Background: The DCIIA RRC study, “Examining Employees’ Perceptions on their Next Best Dollar,” provided unique insight into the financial health and decision-making of 2,500 workers, who were surveyed on their financial health, financial literacy levels, attitudes towards debt, learning and engagement preferences, and more. In a new, recently published related report, the RRC shares insights about the Future Value Index (FVI), which is a simulation exercise that asked respondents how they would allocate a windfall bonus equivalent to one-month income based on their reported household income. The windfall dollars could be allocated across fourteen options, which were categorized during analysis into three groupings: savings, expenditures, and paying down debt.

The result was a time-oriented (10-year) valuation to measure how optimal respondents allocated a windfall bonus. The individualized allocation of funds could yield one of three outcomes: creation of future wealth, improvement of net worth, or immediate consumption leading to negligible future financial impact.

Findings: The FVI research reveals insights into long-term financial wellness. It shows that individuals without financial advisors and lower financial literacy are more likely to experience reduced FVI over a 10-year time horizon. This demonstrates a clear link between planning assistance, financial education, and future wealth accumulation.

Key findings include:

Most respondents’ decisions modestly increased their future wealth. The average respondent increased the future value of their one-month bonus by 18% over 10 years but half only achieved modest gains (0-4% APR).

Paying down certain debt types was the most influential on future gains. The ratio of credit card debt to household income was the largest predictor for future wealth gains.

Habit formation in retirement savings is critical for younger workers and debt-averse households. Households with stronger debt aversion were more likely to pay down loans in lieu of saving for retirement.

Bottom Line: This research could improve how we approach financial coaching and employee financial wellness programs. Efforts can be tailored to address specific demographic and behavioral factors and employers may want to offer more effective and personalized financial wellness benefits. For example, the FVI has the potential to be a powerful tool for more effective financial coaching by detecting specific areas (e.g., debt management, overspending, retirement saving, etc.) of possibly suboptimal decision-making. Financial decisions that appear irrational often stem from valid

emotional or cultural factors. This research could reveal the underlying reasons for

participants' seemingly questionable choices, acknowledging that economically rational decisions may not always be optimal when considering broader personal influences.

The full report is available for RRC members on the RRC Home site.