Employee Financial Wellness Program

Do you feel like you need to be part money coach, banker, accountant and economist just to manage your money?

Should it really be so hard to cover the household bills, make the payments on the car and mortgage, put away a little for the kid’s education, and make some solid investments that will hopefully leave you with enough left over for a reasonably comfortable retirement?

Money management might have seemed a lot easier a couple of years ago – before inflation and interest rates went into overdrive and the stock markets and real estate values nosedived 15%. Most of us were just trying to get by financially in 2022 and being buried by an avalanche of ideas and alternatives on how to survive the financial tsunami got very overwhelming and made it hard to decide on anything!

Why is financial planning so hard?
If you are retirement planning and looking for options on where to invest those hard-earned RRSP contributions, there are around 5000 mutual funds and 1000 ETFs in Canada to choose from! But that's only if you are already up to speed on the differences between mutual funds and ETFs, all-in-one ETFs, MERs and other investment fees, asset allocation, portfolio diversification, how RRSPs (and TFSAs) actually work and their many rules and regs, DIY online investment platforms, robo advisors... and the list goes on!

Unfortunately, personal finance management is likely to get more difficult and more complicated in the future. If you are lucky, some employers are now offering financial wellness programs as part of their benefits. Enriched Academy is also working with schools, colleges and universities in several provinces to ensure that students learn the basics of personal finance before they start their career path. This is great news for your kids and their financial future, but it isn’t going to help you…. unless you want to put your kids in charge of the household budget?

The key to a good financial plan
The biggest issue we see over and over at Enriched Academy is focusing way too much time and effort on making money. What really moves the needle is spending more time looking at where your money goes, and how to manage it better and make it work for you. Earning more money won't solve your financial problems if you continue to spend too much, make poor spending decisions, fail to invest, and have no goals to help guide you and measure your financial progress.

The reality is that most of us are on our own when it comes managing our money. The good news is that mastering the basics is a lot simpler than most of us realize. You can still use a pencil and paper to track your expenses and one of our free weekly webinars can teach you a lot in 60 minutes – from how to improve your credit score to how to pay off student loans. There are plenty of excellent learning resources, tools and apps out there that can save you a ton of time.

8 Easy ideas to start your financial plan
If you are ready to dive into your finances and looking for some basic fixes that don’t require a ton of research or knowhow to get rolling, we have eight suggestions for you.

1. TFSAs & RSSPs.
If you don’t have a TFSA or RRSP, take it off your wish list and get one (or both). There is no excuse for not having these accounts; they are free, can easily be opened online, and there is no minimum deposit amount required with many institutions. RRSPs allow you to defer paying tax until you withdraw the funds — ideally when you are retired, and your tax rate is low. The deadline to contribute to your RRSP and take the deduction on your 2022 income taxes is March 1, 2023.

A TFSA contribution doesn’t offer any immediate tax reduction, but you don't pay any tax when you withdraw that money. Furthermore, any income generated by investing your contributions can be withdrawn without any tax. You can open a TFSA and add money to it at any time throughout the year. The maximum you can contribute does not depend on your income like an RRSP, everyone over the age of 18 can contribute up to $6500 to their TFSA in 2023. If you have never had an RRSP or TFSA, you may find that you have a lot of unused contribution space because the annual limits carry over from year to year.

2. Reduce your expenses.
As proven by a never-ending stream of bankrupt celebrities and athletes who “lost it all”, regardless of how much money you have coming in, not tracking where and how much is going out the door is a recipe for disaster.

Countless articles are churned out every day on how to spend less, and they may yield some good tips that are practical for your situation. Look for easy hacks to supercharge your personal budgeting, like taking advantage of grocery store bargains, re-evaluating your mobile phone or cable services, collecting points or discounts on a credit card (but paying the balance in full every month!), or even clipping coupons!

There is no end to money-saving ideas and hacks, but the first step of your financial plan is to know your costs. You can’t kill what you can’t see, and household expenses are no exception. You need to track all your expenses for at least a month and analyze where your money is going. Don’t forget interest charges, memberships, and any other miscellaneous expenses — you need to include everything!

3. Automate your savings.
Making it invisible is the fastest and easiest way ever when it comes to how to start saving money.  Setting up automatic transfers every payday to a savings account (and then investing it!) will remove the guesswork and excuses from how best to stash your cash. It probably doesn’t need to be said, but money left in your daily chequing account has a way of disappearing!

4. Learn to manage debt.
If you are carrying a balance on your credit card, it's time to map out a realistic payment plan for an all-out attack on credit card debt. The average credit card balance in Canada as of September 2022 was $2121. Paying the minimum on that amount will require 187 months to eliminate the balance and cost you almost $2400 in interest. Paying the minimum plus $50/month will cut it down to 27 months and $518 in interest charges! If you have options to borrow more cheaply through a home equity loan and pay off your card, what are you waiting for? Balance transfer cards are another option as long as you investigate your obligations, create a strict repayment plan, and are disciplined.

5. Do I need a financial advisor?
A "high-interest" savings account is a huge misnomer, even with the recent increase in interest rates. You might get over 3% in a new account for a limited period, but chances are you are currently earning under 2%. The same goes for any cash sitting in your RRSP, TFSA, or your child's RESP. Financial markets were way down in 2022 and have been volatile, but stock have always recovered over the long term.  

You may not need a financial advisor if you have the time and motivation to handle your own financial education. Self-directed investing in financial markets is very do-able and will help keep fees to a minimum. Make sure you understand the risk and how it is mitigated, regardless of who is making your investment decisions and financial plan.

6. Understand your mortgage.
Investigate you mortgage options and how recent interest rates hikes will affect your payment when you renew. The average for a 5-year fixed mortgage in 2018 was around 4.5%, so you are likely looking at 1% to 2% more if you are renewing in 2023. That will add between $200 to $400 monthly to a $400K mortgage.

If you have a variable rate mortgage you are already feeling the pain unless you have a fixed-payment variable rate mortgage? If you do, you could be in for a shock, so make sure to confirm the situation and allow for the higher payment in your financial plan. Some of these mortgages have already reached their trigger rate while others have payments that are barely covering the interest and not making any dent in the principal.

7. How much should I spend on a car?
Cars can easily be bought and sold and there is almost always a cheaper option. Attachment to a car is usually much more emotional than rational, so it's less about giving up a real need and more about feeling good behind the wheel. If you are comparing car alternatives, make sure you factor in gas, insurance, parking, snow tires, oil changes, and any repairs not under warranty in addition to the monthly payment. You should be aiming for around 15% of your take home pay for all your car expenses combined.

8. What is a RESP?
You don’t need a financial advisor to understand that a Registered Education Savings Plan (RESP) is hands down the easiest money you will ever make on an investment. Deposits up to the $2500 annual limit receive a 20% grant from the federal government. If you miss a year, you are allowed to overcontribute to some extent in future years but playing catch-up is hard — just dump in whatever you can every year.

If you are short of cash, try taking a $100/month from your child’s CCB payment. Just like your RRSP and TFSA, you should be looking to invest the funds in your RESP rather than let it sit in cash. You can get a CDIC-guaranteed GIC at around 5% these days if you need a risk-free alternative until you get up to speed and feel comfortable investing in the financial markets.

Choosing a financial planning solution
Although it may seem daunting at times, learning how to manage your money and save and invest for the future will pay huge dividends over the course of your lifetime. Even if you come to rely on a professional for advice (some financial issues are very complex and consulting an expert is a wise move), a little financial education will help you evaluate their recommendations and make sound decisions, as well as provide an extra layer of reassurance and confidence.

2022 has been a financial disaster for many Canadians with high inflation, high interest rates, falling home prices in many markets, and stagnant wages. There is no easy financial fix for 2023 and it could be another tough year, especially if your financial knowhow is lacking.

We hope taking some concrete actions to improve your financial literacy and putting that knowledge to practical use to develop a sound financial plan is top of your resolution’s list. The choice of how you improve your financial literacy is up to you. Our advice is simple — make it a priority in 2023 and just dive-in!

Research by the Financial Consumer Agency of Canada has revealed that financial worries are the leading cause of stress for Canadians, surpassing the amount of stress stemming from either relationships or their jobs. The tables have turned and rather than focus on how our job is affecting our personal life, the focus is shifting to how our personal life (especially finances) are affecting our job performance.

Some research has been done and the new isn’t good for employers. Employees dealing with financial stress are twice as likely to report poor health issues including sleep problems, headaches and other illnesses. They are also more likely to be absent, use sick leave or quit altogether; have lower morale and engagement; poor working relationships; and show lack of focus and poor decision making. For businesses, this can result in administrative and financial errors, workplace accidents, production errors and poor customer service.

The consequences of financial stress have a very real cost to your organization. A 2019 study by the Canadian Payroll Association (CPA) revealed that 46% of all Canadian employees admit to being distracted by financial stress at work causing an average 8.1% loss in productivity. Extrapolating that data to an organization of 300 people making and average of $64,000 results in almost $700,000 in lost productivity over the course of a year!

Keep in mind that the CPA study was done prior to the pandemic and does not reflect the financial stress the average Canadian is now facing due to rapidly increasing interest rates driving up mortgage and loan payments, skyrocketing prices due to inflation and supply chain constraints, and most recently, volatile financial markets.

If you need more proof of mounting financial stress, the National Payroll Institute just released survey results that show a 26% increase in the number of Canadians living paycheque-to-paycheque in just the last year. The average non-mortgage debt is now over $21,000 with the latest household debt-to-income ratio (the amount of debt to disposable income) at an all-time high of 181.7% according to the latest figure from Statistics Canada.

Many Canadians are struggling financially and the question all employers should be asking themselves is, “how much is poor financial wellness impacting the success of our business?”

While organizations across the country are bolstering employee assistance programs to improve the overall well-being of their staff, one area that has been widely ignored is the effect of financial stress in the workplace. It is very ironic that despite the intensifying focus on employee wellness, the #1 concern of employees themselves is receiving scant attention.

Many employers already provide pensions, matching RRSP contribution schemes, and various other financial benefits as part of their EAP. A financial literacy education program greatly complements these benefits by raising awareness and helping employees understand how to take full advantage of the available benefits and leverage their impact. For example, teaching employees how to invest and grow their RRSP rather than just helping out with matching contributions. A lot of Canadians are unfamiliar with even basic investing knowledge such as the effects of compound interest, investment fees, index funds and ETFs, risk management, or how to use RRSPS and TFSAs to defer/reduce taxes and grow their retirement nest egg… or help purchase their first home.

Retirement planning is another complex issue for employees. A company pension plan is a great asset to have but adding an education program to help employees make good decisions now and lay down a roadmap for retirement will give them a lot more assets down the road. Gaining the financial knowhow to manage your retirement plan and feel comfortable about your financial future will also allow employees to focus much better on the job at hand.

When you invest in the financial well-being of your employees, your business will benefit from higher productivity, better morale, lower absenteeism and turnover, and better talent attraction. A 2017 study by Sun Life Financial showed that 70% of employees feel their employer should support their employees financially and 84% would be interested in financial education programs in the workplace.

By implementing a comprehensive financial education program and not just paying lip service to the issue with a “lunch & learn” (they are just one of many tools) you demonstrate a lasting commitment to your employees and their families. Effective financial education programs for employees offer a number of training resources and options including live or virtual sessions, self-guided online programs, and options to consult and seek advice from financial professionals.

The timing of when employees need financial advice may range from imminent (i.e. they are fending off calls from bill collectors while at work) to long-term (i.e. they are unsure of how best to start planning their retirement) and companies need to be prepared to support with either of these timelines. Even your best/irreplaceable employees can get into financial difficulties (they may be creative geniuses or masters of other tasks… but miserable with money) and it is in the company’s best interest to do what you can to help them get through their financial issues.

Financial pressures have seriously mounted in 2022 and a lot of employees are turning to their employers to help out, and the first place they look is to bolster their household income with higher wages and salaries. While more income is certainly going to help, it isn’t always feasible based on the company’s financial situation. More money will also never become a long-term solution if employees continue to make poor spending decisions or overspend, fail to adequately save and invest, and put off their long-term financial/retirement planning until later in life.

There are lots of bankrupt athletes and entertainers who have clearly demonstrated that you can always spend more than you make, regardless of your income! Focusing only on the top line (income) when it comes to your finances is a common mistake. Anyone who has followed Enriched Academy knows that we teach the skill of saving and investing is much more important than the skill of earning.

Millionaire Teacher author Andrew Hallam has been a regular guest over the years in our live webinars. His book is proof that a steady income and some knowledge of basic investing principles combined with a high school English teacher’s salary can lead to early retirement and a very comfortable life post retirement.

Companies are increasingly caught in the trap of having to offer more money to keep their employees happy and stop them from bolting to the competition for slightly more salary (especially as inflation bites).  However, they should also be looking at adding proactive education measures to help improve their employees’ financial life and stop them from job shopping in the first place.

The reality is that personal finance is likely to get even more difficult and more complicated in the future and helping your employees master their financial life will pay increasingly valuable benefits to both employees and employers. If you would like to learn more about how programs from Enriched Academy can help your organization get ahead of the curve, please reach out to [email protected]