Reduce 401k Borrowing Temptation Through Financial Education

December 09, 2016

401k, Financial Wellness

Joel Manzer

401kWe’ve previously shared our thoughts regarding The Good, The Bad, and The Ugly of 401(k) Loans, and also shared some insight about the Charles Schwab survey this past August.[1]

It’s good to be able to help employees when life happens, and that’s one aspect of why FinFit is available to businesses.  But helping employees to be financially ready when life happens is our goal.

Let’s take the old phrase, “Give a man a fish, he’ll eat for a day… but teach a man to fish, he’ll eat for a lifetime.”

Now let’s rephrase it for Financial Wellness, “give an employee a paycheck and they’ll live paycheck to paycheck, but teach an employee about financial wellness and they’ll be ready for when life happens.”

Those challenges called life is why some employees may seek a way to obtain a loan through their 401(k).  From a major car or home repair, or hospital visit, or college for their kids – 401(k) loans are used for a variety of reasons other their initial purpose, for an employees retirement.  And when a 401(k) loan occurs, it may have potential to reduce a company’s overall retirement portfolio – which can be bad for business.

So, how can we reduce the temptation for employees to obtain a 401(k) loan?  By providing a Financial Education platform that is individualized for them, in their specific area of need.

According to the Charles Schwab survey, we thought it compelling that although 91% of employees would think twice about taking a new job if a 401(k) isn’t offered, but only 43% knew how much they should save for retirement.[2]

This essentially means that employees know they need a good retirement plan, but they don’t know how to maximize their retirement benefit and be active participants in their plan.  If they did, they would find other means to obtain funds when life happens, and not be tempted at withdrawing funds from their 401(k).

When an employee becomes a member of FinFit, they are asked to take an assessment, which creates an individualized self-guided plan to educate and encourage employees to find and make the right decisions to prepare them for when life happens.  Other apps and tools are further available to fill in some of the other potential challenges that life may throw at them, reducing potential financial burdens off of the employee so they can focus on their Employers business.

 

[1] http://news.finfit.com/the-401k-study-youll-never-forget

[2] ibid

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