Financial Wellness - a skeptical prognosis on an HR solution du jour

Profile picture for user brianssommer By Brian Sommer February 17, 2019
Many new HR products get funded every year. The overwhelming majority are launched by well-meaning sorts, but not every solution will succeed in the market. Consider Financial Wellness.


Financial Wellness is one of the HR solutions du jour. It may be well-intentioned, but is the logic behind it a bit lacking or the support for it limited. Let’s dive a bit deeper.

What is Financial Wellness software? According to software review site G2:

These solutions help companies provide their employees with financial management education, including planning, budgeting, and alleviating financial stress. Financial wellness software include features such as budgeting tools, gamification, financial goal planning, debt management, and money management coaching. These solutions may also include tools to help with spending tracking, budget creation, assets tracking, goal setting, and financial management progress tracking. Financial wellness software also provides companies with reporting and analytics that help improve employee engagement, retention, and productivity.

The Background

  • The theory: Because people are stressing out over their financial situation, they aren’t engaged workers and workers that aren’t engaged are less productive.
  • The proposed solution: Provide workers with training courses to better plan retirement, budget, etc.
  • What this solution supposedly solves: With greater financial savvy, then stress around one’s financial situation should go away. When the stress is reduced, the employee can be more engaged and voila productivity improves.

But - is it setting out to solve the wrong problem? Consider the following.

Issue 1

The logic for this kind of solution may be flawed as the reason large numbers of workers are stressed about their financial situation may have nothing to do with their knowledge of financial planning, credit card payments, etc. In fact, these employees may be painfully aware of their financial situation.

The trigger for the stress could be a number of employer-driven factors including:

  • They work for a terrible boss. Two-thirds of departures are due to the person leaving their boss not the company.
  • They are stressed out as there may be layoffs, they don’t know if they’ll get cut, and, if it happens, they don’t know how to make ends meet.
  • They are in a job where pay increases have not kept up with inflation or the cost of living
  • Their employer cut back their hours to a ridiculous low number per week
  • Their employer never provides them a steady schedule so they can plan how much income they’ll actually earn in a given week
  • Their employer often cancels their planned work shifts at the last minute
  • Their employer pays a below market rate or pays only minimum wage
  • Their employer never lets them earn overtime
  • Their employer will never schedule more than 30 hours per week so that the employer does not have to offer the employee benefits. As a result, the employee must fund their own health care, retirement, and other “benefits”.

Given how many workers are in low-pay, on-demand jobs today, the ‘stress’ they feel is real and palpable. To wit, it may not be the lack of financial knowledge that triggers the stress and lower productivity - it’s the way employers schedule work! This Guardian piece states:

Employers utilize scheduling practices that provide workers with little notice and varying shifts that change weekly as a tactic to minimize labor costs, though research has shown these practices have hidden costs through increased employee turnover and a decrease in productivity and customer service.

Other financial stress issues could originate outside of the employer’s sphere:

  • The employee has huge college debt hanging over their head
  • The employee has to take care of elderly parents
  • The employee’s adult children have moved back in with their parents
  • The employee is undergoing a divorce
  • The employee requires expensive medications that keep escalating in costs
  • The employee’s spouse could have lost their job

There are many, many reasons that a person could be stressed out over their finances but a low-cost training course on personal financial management may not help many employees.

What HR leaders must do is honestly evaluate their firm’s policies re: scheduling, overtime pay, annual pay increases, etc. If the employer is adding to (or creating) the financial stress issue, shouldn’t the employer fix the problems they are creating first?

Cutting someone’s hours to less than a day a week is cruel. In an incredible article by The Guardian, we read this example:

Alexandria Rodriguez, an employee for over three years at a Target in Texas, worked 35 to 40 hours a week during the holidays, only to see her schedule drastically decrease shortly after Christmas. She was scheduled for four hours, then zero hours the next week, 9.5 hours the week after, and next week only 8.5 hours.

Not working for an entire week would cause financial stress. Software will not ease that.

By offering financial wellness courses, there is an implied suggestion that the financial stress is the fault of the employee (i.e., they can’t plan or they are ignorant of their situation). The employees might violently disagree with that suggestion.

In a recent report by Josh Bersin, we read:

It’s clear that the stress people feel to increase their pay to keep up with cost of living is creating a huge market for what we now call side hustles – people doing work on the side, weekends, or evenings to supplement their income. If these statistics are even partially accurate, it can mean that more than 60 million people in the U.S. alone are participating in this type of work today.

While it’s good to see so many people involved in extra income opportunities, I’m not convinced they are all doing so because of rampant entrepreneurial spirit affecting the work force. I suspect this activity is because they are underpaid in their main job – and that is a stressor.

Issue 2 

Most anyone who took an introductory college psychology class has heard of Maslow’s Hierarchy of Needs. In case you haven't:

Maslow's hierarchy of needs is used to study how humans intrinsically partake in behavioral motivation. Maslow used the terms "physiological," "safety," "belonging and love," or "social needs" "esteem," and "self-actualization" to describe the pattern through which human motivations generally move. This means that in order for motivation to occur at the next level, each level must be satisfied within the individual themselves.

When workers are underpaid, they are likely to find their physiological needs (e.g., food, clothing, shelter) to be at risk and of great concern. When you can’t decide whether to pay the gas bill, buy groceries, take your medicine, etc. because you don’t have enough money for all these necessities, then you aren’t really that interested in some higher order concern like self-actualization or retirement planning.

Financial Wellness is a higher-order concern for some workers and a dreamy wish for others who have insufficient funds to live their life today.

Employers should recognize that different economic classes of workers need different kinds of financial wellness solutions because of their specific financial situations. For example, employers who offer very low wages and few hours to employees might deliver more value to workers by helping these employees escape the clutches of payday loan sharks, rent-before-you-buy retailers and others that prey on the poorest paid people in this country. Give these employees alternatives to these pariahs and watch their financial and emotional condition improve.

Employees with more stable and higher incomes need different solutions geared to their situation (e.g., low interest home mortgages, car purchasing discounts, etc.). Workers that are closer to retirement have different needs as well. There may be dozens of different demographic groups to consider (e.g., new parents, parents with college age children, empty nesters, etc.) and each group will have its own financial wellness needs. A one-size-fits-all approach to financial wellness is ill-advised.

Issue 3

How do you make the benefit numbers work when there’s a long chain of causal factors?

When a CHRO is trying to sell this tool to the Executive Committee, he or she must explain the financial justification, how the benefits will be achieved and how the savings will be documented. For some financial wellness tools, the CHRO must:

  • Prove that there is a correlation between engagement and productivity. (Note: many economists see productivity as an increase in revenues per employee.)
  • Prove that there is correlation between financial stress/ignorance/fear/etc. and lower engagement
  • Prove that reducing financial stress will cause an increase in engagement
  • Prove that increased engagement will cause an increase in productivity

The CHRO’s peers on the Executive Committee will also want to know:

  • How many employees are currently under financial stress? I am at a loss to identify how that can be done without violating all kinds of privacy strictures.
  • Who’s responsible for this stress: the firm or the employee?
  • Where’s the science to back this up? Are there any double-blind studies to show this tool increases engagement and also improves productivity?
  • What other options are there (e.g., raise the minimum wage) other than this training and what do they cost?
  • How will HR ensure that the right people actually take this training?
  • How big will the productivity gains be should this tool get deployed?
  • Are these productivity savings sustainable or will the employees fix one stress issue and quickly acquire a different one?
  • Is this executive willing to bet his/her bonus or job on the realization of these proposed savings?

The math behind this business case is daunting. Read along as to some sample figures I’m inserting with some of the possible variables:

  • Total number of workers in financial stress as a percent of the company’s total workforce (Let’s be generous and suggest this is 25%)
  • The percent of those financially stressed employees that have an issue that this tool could assist with (This could be 25% of the previous 25% or approximately 6% of the workforce)
  • The percent of those workers who might benefit from this tool and would actually increase their personal productivity (This might be 25% of the prior 6% or 1.25% of the workforce)
  • The amount, in dollars, of what one person’s productivity gain would trigger in increased revenue. (This might represent only $1000/worker/year. If a company had 1,000 employees, that would generate $12,500 in additional productivity. If the tool costs more than this, it’s a non-starter).

The business case for this kind of solution is full of conditional steps, assumptions re: adoption and success, and, little to no science. I wouldn’t stake my career on this bet.

My take

I know I’m being critical here but just because a new technology solution can be created doesn’t mean it will become a market success. Financial wellness has its place in some demographics but may not fly in small firms or firms where the employers are the chief cause of the stress.

I also believe every technology creator and potential buyer needs to work through the business case and see if they could sell this case to others in management or to the board. If there are too many assumptions or unknowns, be careful as they could bite you.

The most common concern with many new solutions is the unproven causal connections. People are confusing correlation with causation all the time and it’s most rampant with machine learning and analytic tools. Just because a pattern was evident in the past does not mean the same result will occur based on the machine noting the same signals in a later data set. Remember, when it comes to people, they have many more variables at play (at work and away from work) that no big data set can fully comprehend or know. Proving something will happen (e.g., increased productivity) is hard to do unless you know and can control all of the variables. Good luck with that.

All of us, developers, investors, customers, etc. need to have a critical eye regarding new hypothetical solutions (focus on the ‘hype’ here). If changing a person’s behaviors or attitudes were easy, no one would ever relapse from rehab or take up smoking again. Look how many people are repeat DWI/DUI offenders – even the threat of jail time does not trigger behavioral changes in people.

Changing people is tough. And getting people to change their ways re: money is something that is really tough. Just look around. Have you ever known a couple where one person is a saver and the other spends more than they both earn? Neither party will likely succeed in changing the other. Couples that constantly argue about money often divorce.

Yes, I have my doubts about many new HR solutions (the AI ones in particular). I doubt the success of these tools as few have ever been rigorously tested to ensure they deliver the promised benefits. The best solutions can prove their efficacy. Their results should be repeatable. They should deliver solid benefits to businesses that outweigh their costs.

In short - I need proof.