As researchers drill down to the core of what leads to individuals’ long-term financial security they are finding it has less to do with pure money know-how than with a simple willingness to confront their financial issues in an honest fashion.
Experts call this “financial courage,” and even where an individual lacks a basic understanding of, say, inflation or compound growth if they have courage to address this deficit they more often end up making healthy decisions.
In a recent Mercer survey, 60% of individuals with the highest scores on a financial wellness assessment also demonstrated the highest level of financial courage. In short, they had enough confidence to act—and often this confidence led them to first investigate so that they acted wisely. This and similar findings are beginning to change the conversation about how to get the best outcomes for the most people. Financial education is wonderful. It is one source of confidence and financial courage. But what may be equally important is access to tools so that the financially courageous can investigate more easily and quickly, and more often reach a heathy decision.
After all, the flip side of the Mercer data is disturbing: 40% of the financially courageous score low in overall financial wellness. Too many, it seems, suffer from misplaced confidence and do not bother to investigate appropriate actions. Greater access to helpful financial tools would help them overcome this problem.
U.S. employers lose a collective $250 billion a year in wages paid to workers stressed about money, Mercer found. On average, employees spend 13 hours a month at work fretting about personal financial affairs. Some spend way more than that.
The median employee wastes five hours every week worrying about money.
Finding a solution is top of mind in corporate C-suites and that is good because it is in everyone’s economic interest. Financial literacy such as is taught in some schools isn’t nearly enough, Mercer concludes. Even with a firm grasp of economic principles, people fall victim to behavioral issues like impulse spending and poor planning.
A firm grasp of credit card and mortgage rates won’t keep them from clicking on a pop-up ad that appears on their screen minutes after an online search. But what might stop them is a better understanding that they are being played—and, say, a comparison shopping tool that helps them quickly scope out the competition.
Mercer defines financial wellness as having control over day-to-day and month-to-month finances; having the capacity to absorb a financial shock; being on track to meet financial goals; and having the financial freedom to enjoy life. These are broad measurements that apply at every income level.
Here at Right About Money, we are stalwart supporters and unabashed fans of financial education. Knowledge is power.
It is always better to understand a money decision than to rely on advice and default options.
Still, financial well-being may be more widely accessible with less emphasis on textbook knowledge and greater availability of tools that lead individuals to timely, smart decisions—on their own—without needing a high degree of financial literacy.
Effective approaches include personalized communications that point workers to the programs that best suit their needs. Better default options and automatic enrollment and escalation of savings programs can put an employee on a positive path and build financial courage. So can professional budgeting and coaching, and help with student loans and credit management.
When employees have financial courage, they’re more likely to engage with a financial wellness program, Mercer found. That promises the best outcomes for the most people.