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.
Watch Your Language
Every group has its own lingo. When football coaches speak about designing receiver slants, hitting the A-gap, or running stunts, players quickly understand their roles. Likewise, as theater buffs converse about moving stage left, blocking, and striking, no one bats an eye. But if you’re not part of either group, it might just sound like gibberish.
The retirement industry has this problem, too. Advisors and plan sponsors use technically-correct language to describe company plans, features, and savings strategies, but the jargon is causing a disconnect. Research has revealed participants find their retirement plans to be confusing; their desire for clearer language should be a loud call for our attention. If they don’t understand their options, participants may be less likely to make appropriate decisions about their retirement plan account.
As mentioned in previous posts, different generations desire different benefits options, but they also have unique communication needs. This is true for not only how we communicate but what we communicate. A baby boomer may be looking for financial advice, while a millennial might prefer a financial coach or financial counseling.
Plan enrollment is a critical time to help employees see the big picture. Defined contribution is a somewhat clunky term – employees can be encouraged to participate in their workplace savings plan. And instead of talking about a deferral rate, employees might better understand phrases like the amount you contribute or the percentage of your paycheck that you put in the plan.
The employer match is also a point of confusion, but clarification is critical for increasing participants’ savings rates. Telling participants about free money and the ability to significantly increase their total amount of retirement savings resonates with their goals.1 After defining the company match, it’s important to explain how that money is vested – but very few employees have any idea what a vesting schedule is. They might, however, be very interested to hear about the rate of ownership for that free money.
Finally, it’s easy to quickly get in the weeds when it comes to investment terminology. Target date funds are the victims of plenty of industry jargon. A helpful explanation about their intent may include language about a customized strategy that is managed for you and designed to help achieve your goals.1 Talking about a glide path may illicit blank stares, while a risk-reduction path1 over the course of working years is easier to understand.
Ultimately, no language choice will be the perfect fit for all employees, but it remains essential for advisors to prioritize speaking in more understandable and relatable terms.
Rethinking the Employee Benefits Experience
Attracting and retaining high quality employees is not a new challenge, but the benefits landscape has changed dramatically in recent years, particularly since millennials entered the workforce. And now that this generation is today’s largest workforce demographic (hint: it’s your employees who are anywhere from 23 to 38 right now), employers must rethink the construction of the overall benefits package. As you consider how to add value for employees and help your company grow, do you understand what millennials actually want?
The answer is twofold: different options than previous generations required, and the ability to create a customized benefits experience.
Don’t bristle at these desires – especially because of technology, today’s workplace is fundamentally different than it was 20 years ago. It makes sense your employees have new expectations, too. (Speaking of technology, it should be standard to have always-accessible employee benefit information, often through a secure online portal.)
Aside from health insurance and retirement plans, benefit options might include the ability to work remotely, flexibility in work schedules, student loan repayment plans, opportunities for professional development, lifestyle solutions like onsite child care, and corporate investment in wellness initiatives. While some of these options require creative thinking and scheduling, the positive results speak for themselves in overall employee wellbeing and productivity.
Regarding the customized benefits experience, it is becoming increasingly popular – and practical – to offer an à la carte solution. In short, employees receive a fixed amount of money as part of the benefits offering and may decide how to allocate their employer’s contribution. Closer to retirement, a baby boomer might select a higher contribution rate to the company retirement plan and a full suite of health insurance, life insurance, and long-term care insurance; a millennial employee may earmark less money for their retirement plan but include student loan repayment and extra parental leave.
Every company is unique, and so are your employees. Employers certainly have many decisions to make about the options to include, as well as how to structure the benefits program to meet compliance regulations. To discuss ways to better attract and retain employees through the benefits program, call the Shepherd Financial team.