The Government Accounting Office (GAO) defines financial literacy as:
“The ability to understand financial choices, plan for the future, spend wisely and manage the challenges that come with life events such as job loss, saving for retirement or a child’s education.”
Financial Literacy is so important for both Employees and Employers in the workplace for a multitude of reasons.
- 33% of workers report money worries often hamper job performance, while 4 out of 5 workers report using work time to deal with financial stress. Less than 1 in 3 workers rate themselves as “confident” about their fiscal know-how and 34% of workers rate their financial stress as high to extreme. They would like to have financial education provided by their company.
- Owners and managers claim that effective financial education can reduce their employees’ vulnerability to major economic crises, improve the overall level of productivity in their organization, increase participation in company-sponsored retirement plans and improve behaviors that affect the company’s bottom-line.
To address this growing trend, we've put together the following FAQs surrounding Financial Education in the Workplace and how your company can improve employee satisfaction, reduce employee financial stress and improve employee retention.
How is Financial Education offered/taught to Employees?
The most popular method of financial education is live, on-site classes for employees that encourage participation by spouses/significant others. This is especially favored by employees who are over the age of fifty. On-line access to financial education and information is second, while having access to instructors via phone or e-mail is also popular.
What is the bottom line for offering financial education in the workplace?
Financial education through the workplace is both convenient and flexible, making participation more likely. There is also the added advantage that these programs can create a more seamless connection between employees’ personal financial plans and other benefits they receive at work.
A solid educational foundation, when combined with the ability to take action, is a recipe for financial wellness and can result in employees having a greater appreciation for the relevance and usefulness of other benefits at work. This leads to positive changes in behavior that ultimately lead to more secure, satisfied employees and a better, more profitable bottom-line for the company.
Why should we offer Financial Education in our Workplace?
Reason #1: Better Employees—Behavioral Change brings better habits and financial security
Employees today are faced with a wider and increasingly complicated array of options for managing their money. Technological advances and unscrupulous predatory vendors have made Americans more vulnerable than ever before. Employees with financial distress are distracted and less focused on the job at hand and take company time to discuss financial issues with creditors, collection agencies, family, friends, and co-workers. Human Resources professionals must spend time assisting many of these employees with payroll advances, garnishments, and loans from 401(k) plans. Additionally, do-it-yourself on-line financial programs, by themselves, are insufficient for most adults. Employees need help.
Employers who offer access to quality basic financial education, particularly when it includes retirement planning (not just information about the company retirement plan), find that it often increases employee savings and retirement plan contributions. Workplace financial programs can work well when the instructor emphasizes budgeting, employee benefits, and risk management choices, as well as planning for retirement. There has never been a more imperative time in history than today to promote and direct the critically important subject of financial literacy—and there is no better place to do it than the workplace.
Financial education through the workplace is both convenient and flexible, making participation more likely. There is also the added advantage that these programs will create a more seamless connection between employees’ personal financial plans and other benefits they receive at work.
A solid educational foundation, when combined with the ability to take action, is a recipe for financial wellness and can result in employees having a greater appreciation for the relevance and usefulness of other benefits at work. This leads to positive changes in behavior that ultimately lead to more secure, satisfied employees and a financially stronger bottom-line for the employer.
Reason #2: Lowers Employer Liability— Potential Legal Issues for Employers are reduced
The Employee Income Security Act (ERISA) states:
“When properly informed, educated and given reasonable choices, plan participants (employees) would make good decisions.”
ERISA was historically used in class action lawsuits to recover funds from mismanaged plans. Later ERISA claims became open to individuals to file and today a claim can be filed online. In 2017, almost 2500 claims were closed, and over 67% of those claims resulted in monetary settlements. The total monetary recoveries for 2017 were 696.3M.
More recently, the legal community has responded by creating entire law firms dedicated to ERISA claims and even pursuing employees to file claims in adds on television, radio, and online markets.
Given that most Americans are NOT financially prepared for retirement and given that in a recent survey people claimed that their retirement plan also consisted of, “winning the lottery, inheriting money, or suing someone,” it seems that we may be in the midst of a perfect storm.
Reason #3: The Company’s Bottom-Line—Studies prove that the company will be more profitable
Most employers realize that organizational performance depends on employee performance and that employees perform better when they are healthy. Many employers recognize further that employees perform on the job when they perceive they are financially healthy rather than being distressed about personal money matters. Partly for that reason, employee financial literacy is one of the most talked about issues for adults today.
Surveys show that employers rank the toll on productivity caused by financial problems as one of the most pressing yet often overlooked concerns in the workplace.
Financial wellness in the workplace is also valuable to employers because financial advice and guidance programs are associated with higher levels of benefits satisfaction. And benefits satisfaction is strongly correlated with job satisfaction and loyalty. Employees who participated in a financial planning classes through work are more likely to say that they feel loyal to their employers.
According to Dr. Thomas Garman, Professor Emeritus, Virginia Tech, employees who are stressed about their personal finances, who are not making good money and credit management decisions, and who have not wisely selected among employer provided benefits cost their employers $750 to $2,000 annually. This is wasted employer money. Successful workplace financial programs can provide real bottom-line benefits for employers.
These workplace education courses are one of the few methods proven to actually improve behavior. These improved behaviors have a direct impact on an organization’s bottom-line.
- Less absenteeism
- Higher productivity
- Clearer focus on the job at hand
- Improved physical and mental health
- Increased participation in company retirement plans
What is the cost to employers for Not Providing Financial Education?
Financially troubled employees are absent more than others and they waste more time at work dealing with personal financial problems. At least two-thirds of employees deal with personal financial matters at work. “Employees with financial problems,” says E. Thomas Garman, Professor Emeritus, Virginia Tech, “are like sharks taking bites out of the bottom line.”
Dr. Thomas Garman, one of America’s most renowned authors and leaders of financial education in the workplace, completed a study regarding the cost to employers for not providing financial education for their employees. Dr. Garman’s assessment was based partially on an award-winning research study done by Dr. So-hyun Joo, Texas Tech University, which concluded that employers increase profits by $450 annually for each employee who slightly improves his or her financial behaviors. The return comes from reduced absenteeism and less work time used dealing with personal financial matters.
In addition, Dr. Garman estimates that the employee who is distressed about his personal finances and dissatisfied with his financial situation incurs, on average, $300 more in health care costs annually than those who have little or no financial distress.
But that’s not all! For employers offering flexible benefits accounts, each financially literate employee who makes better choices among employer-sponsored benefits may save the company an additional $474 every year.
And there’s even more money that may be save by employers when it comes to money potentially wasted due to financial distress. When it’s all said and done, Dr. Garman’s estimate of the total cost to employers is somewhere between $750 and $2,000 annually per employee.
Note: Dr. Garman’s study was completed in 2006! Can you imagine what the up-dated numbers/cost would look like today??
Content provided by The Heartland Institute of Financial Education, a Solution Partner in the Connex Partners' network.
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