The financial lives of American workers have become increasingly complicated in the 21st century. Instead of relying on an employer pension, most workers now save on their own, a shift that brings both opportunities and challenges. In addition, workers have to effectively allocate these savings across different financial products and accounts. Should they fund their 401(k) account or emergency savings account? Should they choose a high-deductible health plan and put their savings in an HSA? Should they pay off their student debt, or start saving in a 529 education account? Given the complexity of the alternatives, making the right choice requires workers to see the big picture.
Unfortunately, many people exhibit a behavioral tendency known as narrow framing, which can lead people to focus on just a narrow slice of the overall picture. In the context of financial wellness, narrow framing can lead people to allocate their savings to the wrong accounts, choose the wrong health insurance plans and fail to prepare for unexpected financial shocks.
Narrow framing is one of those psychological tendencies that is becoming more relevant and costly in the 21st century. This is largely because our financial lives are increasingly complex and interconnected, and generally require a clearer sense of the big picture. It’s not enough to simply save for retirement anymore—workers must also save for emergencies, health expenses and education for their children. What’s more, people have to effectively allocate their resources across these different savings accounts, making decisions about which product they think will best enhance their financial wellness. Because their financial picture has gotten bigger, it can make things more challenging if relying on a narrow frame when making choices.
Also, the financial marketplace is typically organized in a way that promotes narrow framing. This is because financial institutions have traditionally been specialists, focused on providing a single type of financial account to consumers. While this allows financial firms to use specialization to deliver best-in-class products, it can also make it harder for people to have a holistic view of their financial lives. The end result is a failure to effectively allocate income, which can leave workers unprepared for various financial scenarios, whether it’s a financial shock, unexpected health expense or an extended retirement.
Solving this problem is likely to require a financial wellness platform able to offer a best-in-class integrated experience, capable of offering specific guidance based on a holistic assessment of their situation. Due to narrow framing, most people would benefit from clear guidance on how to allocate their scarce dollars across various financial categories, from savings accounts to health insurance plans. After all, when it comes to our finances, our choices are interconnected: spending too much on the wrong health insurance plan makes it harder to save for emergencies. Not saving for emergencies can expose people to financial shocks and expensive debt, which can lead them to cash out their retirement savings. Not saving for retirement can diminish their quality of life down the road.
In this respect, financial wellness is like physical wellness. If you want to be truly healthy, you have to develop a holistic plan involving diet, exercise and sleep. Financial wellness requires the same holistic commitment, as workers better allocate their dollars across a range of categories and accounts. You won’t feel healthy if you eat well but never exercise, or if you always exercise but just eat junk food. Likewise, it’s not enough to save for retirement if you haven’t also saved for emergencies and health expenses. If you want to invest in your long-term financial wellness, you have to do it all. And that requires help.
How can the ADP TotalSource Retirement Savings Plan (the “Plan”) help your worksite employees to improve financial wellness using the tools and insights of behavioral economics? Let’s take a look.
Financial wellness experience
To help make a secure future possible for everyone, the Plan offers the Financial Wellness Experience. This interactive experience helps your worksite employees think about their financial priorities in a comprehensive way and learn how to take meaningful actions. Through the experience, they will learn how to:
- Balance living for today while preparing for tomorrow;
- Understand their full financial picture and be prepared for the unexpected;
- Achieve a state of financial confidence at every stage of life; and
- Feel free to indulge a little and embrace life.
The easy-to-use experience guides your employees along their financial path to help them identify ways to improve their financial health. The experience focuses on six pillars that are foundational to overall financial wellness.
Assessment
The experience starts with a brief series of questions to evaluate their current financial health.
Personalized Dashboard
The dashboard will be personalized with guidance and educational content targeted to the employee and their situation. They can also see how their retirement savings fits within their overall financial wellness with MyOrangeMoney®, an interactive, educational experience.
Resource Center
Within the Resource Center, your employees have access to additional tools and educational materials to help them achieve their goals.
Participant dashboard
Most people love money, just not managing it. So Voya set out to change the way participants experience their retirement plan account. To help your participants understand their full financial picture in one comprehensive place and provide tools and resources to help them achieve their goals, Voya launched enhancements to the participant experience earlier this year. Participants can now bring their whole financial life together with the same account access in one private, cybersafe place with a little more to explore.
Here’s what your participants experience when logging into their Plan account:
Comprehensive and cybersafe
- Securely connect external accounts like checking, credit cards, savings and more alongside their Plan account to get a full view of their net worth. Participants will receive personalized insights designed to help them improve their finances all in one cybersafe place.
All-inclusive and insightful
- Quick access to educational resources and interactive tools that can help them set goals, track their progress and get real-time insights on their money habits. Plus, the experience will adjust as their needs change to help them understand where they stand financially and manage their money with confidence.
Evolved experience
- Whether they want to check their Plan account balance, save more for their future, update their investments or even track progress on their goals, they can enjoy an effortless Voya account experience that adjusts with them.
In the 21st century, household finance has become increasingly complicated. By helping people see the big picture of their finances, and personalizing the recommendations, the tools and resources provided by the Plan can help them to make choices that enhance their financial wellness.
