Financial Wellness

If you can’t measure it, you can’t manage it

By measuring employee financial health, employers can choose the right solutions — and make sure they’re working.
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In 1879, Scottish lexicographer James Murray started work on something previously unheard of. He wanted to create a single, comprehensive text that would list and define every word in the English language. In other words: a dictionary. Murray gave himself and his team 10 years to collect, compile, and define every existing English word, from aardvark to zyzzyva. But after five years of grueling work, the lack of progress was troubling. In fact, his team had only made it to ant. In the end, the project took nearly 50 years. In hindsight, the problem is clear. Murray underestimated and underinvested in his project, because he failed to properly measure or understand its true scope.

Getting a handle on employee financial stress

Most businesses today aren’t trying to document an entire language. But they are trying to get things done and grow their bottom lines. But when employees are struggling with their finances, this puts businesses in a tough position. Study after study finds that financially stressed employees have a harder time doing their jobs. Workers are distracted by their stress, often have to miss work to deal with crises, and even suffer physical ailments — all because of financial stress.

This costs businesses money, which is why many employers are starting to explore financial wellness solutions. But employee financial stress is complicated. To move the needle on it at all, businesses first need to carefully measure it. By doing so, employers can get a clear understanding of what employees’ financial situations are, which then lets businesses:

  • Empower decision-makers to accurately size the issue. If leaders can say, “Sixty-one percent of our employees are struggling” that’s clear impetus to deliver a solution. If only 2% of employees face financial struggles, it may not be as urgent as other pressing risks to the business.
  • Evaluate solutions. Without verifying that their solutions are moving financial health up and to the right, businesses run the risk of wasting resources on approaches that don’t actually work.

What metric should you use?

Financial health isn’t directly observable. Just like physical health, it’s a concept used to describe a constellation of symptoms. Doctors evaluate their patients by checking a few vital signs; things like temperature, heart rate, respiratory rate, and blood pressure. While those vitals can’t tell doctors everything going on inside a human body, they are indicators of the underlying thing being explored: overall health.

The same goes for financial health. We need to develop a set of indicators that, together, all point at the same underlying concept. Some likely indicators are things like overdrafts, payday loans, and credit card balances — but it turns out that the simplest way to measure the financial health of an employee is to just ask them. This is in part because a major component of financial well-being is one’s own feelings about their situation.

The Financial Health Network, a leading authority on consumer financial health, built on previous survey instruments to design a new self-evaluation survey for financial health. This is an effective way for employers to measure their employees’ financial health for three reasons:

1. It’s simple.

The final output of the survey classifies each employee as being Vulnerable, Coping, or Healthy. The survey uses these three, easy-to-understand classifications instead of grades, scores, or other confusing indicators.

2. It’s actionable.

The survey focuses on self-evaluations in four areas: spending, saving, borrowing, and planning. Getting detailed data on how employees are doing in each of these areas can help businesses decide which component(s) of financial health they need to solve for.

3. It has wide acceptance.

Over 100 companies are members of the Financial Health Network, including Capital One, Bank of America, and JPMorgan Chase & Co., many of which already use the survey instrument in their operations. Employers can benchmark themselves both nationally, or against other companies in their industry.

To solve big problems, start by measuring

Several years into their dictionary project, James Murray and his team of editors must have realized their mistake. As they slogged through definitions for admire, aid, album, and amber, the size and complexity of their project likely dawned on them — and it probably wasn’t a good feeling.

Businesses that implement financial wellness solutions without measuring the problem first will likely find themselves in the same situation. Without the right information about your problem — despite good intentions and a lot of hard work — your solution could take far too long to be effective. Or, it might not be effective at all.

Learn more about the science behind measuring financial health in our white paper, Vital Signs of Financial Health. Then, get started measuring at your company with the Employer’s Toolkit for Measuring Financial Health.