EL SEGUNDO, Calif.-Credit unions making plans for 2013 might want to pay attention to some trend data released during late 2012.
The financial wellness of American workers and credit union members improved in most financial planning categories up to, and in some cases surpassing, 2011 levels, according to Financial Finesse, a provider of workplace financial wellness programs.
The most significant trend in the Financial Finesse data compiled during Q3 2012 is the American employees upon whom it bases its analysis have shifted their focus to short-term money management issues after several quarters of long-term focus. Budgeting and debt management questions made up more than 30% of all questions received by the company's team of certified financial planners, up from about 22% in the previous quarter, and reaching levels not seen since Q3 2010.
'Far From Where They Need To Be'
With this renewed focus, Americans showed improvements in all areas of money management and financial planning, most notably managing debt, living within their means, and setting up an emergency cash reserve, the company said in its analysis. Although Financial Finesse cautioned that Americans are still "far from where they need to be" in these areas, the fact that they are actively focusing on improving their finances is a "good sign," as is their quick recovery from the backslide they suffered in Q1.
Investing became a key priority in Q3, based on data collected from the company's financial wellness assessment tool. Financial Finesse said this is due to recent market improvements, as well as workers realizing they may have to invest more aggressively to reach retirement goals, largely to compensate for not being able to save more until they build a stronger financial foundation.
Financial Finesse founder and CEO Liz Davidson said these developments all are positives, even though the shift of focus onto money management issues comes at the expense of retirement planning, which saw a drop in questions to below 30% of all questions asked for the first time in more than a year.
According to Davidson, this shift was overdue and very much needed, with Financial Finesse noting in a recent retirement preparedness research report that the lack of employees' financial wellness was the biggest obstacle to their retirement preparedness.
What the Math Shows
"The reality is that beyond saving up to the company match, most employees will generate a higher return paying down high interest rate credit card debt than investing those savings in their retirement plan," said Davidson. "Not only does the math support this, but when considering the research on behavioral finance and what motivates employees to build and sustain positive financial habits, this is a much more effective way to build wealth than putting retirement savings first."
Davidson added the recent improvements should be "taken with a grain of salt," as employees are still far behind where they need to be in order to effectively prepare for retirement. Only 18% of employees report they are on track to replace 80% of their pre-retirement income (or their goal) in retirement, and Financial Finesse believes money management problems are the reason why. Approximately 40% of employees still don't have an emergency fund, more than 25% report they aren't making ends meet, and over 10% are in a state of crisis where they aren't even able to pay their bills on time.