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Need for Financial Wellness

According to Federal Reserve Board statistics comparing the five-year period from 1980 to 1984 to the most recent five years, Americans have increased their mortgage obligations by 25% and consumer debt by 24%. Not only have homeowners increased their debt, but, also, the percentage of home owners with mortgages who borrowed money using a home equity loan nearly doubled from 6.7% in 1998 to 12.4% in 2007. Similarly, there was a large increase in those who refinanced their home and reduced their home equity to obtain cash — the rate rose from 9.8% in 1998 to 14.3% in 2007, a 46% increase.[1]

Americans’ borrowing was not limited to home mortgages and home equity loans. In 2000, there were 159 million credit card holders with a total of $680 billion in outstanding debt. Experts project that there will be 181 million credit card holders in 2010 with $1.177 trillion in outstanding debt. About half of these cardholders carry no debt, but, for those who do, the average outstanding debt for households was $10,679 at the end of 2008. One year earlier, that average was $10,637 (Nilson Report, 2009).

To make matters worse, recent history indicates that Americans do not save. In the 1970s, the average personal savings rate was 9.6%. For the 40 months between January 2005 and April 2008, the personal savings rate averaged 1.8% (Cashell, 2009). Among the contributing factors for the high debt and low savings rate in the U.S. are higher credit card interest rates, higher cost of education loans, unregulated and abusive mortgage lending practices, and a lack of inflation-adjusted income growth among many employees.

Considering the current financial crisis and the trends illustrated by these facts, it is more important than ever for employees to make wise financial decisions. Many of these financial decisions, for example, choice of health insurer and retirement planning, are made with the assistance of employers. Over 70 million adult workers in the U.S. are employed by a public institution or a private corporation with more than 500 employees (BLS). The leaders of these institutions and corporations are in a unique position to assist their employees in making wise financial decisions. There is a greater need than ever to understand how and why employees make financial decisions, especially suboptimal ones.