Why Most Workers Are Overconfident About Their Finances
In The Headlines
According to Aon’s latest DC and Financial Wellbeing Global Employee Survey, most workers tend to be confident about their finances, their ability to manage their money and good financial decision-making.
But a deeper dive into the data reveals that confidence may be misplaced. Lurking in many workers’ finances is an often-overlooked factor that will hold back a worker’s financial wellbeing: debt.
More than a third of workers surveyed worldwide – and more than half in the U.S. – carry credit card debt. Plus, nearly 40 percent of early-career workers in the U.S. – those aged 18 to 34 – have student loan debt, according to Aon’s DC and Financial Wellbeing Global Employee Survey.
Paul Rangecroft, Aon’s practice director for North America Retirement, further explains: “As people make decisions about how to fund all their life decisions – from education to home purchases – such financial goals might compete with their retirement savings objectives. While people are looking forward to living longer, an aging population puts more pressure on meeting today’s financial needs and future health care expenses, in addition to funding a longer retirement.”
Lori Goltermann, chief executive officer of Aon’s U.S. risk and health solutions business, emphasizes what can become a vicious cycle, “In the U.S., the personal debt issue is compounded by various factors. Medical debt, for example, is the leading cause of bankruptcy for over half of Americans.”
Survey responses about savings, retirement readiness, and emergency preparation raise further concerns about whether that confidence is warranted – especially against the backdrop of increasing health-care costs displacing long-term retirement savings.
Why This Matters
Financial wellbeing refers to a person’s ability to confidently manage financial life today while preparing for the future and anything unexpected along the way. Beyond the direct monetary impact, financial wellbeing can also affect how individuals navigate other quality of life issues, such as physical health and interpersonal relationships. Poor financial wellbeing can also have a negative impact on the workplace, reducing productivity.
The majority of workers surveyed were confident in the state of their finances. Six in 10 of those surveyed in the U.S. and Canada described their financial situation as “good,” while those in the U.K. were only slightly less optimistic: 54 percent said they were in good financial shape. In addition, two-thirds of those surveyed said they were confident about managing their money.
But a closer look at the data tells a different story:
• About five in 10 of those surveyed said they are not able to save as much as they’d like.
• While most of those surveyed said they’re at least “somewhat confident” they could handle a $1,000 emergency (or £ 1,000 for those in the U.K.), far fewer have strong confidence in their ability to find the money if needed. Those nearing retirement were 30 percent more likely to have strong confidence than early-career employees.
• In addition, two in five U.S. early-career workers have student debt, and one in 10 U.S. workers still has student loans as they approach retirement.
Most workers said they were unsure of the level of savings needed to retire, and more than half indicated they worry about running out of money in retirement.
How Employers Can Support Employees’ Financial Wellbeing
Across age ranges, workers are calling out for better financial information and advice from their employers. Half of survey respondents indicated they want their employers to provide access to financial services and products. Two in five employees in the U.K. and Canada – and half of employees in the U.S. – want employers to help them understand how much they should save for retirement and offer guidance on other aspects of their financial lives.
The good news: more and more employers are recognizing the importance of helping workers achieve financial wellbeing. Aon’s recent Global Financial Wellbeing Study found that 62 percent of multinational firms surveyed expect to have a global financial-wellbeing strategy in place within the next three years.
Employees have an appetite for more assistance and advice to achieve financial wellbeing, and they are well positioned to provide that help. Programs offering a broad range of tools and communications, along with appropriate “nudges” at various stages in workers’ careers, can help workers confidently reach financial wellbeing.