Part one: What do windfalls tell us about personal financial wellness?
This is Part One of a series on financial wellness decision-making.
Background:
As more employers and service providers seek to support workers on their financial wellness journeys, the RRC launched “Examining Employees’ Perceptions on Their Next Best Dollar” to better understand how financial knowledge and engagement can influence decision-making to lead to better financial outcomes for workers.
The RRC fielded an in-depth employee survey in February 2023 to 2,500 active workers that assessed their financial wellness and various related topics. Survey respondents also participated in a simulation exercise, where they were asked to spend a financial windfall commensurate to one month’s household wages. They were asked to allocate these dollars across options including consumption, savings, and debt repayment.
Findings:
This simulation found that more than half of the windfall was allocated to savings, which included general savings, retirement, or other savings buckets. Debt repayment was prioritized second, with just over 27% of dollars going to credit card, mortgage, other debt, or student loans.
Bottom Line:
While these findings are simulated, they show that respondents are most likely to save instead of spending or paying down debt, which is a positive finding for the DC industry. Close attention should be given to paying down current monthly expenses and credit card debt, which rank almost the same in percentage as general, retirement and emergency savings.
However, there is a notable competing priority in the types of savings accounts, where emergency savings and retirement savings were prioritized nearly equally. This difference could be attributed to workers’ life stage or perceived financial wellness, which will be discussed later in this series.
Future Research Minutes will review nuances by gender, variable influences on decision making, and explore other advanced analysis that was performed on this data set. Please see our latest Guest Column in the Journal of Retirement, which provides additional details surrounding Phase One of this analysis.
