually, and 200 are hourly employees at an average wage of $23.50/hour. Turnover for the industry is 3% annually, according to the Bureau of Labor and Statistics. Total compensation for all employees across the company is $76,600,000. We’ll assume everyone works an average of 2000 hours annually, and that hourly employees separate from the company at twice the rate of more highly compensated salaried employees. Based on prior data, here are sample formulas to estimate costs:
Absenteeism cost:
$188/day x 3.5 days x 200 hourly employees= $131,600
Plus $336/day x 3.5 days x 800 salaried employees = $940,800
Total absenteeism cost = $1,072,400.
Presenteeism cost:
$23.50/hr x 13 hrs/month x 12 months x 200 hourly employees = $733,200
Plus $42/hr x 13hrs/month x 12 months x 800 salaried employees = $5,241,600
Total presenteeism cost= $5,974,800.
Turnover cost:
Hourly employees: $9,400 (20% of annual $47,000 salary) x 2% of workforce = $37,600
Salaried employees: $168,000 (200% of annual $84,000 salary) x 1% of workforce =
$1,344,000
Total turnover cost = $1,381,600.
Grand total = $8,428,800. This is a conservative estimate; remember Garman placed the combined costs of financial stress at 15% to 20% of total compensation, which in this case would equal $11,490,000 to $15,320,000. And this example doesn’t include indirect healthcare costs. The same formulas can be used to estimate the costs associated with financial stress at any company.
While these numbers are only an estimate, and costs will vary depending on the individual business, they can give you a sense of the magnitude of the hidden cost of financial stress and what it could be costing a business’s bottom line. Reducing these numbers by even 5% to 10% could result in substantial cost-saving or cost-avoidance. It’s hardly surprising, then that so many companies are seeking to implement financial wellness solutions in an effort to reduce this drain on business productivity and profitability.
In my final article in this series, I’ll present some tips for choosing a financial wellness solution.
This excerpt is part of a longer white paper originally published here by Questis.
