SPI Financial Security

Building an effective employee financial wellness program [5 Key Insights]

Anyone who does a “happy dance” on payday knows how much employers affect our financial lives. Most of us depend on employment to make ends meet and pursue our long-term goals. That’s why through the Workforce Financial Stability Initiative, we’ve been studying employee financial wellness programs (EFWPs) since 2017. Our motivation was simple: with growing interest in EFWPs, we wanted to better understand how these benefits might help workers – especially frontline workers – and establish another tool in our tool belt of financial security solutions.

Employee financial wellness programs: Five years in three phases

In Phase one, we described the landscape of these benefits around the same time that several reports were emerging concerning employee financial stress and the “wellness effect”. We issued a literature review, a comprehensive report of findings based on employer and employee surveys and interviews, and co-authored a primer for employers with Prosperity Now

In Phase two, we peaked behind the curtain to examine how these programs were being offered and helping frontline workers. We partnered with the following organizations and produced a portfolio of 5 research briefs:

  • Neighborhood Trust to study their Trusted Advisor program offered to small businesses in the New York City area,
  • Working Credit‘s employer-based services, and
  • True Connect, an employer-based small-dollar loan program offered by Employer Loan Solutions in partnership with Sunrise banks, a community development financial institution.

Now, in Phase three, we are digging even deeper and testing new ideas for promoting employee financial wellness. We partnered with the Financial Health Network through its Financial Solutions Lab to conduct five studies of financial technology platforms and apps offered to mostly frontline workers of companies across the U.S. Now, in partnership with the Common Cents Lab at Duke University, we’re running field experiments with financial technology firms and employers using behavioral science to do things like “nudge” use of COVID-19 financial assistance and help workers transition from loan repayment to savings deposits.

So, what have we learned? Five key findings

Our clearest and strongest finding is simply that these programs are reaching workers who need financial help. This is important because it’s not always easy or obvious where to go to get financial support. When employers give workers access to new financial products and services, it reduces a lot of “friction” in getting help. This is true not just for the lowest-paid employees in a company – we found many instances of higher-paid workers using these programs. Finally, EFWPs reduce worker’s near-term financial stress, but they are not long-term solutions.

Additional insights we can distill from our research include:

  1. EFWPs are poor substitutes for low wages and bad benefits. This may seem obvious, but it’s important to state up front lest EFWPs be entertained as a low cost way to help employees rather than raising their wages and/or improving benefits.
  2. Employers + Fin Tech = financial inclusion. EFWPs are a great opportunity to promote financial inclusion. Credit products like pay advances and employer-sponsored loans offer much more affordable (if not free) alternatives to high-cost credit products such as payday loans, especially for workers who cannot access credit cards and unsecured loans because of low or no credit scores.
  3. The power of payroll deduction. When financial technology apps and platforms can shake hands electronically with payroll systems, this enables automatic loan repayments, which lowers default risk. It also enables automatic savings deposits to help workers build rainy day funds to avoid taking future loans and helps workers stay on top of their finances in real-time so they can pay bills on time.
  4. Fin Tech is scalable, but sometimes you need a human. Payroll-linked apps and platforms are an efficient way to scale up access to financial products and services and artificial intelligence (AI) can efficiently pipe in basic financial guidance. Yet we’re encouraged to see fin tech companies developing partnerships with nonprofits to make sure workers have access to real humans who can offer financial counseling and coaching for trickier financial challenges.
  5. Employers: Don’t expect miracles! In one of our studies, we found an association between the use of a financial management app and platform and lower turnover. However, we urge employers to consider the full panorama of “push” factors that affect turnover including poor working conditions, a hostile climate for racial and sexual and gender minorities, bad supervision, and low pay.

A good way to think of the value of EFWPs is that they are an excellent supplement to good pay, benefits, and working conditions. As a part of an employers’ benefits package that will appeal to workers with short-term financial challenges, including a lack of access to credit and savings opportunities.

But EFWPs are just part of a larger puzzle as workers struggle to obtain living wages, good benefits, paid leave, and other employer and government supports to enable them to achieve financial security. That’s why we’ve expanded beyond our work on EFWPs to examine job quality, benefits, self-employment including “gig” work, the Earned Income Tax Credit, and the employment-related impacts of COVID-19.