Cash and Debt Management Issues Prevent Employees From Saving for Retirement; Nearly Half of Working U.S. Adults Find it Difficult to Pay Household Expenses on Time

NEW YORK, April 20, 2011 /PRNewswire/ -- Lingering cash and debt management challenges continue to dilute employee confidence and overall financial wellness. Almost half (49 percent) of working American adults find it difficult to meet their household expenses on time (up from 43 percent in 2010), according to PwC U.S.'s 2011 Financial Wellness Survey, and even those earning $100,000 or more annually say it's a challenge (36 percent).

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Additionally, nearly one-quarter (24 percent) of employees surveyed report using credit cards to buy monthly necessities because they couldn't afford them otherwise, up nine percentage points from 2010; among those earning $100,000 or more annually, that number jumps to 34 percent. Half (50 percent) of survey respondents consistently carry balances on credit cards (in line with 51 percent in 2010), and 42 percent of respondents find it difficult to make minimum credit card payments on time (up from 28 percent in 2010).

Given these cash and debt management challenges, it's no surprise that 61 percent of survey respondents say they find dealing with their financial situation stressful and 56 percent say their stress level has increased over the past 12 months. Meeting day-to-day expenses is now more of a concern than funding retirement. According to the survey, primary financial concerns include not having sufficient emergency savings for unexpected expenses (25 percent), not being able to meet monthly expenses (20 percent) and not being able to retire when they want to (18 percent). These issues were followed by concerns around not being able to keep up with debt (13 percent) and being laid off from work (11 percent).

"The results clearly show that retirement is not the most pressing financial concern weighing on employees' minds. In addition, the financial distractions and resulting levels of stress may cause a loss of productivity and have an impact on employee health," said Kent Allison, Partner in PwC's Financial Education Practice. "While it's important that employees put money aside for retirement, they may be hesitant to save for the future if it will exacerbate existing debt and cash flow problems in the near-term."

Impacting Plans for Retirement

Despite corporate investment in programs to educate employees on retirement and investing and the implementation of auto-enrollment and auto-escalation features in company retirement plans, employee confidence in their ability to retire "on time" remains low, with just 33 percent of employees surveyed confident they'll be able to retire when they want to and 46 percent of employees planning to retire later than they previously planned. What's more, 38 percent of respondents state they are saving less overall this year than last. Even more alarming, almost one third (32 percent) believe they'll need to use their retirement plans to pay for expenses other than retirement (education funding, home purchase, etc.).

"It's not enough to say, 'you should be saving for retirement' and auto-enroll your employees in a retirement program. Competing financial issues could be preventing employees from saving for retirement, and it's important to understand why people aren't saving in order to address the retirement savings crisis and related workforce issues," notes Allison. "In addition to having an impact on employees personally, delayed retirement and concern over one's financial situation can have significant, far-reaching impacts on companies and their workforces, including succession planning, productivity, healthcare costs, and appreciation for benefits packages."

Respondents planning to delay retirement cited several reasons for postponing, including not having enough saved (34 percent), retirement investments that have declined in value (18 percent), too much debt (14 percent), need to keep healthcare coverage (14 percent), supporting children/grandchildren (9 percent), don't want to retire (9 percent) and other (2 percent).

Of the employees surveyed who are not saving for retirement, top reasons include "too many other expenses" (45 percent), "have debt to pay off" (28 percent) and "lower income than previous year" (15 percent). Employees who are saving less money for retirement than last year are doing so because they have too many other expenses (37 percent), their income is lower (28 percent) and they have debt to pay off (27 percent).

Of those employees aged 55 to 64 who are planning to retire in the next five years (37 percent), less than half know how much income they'll need in retirement (45 percent) or have examined whether they're on track to meet their retirement goal (45 percent). Similarly, 54 percent of employees overall have not examined whether they're on track to meet their retirement goal and 48 percent are not comfortable selecting investments.

"The move from defined benefit to employee contribution plans has shifted the onus from the corporation to the employee," adds Allison. "While many companies have made an investment in education, employees remain uncomfortable making investment decisions and need further education related to diversification and the pros and cons of some of the new investment vehicles introduced in recent years, including life cycle and target date funds."

Financial stress may contribute to productivity loss

The survey shows that the high degree of stress caused by financial worries is also having an impact on employee productivity, with 29 percent of respondents admitting personal financial issues have been a distraction at work and 48 percent of employees stating they've handled their personal finances during work hours. Personal finances being a distraction at work was highest among employees aged 35 to 44 (40 percent) and those earning $100,000 or more (37 percent), proving that financial stress is not necessarily just an issue for the young and/or less fortunate.

"It may seem that a small number of respondents let financial issues affect their performance at work, these 'lost hours' can really add up and have a significant impact on an employer's bottom line. Increased stress levels may also lead to higher healthcare costs and impact morale," adds Allison. "We're advising clients to take a more strategic approach that targets the most relevant areas of concern to maximize the benefits of education programs for both employers and employees. Empowering employees with the information they need to become financially successful will result in a more engaged, stable and healthy workforce, while potentially allowing employers to cut ineffective, costly programs."

While the results show employees are in need of guidance, auto-enrollment, auto-escalation, and existing education methods may not address the real reasons behind retirement concerns and may need to be modified to take a more holistic approach to ensure the broader needs and concerns of employees are met.

"Given the success of health wellness programs, organizations may want to take an approach similar to that which is used in addressing physical wellness," says Nik Shah, Principal in PwC's Saratoga group. "Structuring a financial wellness program that provides employees with a confidential financial fitness assessment and employers with an overview of employee issues by key demographics will enable organizations to structure more proactive and targeted communication and wellness programs based on specific employee needs that will help drive the desired behavioral change with measurable results."

Whether your employees are stressed over organizational shifts, market conditions, personal life events, or benefits changes, PwC's Financial Education & Saratoga Practices work with clients to design and deliver customized financial wellness programs tailored to employee needs and specific company objectives. Using our personalized Financial Fitness Assessment and a targeted multi-media approach that includes workshops, webcasts, telephone counseling, personal coaching, web-based education/tools, and communications, we empower employees to make educated decisions to improve their financial well-being.

You talk, we listen and share insight.

Experience the difference. Visit us online at www.pwc.com/us/financialeducation, email us at [email protected] or call us at 800-422-5579 to start the conversation.

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SOURCE PwC