Employees who maintained a handle on cash flow and an emergency fund prior to 2020 fared best during the pandemic, leading many employers to add financial resiliency to their list of key focus areas for 2021, according to a new study.
Financial Finesse’s 2020 Financial Wellness Year in Review reveals that employees who have a handle on cash flow and an emergency fund are 17 times more likely to report “no” financial stress and 4.5 times more likely to be comfortable with their debt than those with neither.
The study also finds that despite the COVID-19 pandemic, the financial health of American workers with access to financial wellness programs edged up in 2020. Three in four (75%) workers reported having a handle on cash flow and nearly two out of three (64%) indicated feeling comfortable with their current level of non-mortgage debt—both reaching their highest levels in five years.
Despite these improvements, only 30% of employees report being on track to achieve their retirement goals, down three percentage points from 2019. Financial Finesse notes that the actual percentage of on-track employees is likely higher given that 50% have failed to run a retirement projection.
“Getting debt under control and focusing on financial resiliency during one’s working years can make all the difference in having a financially comfortable retirement,” notes Craig Copeland, Senior Research Analyst for the Employee Benefit Research Institute. According to EBRI’s Retirement Confidence Survey, workers who are comfortable with their debt are nearly twice as likely to be confident about their retirement and 55% more likely to have saved for retirement, than workers who consider debt to be a major problem.
Financial Finesse also released a companion Race and Financial Stress Special Report, and across both studies, financial resilience—which the firm defines as the ability to bounce back from an unforeseeable financial setback—popped as a strong determinant of financial wellness.
To better understand financial resilience, the researchers assigned employees studied to one of four groups:
- Resilient: Employees who held an emergency fund prior to and during 2020
- Susceptible: Employees who held an emergency fund prior to 2020 but did not maintain their emergency fund in 2020
- Determined: Employees who did not hold an emergency fund prior to 2020 but acquired an emergency fund in 2020
- Vulnerable: Employees who did not hold an emergency fund prior to or during 2020
The analysis showed 94% of employees who had an emergency fund prior to 2020 maintained it, and 26% of employees who needed an emergency fund acquired one in 2020. “The secret to their success appears to be improvement in cash management, as 91% indicated having a handle on cash flow, up from 69% prior to 2020,” the study notes.
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