Understanding Financial Well-Being vs. Financial Stability

a man and woman at their table at home looking at their financial information

Financial well-being and financial stability should not be either/or propositions in a workplace benefits package. They are both critical to supporting employees — financial stability gives them the tools, while financial well-being teaches them how to use those tools.

When it comes to helping employees with their financial plans, HR specialists should focus on both financial well-being and financial stability. While the two terms might sound the same, they cover two separate and important areas. Here is a breakdown of the differences between financial stability and well-being along with some ways to create effective workplace benefits for each one.

Financial well-being vs. financial stability

In benefits literature, HR specialists may see these two terms used interchangeably, as they have a fair amount of overlap. Both terms cover helping employees with their savings, investing and financial growth. They also both support employees by creating a "cushion" to better manage emergencies. However, they deal with these issues in different ways.

Financial well-being is more focused on education. It's about making sure employees have the knowledge they need to achieve financial stability. This includes getting the most out of their workplace benefits, knowing how to budget and manage debt and taking advantage of any available tax credits and financial aid opportunities.

Financial stability, on the other hand, focuses on whether an employee has enough in savings to cover their needs. In the short-term, this means having enough to cover emergencies and life changes, like having a new child. Long-term financial stability considerations might include whether employees are putting enough money aside for their retirement.

Workplace benefits for financial well-being

On the financial well-being side, HR specialists should make sure that employees understand both their benefits and their overall financial plan. For workplace benefits, HR specialists could distribute educational materials from their insurance and retirement plan providers and might also ask if they would send a representative to answer questions and help employees enroll.

HR specialists could also support overall employee financial literacy by providing free guides, videos and courses on financial topics and setting aside some workplace time for employees to study these materials.

Finally, employers could offer financial planning as an additional workplace benefit by hiring an advisor to meet with employees individually so they can develop their own financial plans.

Workplace benefits for financial stability

To improve financial stability, HR specialists should focus on benefits that make it easier for employees to access their money and build savings. Implementing an innovative payroll system can be instrumental in these efforts. For example, employers could set up payroll so that employees can request part of their wages before formal payday. That early access to cash can be a crucial lifeline, more than one-fourth of Americans would not be able to come up with $400 in an emergency, according to the Board of Governors of the Federal Reserve System.

"New generations (particularly Gen Z and millennials) are choosing not to have bank accounts, even though they could obtain them," says George Mavrantzas, ADP VP of Strategy and Thought Leadership. "This is mainly due to the convenience factor of alternative pay methods such as paycards."

Offering paycards for employees is an equitable alternative that can provide a convenient way for them to receive their pay. For instance, with Wisely® by ADP card system, wages are deposited on a paycard that works like a Visa debit card. Employees can then use it to make purchases and withdraw money from ATMs.

Another option worth considering is offering disability insurance to cover the wages of sick and injured employees. For the long term, employers could offer benefits that help employees save money, like an HSA for healthcare expenses or a 401(k) for retirement. Both programs allow employees to build their savings, lower their taxes and put themselves in a more stable financial position.

A balanced program

Financial well-being and financial stability should not be either/or propositions in a workplace benefits package. They are both critical to supporting employees — financial stability gives them the tools, while financial well-being teaches them how to use those tools.

HR specialists should review their benefits and see whether their programs offer enough to help employees achieve stability. Even small upgrades, like early access to wages or an unmatched 401(k), could go a long way toward putting employees in a more secure position.

At the same time, quality financial education can help employees get more out of their workplace benefits and possibly find other ways to build their savings. For example, the 2021 EITC tax credit was worth up to $6,728, but 20% of tax filers eligible for this money did not claim the credit, according to the IRS. Your financial well-being program can help employees track down similar missed opportunities.

Financial planning doesn't cover just one area of life, and neither should employee benefits. By understanding the difference between financial well-being and financial stability (and making sure they are both part of your package), HR specialists can help employees achieve long-term goals in prosperous conditions.

Learn more

Read: Why Employees' Financial Security is Every Employer's Business

Download our employer guide, Employee Financial Wellness Programs