Essential Financial Products Every Employee Should be Aware of

Essential Financial Products Every Employee Should be Aware of

  May 23, 2024

SEB Marketing Team

Creating financial well-being begins with awareness. However, many employees may not fully grasp the range of financial products available to them beyond their basic compensation. Here are some essential financial products every employee should be familiar with, from retirement plans to insurance coverage and beyond.

Retirement Planning Essentials: Having enough money when for retirement is something every employee should consider. It starts with estimating how much income they will need on retirement and then planning products that will help them achieve it. Let’s look at the most popular ones : RRSPs and TFSAs.

  • The Registered Retirement Savings Plan (RRSP) is a cornerstone of retirement planning. An RRSP match from employers involves the employer contributing to the employee’s RRSP based on a percentage of their salary, usually up to 18%. This matching contribution accelerates the growth of the retirement savings while providing immediate tax benefits. Employees benefit from tax-deferred growth on their contributions and the additional boost from employer contributions, setting them on a solid path towards retirement security.
  • Tax-Free Savings Account (TFSA) is a newer (2009) versatile savings tool that offers tax-free growth and withdrawals. Currently, the contribution limit is $7000 per year and any investment gains or interest earned within the account are tax-free. Unlike RRSPs, withdrawals from TFSAs are not taxed, which makes them ideal for both short-term and long-term savings goals. TFSA contributions provide flexibility and tax efficiency, allowing employees to save for various purposes, from emergencies to major life events and retirement.

Health and Well-Being Investments:  Investing in health and well-being not only promotes physical and mental wellness but also enhances productivity, fosters a positive work culture, and reduces healthcare costs in the long run.

  • HSAs (Health Savings Accounts): Health Savings Accounts (HSAs) are increasingly popular, offering tax advantages for qualified medical expenses. Serving as an alternative to traditional insurance plans, employees can contribute to an HSA with pre-tax dollars, reducing their taxable income and saving on taxes. Contributions to HSAs grow tax-free, and withdrawals used for qualified medical expenses are also tax-free.
  • FSAs (Flexible Spending Accounts) or sometimes called Personal Spending Accounts (PSAs): might be used to cover eligible healthcare expenses not typically covered by insurance. These accounts can be used for various medical expenses, including deductibles, copayments, and certain over-the-counter medications. By utilizing FSAs (or PSAs) effectively, employees can maximize their healthcare dollars and reduce out-of-pocket expenses.

Education Savings Strategies: Education savings strategies not only pave the way for academic pursuits but also alleviate financial burdens, empower future generations, and foster socio-economic mobility within families and communities.

  • RESP (Registered Education Savings Plan): This is a savings plan opened at a financial institution designed for long-term savings for a child’s post-secondary education. Contributions to an RESP are not tax-deductible, but the investment grows tax-deferred until it is withdrawn and the government supplements the investment between 20-40%. RESP contributions empower employees to proactively save for their children’s education while leveraging government grants and tax-deferred growth.

Insurance Coverage and Protection: Insurance coverage and protection provide invaluable peace of mind by safeguarding against unforeseen financial burdens, such as illness, disability, or loss of life. Additionally, insurance can mitigate the risk of financial hardship, offering a safety net that enables individuals to focus on recovery and rebuilding their lives with confidence and stability.

  • Life Insurance: Life insurance provides financial protection for Canadian employees and their families in the event of death. There are various types of life insurance policies, including term life insurance, which covers a specific time period, and permanent life insurance which provides lifetime coverage. Life insurance provides peace of mind, ensuring financial security for loved ones in the face of unexpected events.
  • Disability Insurance: No one plans on having a disability and not being able to work. Disability insurance provides income replacement in the form of monthly benefits if an employee becomes disabled and unable to work. Short-term disability insurance typically covers disabilities lasting up to one year, while long-term disability insurance provides coverage for disabilities lasting longer than one year.
  • Critical Illness Insurance: Critical illness insurance is often overlooked and offers financial protection for specified critical illnesses, such as cancer, heart attack, or stroke. Upon diagnosis of a covered illness, critical illness insurance pays out a tax-free lump sum benefit to the insured, which can be used to cover medical expenses, replace lost income, or pursue alternative treatments. Critical illness insurance provides financial security and flexibility, allowing employees to focus on their recovery without worrying about financial burdens.

HR and benefits professionals play a vital role in enhancing financial literacy and well-being within the workplace. By educating employees about essential financial products like RRSPs, TFSAs, RESPs, and various types of insurance, they can help in fostering financial wellness.  This empowerment enables employees to make informed decisions, build their financial future, and pursue their long-term goals with confidence.