When it comes to setting financial goals, younger employees are less focused on retirement and more concerned about meeting day-to-day expenses, and that should concern employers, according to a recent study by accounting firm PwC.
A growing number of millennial and Generation X employees are withdrawing money from their retirement plans, leaving them vulnerable at a time when defined benefit plans are disappearing and health care costs are soaring, according to Kent Allison, a partner at PwC.
“The recurring theme is that people continue to be stressed and can’t withstand any short-term shock to their finances,” he said. “Employers tried to solve the retirement savings deficiencies by adopting auto enrollment and auto escalation features that forced people to contribute to their retirement plans, but they never asked why employees weren’t contributing in the first place. People have competing cash flow objectives so in a way, companies are exacerbating the situation.”
About one-third of millennial and Gen X employees have withdrawn money from their retirement plans and about half think it’s likely they will need to do so in the future, according to PwC’s 2017 “Financial Wellness” survey. Topping the list of financial stressors for younger workers is student loans. Among the millennials and Gen X employees with student loans, a growing number say their loans are preventing them from meeting other financial goals — 45 percent of millennials (up from 35 percent last year) and 42 percent of Gen X (up from 31 percent last year).
In addition to managing student loan debt, an increasing number of younger workers are also supporting a parent or in-law while raising children, reflecting the challenges faced by baby boomer colleagues. These financial burdens take a toll not only on overall worker well-being and productivity, but also on the company’s bottom line.
Employees who are stressed about their finances are nearly five times more likely to be distracted by their finances at work and twice as likely to spend three hours or more at work dealing with financial matters than colleagues who are not stressed about money, according to the survey.
Employers need to broaden their financial wellness efforts and focus on saving money beyond retirement, according to Allison.
“If they want people to focus on long term goals they need to help them deal with the short term,” he said.