Defining financial wellness

Financial wellness has become a ubiquitous term in our industry, but what does it really mean to be financially well, and how can we help employees get there? Our research has identified the key behaviors of a financially well person, and can help employees understand the steps they can take toward healthier financial lives.

Drawing on our experience working with participants, industry research, the expertise of our behavioral science team, and professionals across the company, including the Chief Investment Office, we created a hierarchical framework that identifies the components of a financially well individual, and the key behaviors we believe can serve as a roadmap to good financial habits. In fact, this framework was integral to the creation of Financial Wellness Tracker, which assigns a weight to each behavior to calculate employees’ financial wellness scores and to prioritize action steps they can take to help improve their financial health.

Graphic showing the hierarchical framework of behaviors that can help nurture good financial habits.

Each behavior in the framework is built on mastery of the previous. In particular, excelling in the first three behaviors offers opportunities to build and grow finances with behaviors four through six.

1 Manage expenses
This is the number-one behavior that can affect success. It encourages employees to establish a budget to help them control spending in line with what they earn. Employees need to be able to effectively manage their day-to-day expenses before they can plan for the long term.
2 Manage credit and shorter-term debt
Credit cards can be a great tool to help conveniently make purchases and build a good credit history. Paying at least the minimum on time is important, but if balances aren’t paid in full each month, interest can accrue, which can be costly. This behavior encourages employees to understand options and develop a payment strategy that can help free up money for other goals.
3 Plan for the unexpected
Financially well people set aside enough money to cover larger, unexpected expenses and/or loss of income. Having an emergency fund and appropriate types of insurance can help protect from financial loss without depleting other savings.
4 Prepare for retirement and other longer-term goals
Consistently contributing to a retirement plan to take advantage of the benefits of compound investing is important—as is starting as early as possible. In addition, employees should consider planning for other goals, such as a child’s education.
5 Manage long-term debt
Managing long-term debt includes making payments on time, having a healthy income-debt ratio, and working to reduce debt through refinancing or consolidation when that makes sense.
6 Preserve assets
As employees work through the hierarchy of financial behaviors, they learn how to manage and build their finances over time. But efforts to pursue financial wellness need to be ongoing. At this stage, employees should take action to protect their assets through proper documentation, including a will, living will and health care proxy, power of attorney, and estate plans.

Key takeaways

Offer financial education workshops and one-on-one consultations that can help employees address their broad financial needs and take better control of their finances.

Stress the behaviors that define financial wellness through a series of ongoing communications. Talk to your Bank of America team for ideas and resources to help you.