The Connection Between Covid-19 and Financial Wellness
The COVID-19 pandemic stretches on and we find ourselves in the reopening phase. I always like to look for the unintended consequences of events, which is usually focusing on new retirement plan legislation and what it means for plan sponsors and employees. This time feels more like 2009, in that there’s a dual focus on the psychological side effects as well as the regulatory side. Our client calls have been about cash flow, and our participant calls have been centered around what action to take with investments. We’ve also found a real appetite for plan design conversations and financial wellness programs that didn’t have much traction beforehand.
What will be the unintended consequences of the pandemic? Buried in all the noise of the virus and anti-racism conversation is the shift from individualism to the collective mindset, but also more connections being examined between socioeconomic state and other areas. Spoiler alert: I’m hoping that we focus on financial wellness.
A Tale of Two Crises: Financial Constraint and Beliefs about the Spread of COVID-19 came across my desk. Professors from Vanderbilt University, University of Chicago, and Stanford University set out to study the connection between perception of financial fragility and behavior/beliefs around COVID-19. While the link between socioeconomic status and infectious disease is well-documented, the psychological impacts of financial constraint on perceptions of disease spread and subsequent actions is not well understood.
This sort of study is important because what a person believes about the severity of the spread of the disease and likelihood of being infected will influence their behavior and thus the overall trajectory of the virus. The authors proposed that the COVID-related job losses and pay cuts actually have a greater relationship with risk perceptions and predictions of disease spread over local infection numbers. The media has also led many to conclude that political affiliation is significantly tied to beliefs about the virus. They sought to test that in comparison to the feeling of financial fragility.
Trueblood, et al found the following:
We show that financial constraint predicts people’s beliefs about both their personal risk of infection and the national spread of the virus as well as their social distancing behavior. In addition, we compare the predictive utility of financial constraint to two other commonly studied factors: political partisanship and local disease severity. The strength of the effect of financial constraint equals or eclipses the influence of partisanship on beliefs and is much larger than that of local disease severity. We also show that negative affect partially mediates the relationship between financial constraint and COVID-19 beliefs and social distancing behaviors. These results suggest the economic crisis created by COVID-19 is spilling over into people’s beliefs about the health crisis and their behaviors. Correspondingly, variables related to the economic crisis created by COVID-19 can be used to predict both people’s beliefs about the health crisis as well as relevant behaviors.
So why am I bringing this up?
The idea of financial wellness has always had an elusive definition, let alone how to measure it. The Retirement Advisory Council, of which I’m a part, wrote a series of white papers with more to be published on how to define it, what to look for in a program, and criteria you need to consider. Similar to other stressors outside of the workplace, such as mental health and family roles (Adler et al., 2006; Rothbard, 2001), financial scarcity is known to hinder workplace performance (Meuris & Leana, 2018). Other survey statistics support that someone who is not “financially fit” is more distracted and less productive, reports a negative impact on their health from financial stress, and expects to work past retirement age, but I don’t think any of us anticipated that financial wellness could indicate a person’s willingness to wear a mask or social distance, how they’d feel about going back to work, or how vulnerable they’d feel from other non-financial risks, such as Covid-19.
It begs these questions for the future for employers:
How ELSE does feeling fragile about finances impact a person and their work life?
What role does an employer have, if any, to assist with that for cultural and retention purposes?
How do you construct your benefits package to include meaningful options for financial wellness resources in line with your employees culturally?
Is your retirement plan reaching everyone at any stage in their career and should you target specific groups for education on where they should be with financial wellness on that trajectory?
How can these types of programs be delivered in a confidential environment where employees don’t have to reveal their financial status?
How can more education surrounding financial wellness impact your employees’ ability to withstand outside forces the employer cannot control?
As the final takeaway, as an employer you only have so many dollars to spend on benefits. When creating a package that is meaningful for your employees, I hope you’ll give some consideration to this subject and figure out where the right balance on financial wellness is for your group. As always, if you need a sounding board, book a call with us.
Related Articles:
What Can Covid-19 Teach Us About Retirement?
The Case For Diversity And What It Means For Financial Wellness
Why Financial Wellness Programs Don't Work (But Might Someday)