How Increasing Financial Knowledge Improves the ROI of an ESA

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By
Devin Miller
October 3, 2022

The value of emergency savings is best measured by assessing the financial wellness of employees. Financial wellness brings significant advantages to both workers and organizations.

Reducing employee stress and offering support for work-life balance should be the top priorities of any employer. Financial resources like employer-sponsored emergency savings accounts (ESAs) help people become more financially aware, leading to empowerment and financial well-being

There are several ways to measure the value of an ESA in your organization – for instance, are employees missing less work because of financial emergencies? Are they saving more money? Are they depending less on withdrawals from their 401(k)s? These can all be realities with an ESA.

But the primary benefit is financial wellness. By improving your employees’ financial health, you improve the ROI of an ESA, making the program worthwhile for everyone.

The return on investment of an ESA

The true return on investment (ROI) of an emergency savings account is measured by evaluating your employees’ financial wellness. But what is financial wellness? This can be described as a person’s relationship with and knowledge about money and being financially healthy. 

When you offer an employer-sponsored ESA, people are empowered to become more financially literate and create a solid path to reach their future financial goals. 

Increasing financial knowledge in your employees:

  • Helps them understand the importance of savings
  • Encourages them to evaluate their goals
  • Provides them with an understanding of the current economic climate
  • Allows them to assess their feelings about money and their financial stress level
  • Urges them to create a plan, both for now and in retirement

These critical steps lead to more financial wellness, ultimately helping the business retain people and continue growing. When these milestones are achieved, the value of an ESA is clear.

While the monetary ROI of an ESA can be as much as a 50% increase, according to a Rand research brief, a top priority for any organization offering wellness benefits should be to support employees’ financial well-being.

How to increase financial knowledge in the workplace

Supporting the financial education of employees takes carefully planning and delivering the right resources. Hold sessions where they can ask questions and bring in experts to guide them through best practices. Walk through each element that employees should have in a financial strategy. A plan to become financially well may include these components:

  • Preparing for emergencies with a dedicated savings account
  • Creating financial goals, both short-term and long-term
  • Planning for retirement
  • Creating a current budget and following it
  • Paying off or managing debt
  • Understanding their emotions about money
  • Investing wisely and measuring desired risk levels
  • Monitoring and understanding a credit score

Providing an ESA helps people learn the value of additional savings. They learn they can start building a more secure financial future with even small contributions each month. When they understand what’s at risk if they don’t have emergency savings, they become more financially literate and can more successfully create a plan for financial wellness.

How increasing financial knowledge improves the ROI of an ESA

Adoption of an ESA has many benefits for the workplace. One study found that personal financial wellness lowers absenteeism and reduces the work time used for personal financial matters. In addition, educating employees on personal finance positively impacts productivity and profits.

Supporting employees on their financial wellness journeys indicates that the company wants them to succeed. They’ll be supported both in and out of the workplace, helping them lead more fulfilling lives. These impacts, in turn, create more employee engagement. And engagement leads to an increase in employee retention

Gallup research found that businesses in the top quartile for employee engagement levels saw 18% less turnover in high-turnover organizations when compared with low-quartile companies. Engagement can also lead to a 23% increase in profitability and an 18% increase in productivity. Finally, high-quartile businesses see an 81% decrease in absenteeism, indicating just how impactful engagement initiatives can be on workplace success.

Changing people’s mindsets and behaviors

When people can gain knowledge about personal finances or increase their financial literacy, their mindset changes. They start to view their entire personal financial situation differently, understanding how important it is to save, monitor spending, and create a budget, among other financial planning tasks.

Another university study found a link between financial literacy and quality of life. Financial literacy programs may be able to influence financial behavior, improve personal well-being, and increase satisfaction.

Empowering personal financial positions

A big part of financial health is ensuring you have money saved to cover the unexpected expenses that are unavoidable in life. But many people simply have no emergency savings. A recent Bankrate survey found that only 4 in 10 Americans have enough saved to pay for an unexpected $1,000 expense. This means more than half of Americans have to pay for emergencies in some other way, usually by going into debt. 

ESAs can empower employees to turn their finances around. After setting up an ESA and contributing regularly to an account over a long period of time, participants become much more likely to be able to handle an emergency. Emergency savings also reduces the risk of hardship following the emergency.

When employees have a savings account that is solely reserved for crises, they can start focusing on their other financial goals, like paying off their credit cards or making a big purchase like a home or car. This flexibility puts them on the track for overall financial wellness that will last for years.

Lowering financial stress

Finances are one of the most significant stressors in people’s lives. When they can’t get out from under massive debt or are living from paycheck to paycheck, it’s extremely difficult to feel at ease or financially well. 

Stress often begins with debt. A study by T. Rowe Price found that financial stress, especially debt-related stress, “is a primary barrier to peoples’ belief that they will be able to successfully retire.” The study also found that financial stress is a predictor of poor financial wellness.

On the other hand, people who save for emergencies can lower their stress levels. When the worst happens, like an unexpected medical bill, house repair project, or job loss, they will have the funds to cover it without having to go into debt or tap into their retirement savings. When financial resources aren’t a factor, overall stress related to the emergency is reduced. This is an excellent example of how important financial wellness is for employees’ overall well-being.

The ROI of an ESA is clear

Help increase financial knowledge for your employees with an employer-sponsored ESA. Our ESA program at SecureSave sees 60% adoption, and employers match between $1 and $25 per paycheck, with employees contributing eight times that amount. 

Learn more about our ESA by contacting our sales team now.

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Devin Miller

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