On average, white families have eight times the wealth of Black families and five times the wealth of Hispanic families. For companies prioritizing DEI as a core value to their organization, addressing this wealth gap is the first step towards advancing racial equity.
Companies play a major role in advancing financial inclusion and increasing the wealth and societal position of underrepresented groups. That starts with evaluating your current set of employee benefits and making sure that your financial wellness programs aren’t unintentionally racist.
Why your employee benefits are holding back your DEI efforts
“For a workplace to attract a competitive workforce – a diverse workforce – it must first be designed to support one,” said Sejal Patel Daswani, Chief People Officer at Iterable. “Equal and fair treatment should be infused in every segment of the business, and this includes perks and benefits…these all have to be designed with inclusivity in mind.”
Traditional employee financial benefits often aren’t enough to attract, engage, and keep a more diverse workforce. Often, company perks and benefits don’t fully incorporate feedback from employees, and the same sets of benefits are repeated in the following years with little to no impact on improving employee engagement.
The first step in creating a more DEI-centric organization is to evaluate your current financial employee benefits to ensure that – from at least a race, gender, and age diversity perspective – you improve financial equity and inclusion within your company’s ranks.
The current structure of employee benefits doesn’t advance financial inclusion
“Companies should review their current financial benefits and offerings to identify any potential barriers or gaps that may disproportionately affect BIPOC employees,” according to Garit Boothe, CEO and founder of Digital Honey. “This can include evaluating the accessibility, affordability, and cultural fit of different benefits.”
The gender and racial wealth gaps are already well-documented. Black women and Hispanic women, for example, earn $0.64 and $0.56 on the dollar respectively compared to white men. But when it comes to the workplace, these variations in compensation are magnified due to the nature of how most employee financial benefits are currently set up.
Let’s take employer-sponsored 401(k) retirement plans.
Let’s say that Company X offers a 6 percent max on 401(k) annual contribution matching.
In one corner, we have Bill, a white man who holds a senior director position at Company X. His base salary is $140,000. For Bill, six percent of his salary is $8,400 – contributing that maximum amount may not have a huge impact on his quality of life. Minus that 401(k) contribution, he can likely continue to sustain his spending habits and cover all necessary expenses with the rest of his income.
In the other corner, we have Sara, a Black woman who holds a junior account manager position. Sara works for the same company but earns $50,000. For Sara, a six percent contribution towards her 401(k) plan is $3,000 in income. At her lower base salary, that $3,000 could otherwise be used on non-discretionary expenses. Instead of contributing six percent, she might contribute at a lower percentage of three percent.
Because of the nature of employer contribution matching, Bill benefits from the system and has added $8,400 to his long-term wealth (totaling $16,800 in additional retirement savings). Meanwhile, Sara has added $1,500 (totaling $3,000 with the employer match) to her retirement savings, but she’s also missed out on an additional $3,000 for not contributing the full six percent.
Many employers offer contribution-matching, but oftentimes white men are the ones that participate at the recommended maximum contribution. There’s little to no room (in the form of added employee benefits or programs) to support workers like Sara in maximizing their contributions.
Underrepresented groups are under-participating in financial employee benefits
Stories like Sara’s aren’t unique. For workers, participation is less likely – or, more appropriately, participation isn’t optimized – because there’s likely a bigger focus on short-term goals (like making sure they’re equipped to take on sudden expenses). Often, this looks like under-participation from racial & ethnic minorities and women.
According to the Employee Benefit Research Institute’s (EBRI) 2021 Retirement Confidence Survey: A Closer Look at Black and Hispanic Americans, participation in retirement savings is roughly the same across race/ethnicity and income.
But the same study also reveals that actual total savings and investments are very different between different racial demographics, with Blacks and Hispanic Americans having overwhelmingly fewer amounts compared to their white counterparts.
From the data that we’ve looked at over the years, the bottom line is clear: if you’re a woman, if you’re younger, and if you’re from an underrepresented racial & ethnic group, then you put less money into retirement accounts like a 401(k).
BIPOC are more likely to take out 401(k) hardship loans
BIPOC (Black, Indigenous, and people of color) are more likely to take out hardship loans from their retirement accounts like a 401(k). And, according to our research, the need for accessible money explains a big part of this. It is simply tougher to access cash with traditional employee offerings like 401(k), 403(b), and Roths. All these offerings carry restrictions, varying levels of penalties and fees, and administrative access difficulties.
Going back to our example between Bill and Sara, Sara is likelier to take a loan or an early withdrawal out of that 401(k) to handle an unexpected emergency, further hurting her changes at retirement security.
You also see this story play out with emergency savings. EBRI, Pew Research, AARP Research, and so many others have uncovered that minorities have far greater difficulty handling financial emergencies (largely due to little to no emergency savings).
How to promote financial inclusion as a core DEI initiative
Knowing now the ineffectiveness of certain employee benefits, what can you do to help improve financial inclusion within your organization? Start by revisiting the foundations on which your company values stand – often, doing so can also support other DEI initiatives in your action plan.
Create an environment to support conversations around financial well-being
“You’re not going to get the benefits of diversity, like more robust decision-making and innovation, unless you actually have a culture where people can speak up,” said Michele Parmelee, Deloitte Global’s deputy CEO and chief people and purpose officer.
In order for any company to put into play a set of initiatives that can actually affect the financial well-being of its employees, you need to ensure that you create a work environment where people feel comfortable expressing their thoughts.
According to a report from Mercer that looked at diversity, equity, and inclusion in the workplace, just 38 percent of organizations review engagement survey responses by race or ethnicity to understand any differences in employee experience. So, it’s not even just about creating a space for employees, generally, to voice their opinions about employee benefits, but it’s also about paying attention to the underrepresented voices in the room.
“Companies should regularly monitor and evaluate the effectiveness of their financial benefits and offerings to ensure that they are meeting the needs of BIPOC employees and addressing any disparities that may exist,” said Boothe. “This involves gathering feedback from BIPOC employees and making any necessary adjustments to benefits.”
Close the feedback loop and involve employees in conversations and decision-making on financial well-being and other employee benefits and perks that you’re trying to provide. A few suggestions for how to approach that:
Avoid a “top-down” approach: This approach doesn’t foster a culture of commitment when leaders are telling employees what to do or outright announcing new employee benefits without having gotten any feedback throughout the organization.
Talk about compensation benefits in executive meetings: Incorporate conversations around employee financial benefits into entire-executive meetings. Also, use those meetings as opportunities to discuss your DEI budget and resources. Then, make sure you share with HR what efforts are attempted or made by executive leadership.
Hold senior leadership accountable: Instead of shifting the onus of responsibility to HR, hold yourself and your senior leadership team accountable for outcomes tied to your DEI initiatives, including any changes you might make to your employee benefits.
Introduce engagement surveys: Engagement surveys and scores, such as financial well-being surveys (like the ones we offer at Sunny Day Fund) that measure the employee experience across diversity and inclusion factors. Share with employees how this information is used.
These efforts pay dividends. According to an Achievers study, almost 90% of employees say there’s a high level of inclusion at companies where there’s a strong culture of recognition from company leadership/personnel.
Offer financial coaching and financial wellness programming
“Companies can offer financial education and resources, such as financial planning and budgeting support, to help employees from marginalized or disadvantaged groups build wealth and financial stability,” said Boothe.
There’s often this misconception that employees who don’t participate in employee financial benefits (or those who limit their participation) aren’t fully versed in money management and overall financial literacy, that’s usually a limited view of what’s happening. Offer financial wellness programming and coaching for your employees but pay attention to the backgrounds and situations of employees to figure out what makes the most sense to provide.
“For your DEI endeavors, it may be crucial to take financial wellness into account. Diversity considerations should be considered from the start. Depending on their origins, your staff’s demographic will probably have a variety of worries,” said Carl Jenson, a financial expert who founded Compare Banks.
“Many people are afraid to speak with a financial counselor or CPA because they are afraid of the charges. This may cause them to take no action at all, which could be detrimental to their financial prospects. This issue can be resolved by [offering] a financial wellness program [that] can remove the uncertainty involved in attempting to find an expert to assist [them].”
Offer identity-specific, empathy-centric financial coaching to your employees so that they can work with experts who can empathize with their unique financial situation based on similarities in backgrounds or identities. These programs should start from the basics of budgeting rather than jumping straight into talking about 401(k)s and Roth IRAs. The basic idea is to meet each employee where they are in their financial journey.
Provide an emergency savings benefit
“An emergency savings program can be an important tool for addressing and mitigating the impact of systemic inequalities and financial vulnerabilities within the company,” said Boothe. “By providing access to financial resources in times of crisis, the company can help to reduce the negative effects of financial stress and instability on its employees, particularly those from marginalized or disadvantaged groups.”
Things like 401(k) personalization and investing access are critical to DEI efforts, but for employees (especially those from underrepresented groups) to reach longer-term financial goals, they must first lay a solid emergency savings foundation.
And emergency saving benefits are what people overwhelmingly support. According to AARP Research, 9 in 10 working adults support emergency savings as a benefit.
Offering an emergency savings benefit can break down barriers to access and participation for employees who crave a stepping stone to retirement savings.
To meet this request, enable direct-from-employer contributions into an FDIC-insured savings account for individual employees.
For example, at Sunny Day Fund, we help employers with a simple payroll setup to allow automated employee and employer contributions into a standalone FDIC-insured savings account with no minimums or penalties. This removes friction and reduces fear of access with fast, penalty-free, and stress-free withdrawals.
This employee benefit has proven successful. $50 is the typical employee contribution per paycheck, with balances exceeding $400 after just four months.
Another alternative is to offer your employees alternatives to 401(k) hardship loans. Can you set up an employer-provided loan or cash grant so that workers are disincentivized from pulling from their retirement accounts? Can you work with a third-party or local bank to set up this kind of programming?
Accessible money and cash flow matter to your financially underserved employees, and an emergency savings program is one way to level the playing field.
Reward savings behavior and outcomes
Give meaningful economic incentives for individuals who want to build emergency savings by enabling them to earn rewards for their saving contributions and balances – regardless of how large or small their contributions.
Sunny Day Fund enables employers to do exactly that with customizable, quarterly rewards into employees’ standalone FDIC-insured savings accounts, reinforcing resilient savings behavior. Employers typically invest $150 to $600 per year per employee based on configuration, including rewards, taxes, and fees.
Companies are also primed for additional savings due to better retention, productivity, and well-being. For example, a company using Sunny Day Fund experienced a roughly 20 percent higher retention rate compared to industry peers, which is remarkable, especially in this tight labor market.
Give your HR team the tools and resources to succeed
In order to pursue financial inclusion as a key DEI initiative, you need to make sure that your HR team is well equipped – with the resources, the tools, and the support – to ensure successful implementation of tactics.
Make sure that you communicate regularly and openly with your HR team. This gives you an opportunity to figure out employee sentiment on compensation benefits, and what possible solutions people are pitching. This also gives you an opportunity to relay the decisions made on the executive team. Additionally, check in with HR to make sure that your company’s benefits are being communicated to your employees in the first place.
“Companies should make sure that all employees are aware of the financial benefits and offerings that are available to them, and actively promote these benefits to BIPOC employees. This can include providing information about benefits through various communication channels, such as email, newsletters, and company-wide meetings,” said Boothe.
More importantly, give HR teams the ability and tools to measure participation and engagement. Who is participating in your employee benefits, and at what levels? What’s the percentage of loans and withdrawals from retirement accounts? Why aren’t people taking part and what’s causing them to turn to these types of hardship withdrawals?
The more data your HR team can track and measure, the more informed you are about how to address employee engagement in benefits – and what areas you need to revisit so that you’re better meeting the wants and needs of your employees.
For long-term impact on financial inclusion, advocate for financial policy changes
The passing of SECURE Act 2.0 is a good starting point for helping to make strides in improving wealth across underrepresented groups, but there’s always more that can be done to help close the gender and racial wage gap. Companies can advocate for policy changes that could systematically change the ways wealth is distributed, like supporting efforts to increase the minimum wage or advocating for fair lending practices.