The majority of people are not confident about their financial future, according to research from Fidelity Investments, but plan sponsors are well positioned to help determine what individuals need and what their next steps should be.
More than a quarter of a million people have completed Fidelity Investments’ Money Checkup tool since it launched in June, giving the company insights into how people save and how they feel about their finances.
The online tool collects demographic information and asks users a list of questions about their debt, how much they have saved and what their monetary goals are. It also asks if they are close to reaching their goals.
From that data, Fidelity found that more than half of those surveyed do not have healthy savings and spending habits or behaviors, and only 38% have more than three months of expenses saved in their emergency fund.
Financial wellness isn’t a one-size-fits-all story, says Meghan Murphy, director of thought leadership for Fidelity Investments. You can’t just look at millennials, men or women to see how people are doing financially, she says.
According to Fidelity’s data, the vast majority of millennials are not confident in their financial future, with 89% of respondents saying they don’t feel great about their financial situation.
“There is an opportunity for plan sponsors and us as the financial provider to help them,” Murphy says.
When Fidelity looked at Generation X, the situation was even bleaker, with 92% of Gen Xers saying they don’t feel fantastic about their financial situation.
“They are facing competing financial priorities,” she says. “They have been called the sandwich generation, and that is true from the data.”
Out of respondents from age 36 to their early 50s, 21% aren’t investing in their future. That means they aren’t contributing to their retirement savings, setting money aside for their children’s educations or working toward other savings goals.
“That is a bit worrisome,” Murphy says. “Another 20% say, ‘I invest on my own, but I am not all that confident in my strategy.’”
Nearly all single mothers said they don’t feel good about their financial situation.
“We do see that people who are married or partnered, regardless of income or savings goals, they automatically report feeling more confident,” she says, explaining that those people have a backup plan if something goes wrong because they have someone who shares the responsibility with them.
Out of the top three working generations, baby boomers are the most confident — “likely because they have time, they’ve paid down their debt, their kids have moved out and life has evened out a bit,” Murphy says.
This gives hope to Generation X that things will get better, she adds.
The survey found that people who have six or more months’ worth of expenses saved in an emergency fund feel better about their financial situations than those who do not.
Being able to save even a small amount each month, even if a person carries a lot of credit card or student loan debt, contributes to one’s financial confidence, Fidelity found.
The study also found that younger generations are far more likely to have college debt. About 47% of those surveyed said they had college debt. Fifty-three percent of respondents said they have credit card debt.
Plan sponsors should consider holding conversations with employees about good and bad debt, Murphy says. Student loan debt is usually low interest, while credit card debt can become debilitating over time. The focus should be on not accumulating more of that bad debt, Murphy says.
A small number of baby boomers (13%) carry some educational debt, which could be their own college expenses or those of their children or grandchildren. Fifty percentof boomers have credit card debt.
Even with those numbers, 76% of all respondents said they felt good about their debt situation, which can be good or bad, Murphy says. Some people just accept that debt is part of their lives and they have to live with it, while others have a solid plan in place to pay down their debt.
The biggest thing people said they were saving money for was a vacation. Millennials are saving to buy a home, while Generation X and the baby boomers are saving for home repairs or something special.
When each generation was asked if they were meeting their savings goals, the boomers were the most confident, with one-third saying they were on track to meet their savings goals. Forty-two percent of millennials said they are saving but are not quite there yet.
“Being financially well is more than numbers on a piece of paper. As a financial institution we can look at someone’s financial situation and make a flat call, but we have to account for people’s expectations and how they feel about their financial situation before making the call about whether someone is financially well or not,” Murphy says.
Employers need to dig into the data they have access to, she says, and partner with their financial wellness provider to determine what each employee needs when it comes to financial security.
Fidelity is making a concerted effort to reach those individuals who have not made a change to their retirement savings rate in two or more years or who are not keeping an eye on their asset allocation.
“How do we engage with those we haven’t been able to engage with in the past?” Murphy asks. “How do we give them reminders to re-engage with us? How do we create messaging that resonates with everyone?”
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