Fidelity, a provider of recordkeeping
services for the NTCA Savings Plan,
believes financial wellness is holistic
and multifaceted. The objective side
of the equation is driven by an individual’s total financial situation; the
subjective side is shaped by how the
person feels about his or her financial
situation. Wellness is not merely a
function of long-term financial behaviors such as retirement preparedness,
nor is it simply a matter of how well
people cope with day-to-day budgeting. All time horizons play a role.
Fidelity believes that there are four
key areas of financial wellness:
Spending within one’s means is the
foundation upon which financial wellness is built. Maintaining a budget
and a positive cash flow are necessary
(though not sufficient) precursors to
managing debt, saving for the future,
investing and protecting against risk.
As a rule of thumb, Fidelity suggests
spending no more than 50% of after-tax income on essential expenses,
such as housing, food and health care.
To achieve financial wellness beyond
the here and now, individuals must
not only take control of their debt but
also save and invest for the future.
This includes long-term savings and
investing (e.g., for retirement) but also
saving for short-term expenses such
as home repairs or vacations.
Specifically for retirement, Fidelity
suggests saving a total of at least 15%
of one’s pretax income (combined
employee and employer contributions) each year.
Carrying too much debt can be a con-
siderable barrier to savings. While all
debts pose a burden on financial
resources, not all debts are created
equal: Some forms of high-interest
debt (e.g., credit card debt and payday
loans) are particularly harmful
because it can be hard to make prog-
ress if only minimum monthly pay-
ments can be met. Other forms of
debt such as mortgages generally have
lower interest rates and tax advantages,
and can be a good way to build credit.
Fidelity suggests employees carry a
debt-to-income ratio of no more than
36% and build a financial plan for paying down high-interest debt (e.g.,
credit card) as quickly as possible.
Financial wellness requires not only
managing, accumulating and investing
money appropriately, but also ensuring
against potential losses. Without adequate emergency savings and/or financial protection against catastrophic
health shocks, disability or property
loss, one’s financial situation can go
from comfortable to distressed in
the blink of an eye. Fidelity suggests
building an emergency savings fund
to cover three to six months of essential expenses and carefully reviewing
health care and insurance benefits
annually to ensure adequate coverage.
A Plan That Works
In June 2016, Fidelity launched its Plan
for Life Financial Wellness Program.
This program helps all employees live
well financially, now and into retirement. Our simple and targeted experience helps build more confidence
and control for today. The program
features several educational tools,
including a financial wellness checkup
called MyMoney Checkup (Fidelity.
Checkup helps people know where
they stand financially and where they
can do better.
In just the first nine months, Fidelity
received over 2 million visitors, and
more than 330,000 people completed
the MyMoney Checkups.
Those completed checkups also
gave us a wealth of insights to help
us refine our program. Here are the
top three insights:
Most workers are one
unexpected bill away from
have less than
saved in case of emergency6
2 OR MORE
forms of debt7
either just break even or spend
more than they earn each month7
here and now,
must not only
of their debt
but also save
and invest for