Digitized, Personalized: Today’s Financial Wellness

Why should employers consider financial wellness products for their workforce? Has COVID-19 increased the need for these products?

People have always been stressed about money, and COVID-19 magnified that. Something major happened, and employers realized that no one had a financial plan. COVID just amplified the fact that people weren’t prepared. Healthcare has a big part in people’s finances as well. The number one reason people file for personal bankruptcy is because they are picking the wrong health plan during open enrollment. [Studies have shown that 65% of bankruptcies are filed because of large, unexpected bills or time away from work because of medical issues.]

People don’t only get a paycheck, but they have to think about things like retirement, health insurance and equity in a company. These are all big financial decisions you make through your employer, and the employer often can’t legally give you advice on how to manage all of that. They can’t give information like how much someone should put away in their retirement. If a business offers an employee stock purchase plan, the employer can’t tell a person what to do with their equity even though it’s part of their income. There are a lot of things that make up a financial plan that an employer can’t talk about or feel comfortable talking about. Someone needs to look at a person’s finances for you and say how much you can put into your SDA [special deposit account] if you have one.

Financial wellness used to be seen as a product for higher-income employees, but, particularly since COVID-19, employers are understanding financial security is important at all income levels, correct?

Financial wellness used to be offered for high-net-worth employees. But the amount of money you make doesn’t determine how much financial stress you have. There is stress across the board at all income ranges and all demographics.

A massive theme of the last 18 months is that financial wellness is for everyone: for people making $15 per hour or $500,000 a year. Everyone has goals, and people want to move forward with their financial goals. That is where financial well-being can really be life changing. For people who make $15 per hour, it can be emotional because they never thought they would have access to someone like this.

Employers are having a hard time retaining hourly workers, and they can offer financial wellness just to be competitive in that area. It’s something a person couldn’t get on their own but would now have access to through an employer. A lot of employers are looking to add benefits that include inclusivity and belonging, and this provides equity across the workforce.

Discuss the digital trends in financial wellness and what those mean for the industry and for employees using the services.

With the traditional products in this space there was a 401(k) provider who offered a check-the-box solution. Financial wellness was almost totally focused on retirement and 401(k) investments. The direction things are going now is holistic financial well-being, and that is both digital and human.

Using a digital solution creates more access and personalization for each individual. If you think about it, one financial planner may be helping a couple hundred people, so they can’t give as much time and personalization. But technology scales it and allows an employer to give personalization as well. A person can use digital tools or talk with a financial planner.

Digital financial wellness helps anyone of any income level make a financial plan. It helps them digitally understand their financial decisions across the board—like paying off debt, managing student loans, or helping parents save in a 529 plan. They can understand their financial picture in a holistic and digital way. Digital plans scale for many more people. They are more effective and efficient for large employers or brokers to offer. Digital plans also make financial wellness more accessible to a larger number of people. It works well for a hybrid workforce and an income-diverse population. It helps people no matter their income or asset level.

Does digital take away the personalization of financial planning?

It’s best to combine a digital and human component. Money is personal and cultural. It’s kind of like going to a doctor, where sometimes it’s scary to say things there. Some people have never talked to a financial advisor, and it is so personal to talk about all of these things.

Working with a digital program can actually help someone warm up toward talking about their finances. They can begin to understand the language, and they may not even be sure what kind of questions they have because the industry is so overwhelming. Digital products can help them start to think about money in an industry filled with jargon. A digital solution helps with all of that. A person can use it in their own home, on their personal time, and they can be getting help in whatever they feel is the best way for them.

I can’t speak to all digital products, but at LearnLux you have access to talk to someone about any part of your financial life and have the digital education to help learn about and make financial decisions. There are interactive, budgeting and cash flow tools, and we incorporate a lot of employee benefits. It’s difficult for someone to make a budget without understanding all parts of it.

Our program takes into account a person’s holistic financial plan. It looks at retirement, savings, etc. It’s very difficult to make a decision in a silo. For instance, if someone is considering picking a high-deductible health plan but they don’t have $6,000 in their savings account to pay a bill if something happens, that is how people get in trouble. Or the program could take into account pretax products: if someone wants to contribute to a 401(k) and pay off student debt, they may be able to do both. Contributing to a 401(k) saves a person on their tax debt, so they could use those savings to put toward paying off their student debt. Digital programs help people break things down into an order of operation so they can start somewhere and create micro goals. That way they can work on small tasks that will move them farther and farther down their financial road.

Why is AI so well suited for this industry?

In this industry, there are millions of data sets that can train a model to become smarter. The program can take into account how millions of people have made decisions and how they play out. It allows a program to personalize an experience more for every individual.

I started LearnLux out of a lab at MIT [the Massachusetts Institute of Technology]. I was working on collective intelligence, which combines artificial and human intelligence. Collective intelligence is taking the best parts of AI and human knowledge and putting them together. You can look at data and say, “This is mathematically the best way to make a decision,” but you should also take into account the human part of it, and that is personal and cultural.

Do digital products increase the uptake of financial wellness programs?

I would say that using digital increases engagement because you can engage in new ways and you have high touch points. But engagement rates vary tremendously by company. We have about six times the industry average engagement, and that is largely because we are using a number of best practices.

That number is both before and after COVID. People always have financial questions and really want to work through them. And they see this kind of program as a resource that is fair and makes sense to them. As we move forward, I think this is a benefit where we will continue to see higher engagement than a company might see with other benefits. Financial wellness is so relevant to so many types of people. And the digital component allows people to do it in the privacy of their own home, at their own pace alone, or with their partner. They can ask whatever questions they have, and they don’t have to be embarrassed. It allows them to start wherever they are comfortable and gives them more equity and access than anything that’s been there before.

What makes a good product in this space? Are there particular elements that employers or brokers should seek out?

As I’ve mentioned before, there should be a mixture of digital and human components. The guidance should be holistic—it should cover all financial topics. A really big thing now is being inclusive. It’s important when talking about financial well-being that it is ubiquitous—everyone can likely use a solution like this. An AI program should use inclusive predictive models, because people are coming to this from all different places.

Also, these programs shouldn’t be selling products. An employer needs to make sure it is aligned with the interests of the employees and someone is not pushing products as a way to make money. LearnLux doesn’t sell any products. We are 100% employer sponsored and don’t make money besides having the employer pay for this as an employee benefit. Employers and employees will recognize that financial wellness can be predatory if an organization is pushing products. Someone may want to use a free product, but it may be one that is pushing loans that are 25% APY [annual percentage yield] to the employees taking part, and that’s predatory. Those kinds of practices are why people are afraid of the financial industry.

When you are looking at vendors, make sure to ask, “What are all of the ways you make money, and do employees ever get sold a product or do they have an option to put money somewhere?” That kind of thing could be hidden in a contract, and it’s difficult for employers to know when that is happening unless employees tell them down the road. Employers should feel safe knowing they are getting unbiased fiduciary guidance.