The Large Divide Between Financial Institutions’ Promises and the Real Life

On April 17, 2021, The New York Times published an article under its Retiring section titled “Rising Debt, Falling Income: How to Dig Out.” The article showcased individuals and families affected financially due to job losses related to COVID-19 or other economic factors, ailing family members with high medical bills, insufficient awareness of the implications of having credit card balances, and limited savings. This contrasted sharply with an industry event I participated in just a few days prior. The event had session after session on the role of tax-advantaged benefit accounts, namely Health Savings Accounts (HSAs), in achieving or approaching some form of financial wellness, however we define it. This article did not.

Several points struck me as an analyst as well as an individual averse to carrying any credit card debt because I am skittish about “stretching my leg beyond the length of my blanket,” as an old Turkish proverb goes.

First, there was no mention of any financial institutions, life insurance carriers, or retirement planners. The author chose not to interview or quote any financial or tax or retirement planning experts for this article. The only entities mentioned were nonprofit navigators, associations, or organizations. I find this interesting because a nonprofit entity does not stand to gain any, well, profits from dispensing advice, providing support, and serving as an advocate when it comes to renegotiating mortgage or credit card debt for individuals. In a sense, they are independent third parties, and have financial stake in the race. Financial entities―in some shape or form―do.

Next, it can take a good five years to get back on solid financial ground. By solid financial ground I mean paying off credit card debt, getting in some form of a debt management program, downsizing one’s home, and adjusting one’s lifestyle to “fit the length of one’s blanket.” In other words, the journey to financial wellness can take years before an individual becomes a viable and profitable client. It’s not necessarily a quick fix to get more individuals to open HSAs, or contribute assets to HSAs or 401(k) plans.

Third, the messaging stuck to the basics. There were no fancy jargon, acronyms, or multilayered tax strategies in the article. Tax benefits left on the table were mentioned once. I realize this is a difficult balance to strike considering many factors, such as contributing to a 401(k) plan until you can get the employer match, then maximizing the HSA contributions, not withdrawing or spending them but investing them once you have a minimum of US$1,000 or US$2,000 and saving up funds (post-tax by the way) to pay for out-of-pocket health expenses. I’m not even getting into pre-tax, triple tax advantage, out of pocket, deductible, co-pay and co-insurance, high-deductible, tax-free, use-it-or-lose-it, or portable accounts, and what they mean―or rather, don’t mean―to the regular individual. Even though I’ve conducted primary research on financial wellness, I sometimes must stop for a moment to explain each of these to a friend.

The take-away is that there is a blind spot between financial institutions’, life insurers’, and retirement planners’ capabilities, and the individuals in need of financial guidance and advocacy. Today this divide is mended with Band-Aid fixes rather than comprehensive policies, consumer habits, or financial products. The divide is complicated by decades of stagnant real earnings (which, in all fairness, financial institutions and retirement planners can’t control or fix), longer life expectancies, costly healthcare treatments that go with treating chronic health conditions, and health insurance plans―commercial or government sourced―with coverage that are not readily understood by enrolled members.

My recommendation for financial institutions, retirement planners, and life insurers is to consider incorporating some of the aforementioned points to make their offerings resonate more strongly. These considerations may include partnerships with nonprofit organizations, an in-house community outreach or philanthropic initiative, presenting financial wellness as a long-term plan for clients and prospects, and simplifying the vocabulary used. We’ve come a long way in bridging that divide, but there is an even longer way to go.

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