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The Principal Financial Well-Being IndexSM Executive Summary - First Quarter 2007

The Principal Financial Group®, the nation's 401(k) leader, commissioned Harris Interactive® to conduct online research with employees (ages 18+) of small and mid-sized (SMB) U.S. businesses (firm size 10 – 1,000 employees) about their attitudes and perceptions regarding their financial well being and their current employee benefits. To compare responses, Harris Interactive also interviewed a group of retirees. Harris Interactive conducted The Principal Financial Well-Being Index survey online among 1181 employees and 536 retirees from January 24 –February 5, 2007. Data were weighted to be representative of the entire population of adult employees working for small to midsized U.S. businesses and retirees on the basis of age by gender, age, education, race/ethnicity, region, income and propensity to be online. With a probability sample size of 1,181 and 536, one can say with 95% probability that the overall results would have a sampling error of ± 2.85 percentage points and ± 4.23 percentage points respectively. Sampling error for data based on sub-samples may be higher and may vary. However, that does not take other sources of error into account. This online survey is not based on a probability sample and therefore no theoretical sampling error can be calculated. This is one in a series of quarterly studies to identify and track changes in the workplace of small and mid-sized (growing) businesses. The first Principal Financial Well-Being IndexSM survey was conducted in the United States in 2000.

Key Findings

Employee and Retiree Comparisons

  • Income Tax Refunds – Among those employees who have a feeling for whether or not they will receive a federal or state tax refund for 2006, 83% expect to receive a refund. Significantly fewer retirees (40%) than employees (83%) expect to receive a tax refund this year. When asked what they plan to do with the refund, approximately four in ten retirees (43%) and employees (41%) plan to save or invest the refund. Significantly more employees (44%) than retirees (15%) plan to pay down or pay off short-term debts. When comparing the employee results with last year, significantly fewer employees plan to spend the refund on consumer products – clothing, electronics, etc.
  • Financial Situation Concerns – Employees and retirees were asked to identify concerns they have regarding their current financial situation from a provided list. One quarter of the retirees felt none of the items listed was a concern compared to only 7% of the employees. The concern selected by the most employees (65%) was ability to save for retirement. The concern selected by the most retirees (41%) was protecting my financial assets due to an unexpected event. Many of the items on the list were concerns to at least 20% of the employees such as: reducing credit card debt or other short term debt (46%), protecting financial assets due to an unexpected event (43%), covering monthly expenses (40%), staying employed (36%), too much time spent at work (29%), physical safety and security for my family and me (22%) and saving for children's education (21%).
  • Change In Overall Spending - Employees and retirees were asked to describe how the current economy has impacted their overall spending in the past two months - 12% of employees and 7% of retirees said they had increased their overall spending a little or greatly versus 39% of the employees and 41% of the retirees that said they had decreased their spending a little or greatly. Female employees were significantly more likely than male employees to say they reduced their spending.
  • Attitude Regarding Financial Well-Being in Today's Economy - Employees and retirees were asked to identify how secure or insecure they feel about their financial well-being in today's current economy. Forty-one percent of the employees and thirty-five percent of the retirees said they feel very/somewhat insecure.
  • Financial Planning Services - Employees and retirees were asked whom they would normally go to first for financial advice. Forty-three percent of retirees and 38% of employees responded they would go to a third party professional such as a certified financial planner, bank or financial institution, accountant, benefit provider or financial services company, stock broker, insurance agent, or attorney. The most selected attributes retirees and employees are looking for in a financial planner are trustworthy, knowledgeable, investment performance history, and reputation. The two things that would be most likely to cause a retiree or employee to change financial planners are lack of responsiveness and investment performance.
  • Federal Legislative agenda - Retirees and employees were given a list of four domestic initiatives that are currently on the federal legislative agenda and asked what impact they believe each initiative will have on their personal financial well-being. Sixty-four percent of employees and 47% of retirees feel middle class tax cuts will have a positive impact. Medicare prescription drug reform was viewed as having a positive impact by 42% of retirees and 29% of employees. Twenty-eight percent of employees and 11% of retirees feel lower interest rates on student loans will have a positive impact. Nineteen percent of employees and 17% of retirees feel raising the minimum wage will have a positive impact on their personal financial well-being.
  • Current Issues - Employees and retirees were also asked to provide feedback regarding the impact of some current issues on personal financial well-being. The two items viewed as having a negative impact on personal financial well-being by over 40% of employees and retirees were the Iraq war and privatizing social security.

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Employees Only

  • Benefits- The availability of many benefits has increased significantly when compared to 1st quarter 2006 such as Health Insurance, Defined Contribution Plans, Life Insurance, Free Parking, and Tuition Reimbursement. Employees continue to rate health insurance as the most important benefit, followed by Defined Contribution Plans, Defined Benefit Plans and Disability Insurance. Health insurance is the benefit most employees would like to see their company improve upon.
  • Health Coverage Changes – Two out of five employees have not seen health coverage changes in the past 12 months. At least one third of employees have seen increased employee co-pays and increased employee deductibles.
  • Benefits for Recruiting and Retention – Two thirds of employees agree that having a good employee benefits plan encourages them to work harder and perform better.
  • Corporate Bonuses - Three out of ten employees (31%) received a corporate bonus for 2006, significantly more than last year (25%). The bonus was most often used to pay down or pay off short term debts (36%), purchase gifts during the holiday season (28%) and saved or invested (27%), similar to last year's responses.
  • Employer Sponsored Financial Planning Services – Three out of four employees said they would definitely or possibly use financial planning services if sponsored by their employer.
  • Voluntary Benefits - Employees were asked to identify what, if any, voluntary benefits their employers offer. The top noted voluntary benefits are dental, vision, short-term disability, and long-term disability. Aside from having access to voluntary benefits, employees were asked if they'd purchased these voluntary benefits through their place of employment – 58% said they had purchased them.
  • Salary Increase - Employees were asked if they anticipate receiving a raise from their employer in 2007. Sixty-five percent anticipate receiving or have already received a raise in 2007. Employees were asked what percent increase was expected/received, and the answered given by the largest percentage of employees (44%) was 3% to 4%.
  • Wage Increase or Higher Employer Match - Employees who have a defined contribution plan were asked if they would prefer a wage increase or higher employer match in their 401(k) plan (if the dollar amounts were the same). Almost six out of 10 (58%) would prefer a wage increase.
  • Defined Contribution Plan - Four out of five employees who have a defined contribution plan reported having money in the account. Employees with money in the account were asked how recently they have changed their asset allocations and how recently they rebalanced their plan. Forty-three percent have not made any changes to their asset allocations and forty-five percent have never rebalanced their account.
  • 401(k) Automatic Enrollment - 21% of employees working at firms with 10-1000 employees indicated that their employers offer automatic enrollment. 41% of employees surveyed agree completely or somewhat that all eligible employees should be auto-enrolled.

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