Why should I promote this kind of education to my employees?

Offering financial education at the workplace has numerous benefits including:

• increased motivation and focus
• enhanced trust
• reduction of employee stress thus contributing to better health
• increased productivity - less company time is spent on personal matters
• reduced employee absenteeism
• reduced employee theft
• improved company loyalty and commitment to company goals

The following is an excerpt from the President’s Advisory Council on Financial Literacy 2008 Annual Report. Click to download the complete report or read the excerpt about the many benefits of providing financial literacy to your employees.

Chapter III

The Increasing Importance of

Financial Literacy in the Workplace

The lack of a consistent approach to financial education in our schools results in individuals entering the workforce with vastly different knowledge levels about financial issues.  Many haven’t learned the basics of personal finance, including how to make the most of such benefits as retirement savings plans, health care coverage, and other insurance. That lack of preparation often leads to personal financial problems, stress, and distraction—all of which diminish employees’ productivity and their quality of life.

Many workers today simply do not have the skills, knowledge or assistance necessary to meet their financial challenges.  Not only is there a moral imperative for our society to provide our citizens with the tools they need to cope, there is also a strong business case for that assistance. When employees are worried about debt and other personal finance issues, they have more difficulty focusing on their jobs. Stress, including personal economic stress, is estimated to cost business as much as $300 billion a year in lost productivity, increased absenteeism, employee turnover, and increased medical, legal and insurance costs, according to the american institute of stress.23   Financial Literacy Partners, LLC, has calculated that employee financial stress costs businesses $15,000 per year per affected employee.24   So not only is providing financial education the “right” thing to do, it is also the wise thing to do.

The need for improved financial literacy within the workforce is irrefutable.  The national savings rate has been declining for most of the last 35 years.25  Research shows that workers stressed by an inability to address financial hazards and challenges are less focused, less productive, are more prone to absenteeism and accumulate higher health care costs.  A 2005 report by a group of academics, led by E. Thomas Garman, President of the Personal Finance Employee Education Foundation and Professor Emeritus at Virginia Tech University, estimated that “30 million workers – one in four – are suffering serious financial distress”26; that nearly half of those who are financially distressed “report that their health is negatively impacted by their financial worries”; and that “30% to 80% of financially distressed workers spend time at their place of employment worrying about personal finances and dealing with financial issues instead of working.”  In a 2004 paper, Garman and Dr. Jinhee Kim found that nearly 54% of respondents “spent some work time dealing with matters resulting from financial stress.”27  Kim and Garman also found that individuals with what they characterized as “high financial stress” (based on their responses to a series of statements about their financial situation) were more frequently absent from work than workers with low or moderate levels of financial stress.28

The situation is exacerbated by the current economic crisis.  In 2008, the Society for Human Resource Management (SHRM), the world’s largest HR organization, found in a survey of members that the effects of economic stress are real and growing.  In the previous 12 months, members had seen a 26 percent increase in employees having their wages garnished by collection agencies; a 39 percent increase in requests for 401(k) plan loans; a 20 percent increase in requests for pay advances; and a 14 percent jump in employees reporting having lost their homes.29

In a series of online polls taken by harris interactive for the American Psychological Association over the past year, the number of respondents citing economic worries as their top cause of stress has continued to rise – from 66% in April 2008 to 82% in November 2008.30   A recent article in Investor’s Business Daily cited data from two employee-assistance program providers.  One, Compsych, said that mortgage-related calls to their service doubled in the third quarter of 2008 as compared to the same period in 2007.  Another, Ceridian, observed that it had seen “the number of overall calls related to finances rise 50% from a year ago.”31

Employers Are Uniquely Positioned to Fill the Financial Literacy Void

Employers are in a powerful position to change the landscape on financial literacy, for both their own interests and those of the nation.  Using the workplace as a financial education classroom is a tremendous opportunity, one that is logical and makes sense:

• as employees reap the financial rewards of working, their motivation to learn how to protect those rewards is high.
• There is a natural link between the place where income is earned and the skills needed to maximize the potential of that income, including through retirement savings vehicles.
• The workplace has many opportunities to provide education as employees experience life events: home purchases, retirement planning, family changes, and health changes.

Employees receiving financial education at work see it as a valuable benefit, one that prompts greater loyalty to their organization, and more commitment to its goals.  Providing that education at the workplace—where the nexus between earnings and wise use of those funds is clearest—makes perfect sense.  Employers are in a powerful position to change the landscape on financial literacy, for both their own interests and those of the nation.

Workplace education benefits both the employee and the employer.  The availability of financial education opportunities can become a valuable benefit that helps attract and retain the best employees.  Financially literate employees recognize, for example, that a debt profile can affect such career advancement issues as security clearances and consideration for career opportunities. Employees who are financially healthy are more productive.  They are absent less often, spend less time at the workplace dealing with financial crises, and earn higher job performance ratings.

Surveys consistently find that the public feels overwhelmed and intimidated by the volume of financial information in the marketplace.  The result is paralysis — inaction, rather than action.  However, employees appreciate receiving financial education in the workplace because they view their employer as a trusted source, and because instruction is convenient and accessible.  In return, a financially literate workforce is likely to be happier, more focused and productive, and to have learned skills they can apply to their jobs.

The need and demand for that education has been documented.  In a 2008 survey of chief financial officers and other senior executives by CFO research services and Charles Schwab, 80 percent of respondents said that financial literacy among employees was the most significant challenge they face in getting employees to participate in the company’s 401(k) plan.32

In other Charles Schwab research, employees gave their employers solid marks for providing 401(k) education and for encouraging participation.  Respondents to the survey also indicated overwhelmingly that they would like other assistance, including access to financial planning experts, seminars on personal finance, and savings and budgeting tools.  Younger employees were particularly interested in how to navigate financial planning for such key life events as purchasing a first home, getting married, and starting a family.  Employees of all ages were worried about debt management, including avoiding or resolving credit card debt.33

Workplace Financial Education Remains Relatively Rare

Most employers that provide some form of financial education in the workplace focus on the retirement benefits offered to employees, including plan enrollment information and basic advice on choosing mutual funds.  Some also offer Employee Assistance Programs (EAP) to employees who seek help meeting a major financial challenge, usually at a time of crisis.  These reactive programs can be helpful, providing referrals to debt management or financial planning resources in the community.

The current trend, however, is toward employers who are eager to take the next step and be proactive, offering instruction to employees on such issues as debt management, understanding and improving credit scores, preventing bankruptcy, purchasing a home, and basic financial management.  IBM announced in March 2007 that it would offer a “multi-million dollar personal finance and education benefit program for all its U.S. employees” that includes seminars and one-on-one, personalized financial counseling provided at no cost to the employee.34   In December 2008, McDonald’s announced a partnership with Visa, Inc. to provide what the company described as “the country’s largest employer-based financial literacy program.”35 

Through the program, designed to reach more than 500,000 restaurant-level employees, workers will receive a budgeting guide and access to web-based resources, videos and information in both English and Spanish.

Unfortunately, the kinds of programs implemented by IBM and McDonald’s are relatively unusual.  A recent report by the new america foundation examined the current state of workplace financial education. The report cited a december 2007 Gallup study of small and medium-sized independent businesses and found that just 10.5% currently offer financial education to employees, while an additional 8.9% plan to in the future.  Nearly 80% offer no financial education to employees and have no plans to do so.36 

New America Foundation also found in its study that “lower-income employees, who are most in need of financial education, are least likely to take advantage of their employer’s offerings. This is the crux of the problem with workplace financial education at present, since studies show that it is these lower-paid workers who are likely to gain the most from financial education.”37

Employers must live within a budget to be successful. Within those constraints, employers choose which benefits to offer based on employees’ highest-priority needs and desires.  As a result, much of the financial education offered in the workplace is either restricted to retirement planning advice that comes bundled with the plan package, or is part of reactive services available through Employee Assistance Programs. Broadly based and proactive programs — requiring greater benefits expenses by employers — are the exception, rather than the rule.

To make this kind of action the norm, rather than the exception, employers need more information, encouragement, and resources.  The Council’s Workplace Committee conducted research, on-line polls, and surveyed employers and key groups in their communities in order to identify the best ways to strengthen financial literacy in the workplace.  Those efforts resulted in the following recommendations.

Recommendation 6 – The United States Congress should explore one or more tax incentives to encourage employers to provide financial education in the workplace.

While some employers are offering financial education to employees, it is clear that employers need encouragement and financial assistance to implement a comprehensive and freestanding financial education program as part of the benefits package.  The federal government, through the tax code, should explore offering employers an incentive for developing and implementing financial education in the workplace, based on priorities set by the government.  As financial literacy gains a foothold in America’s education curricula and as a national priority, the need for an incentive may diminish.  However, its use during the start-up phase of encouraging financial literacy programs in the workplace would be important.

Recommendation 7 – Establish an annual “Workplace Financial Literacy Honor Roll”

At its July 2008 meeting, the Council adopted the Workplace Committee’s proposal to create an annual award, the Workplace Financial Literacy Honor Roll, and is in the process of implementing the program in partnership with staff at the Department of the Treasury.

The Council believes that employers can benefit from the experience of organizations that have already implemented successful financial literacy programs in the workplace.  However, it’s not easy for employers to identify those organizations and use their experience as benchmarks.  Employers need a way to gather information on proven ways to introduce financial education programs in the workplace.  From their peers, they need to learn the types of programs that should be offered, how to capture the attention and interest of employees, and how to measure success.  In addition, those role model organizations deserve recognition and positive reinforcement for continuing their initiatives.

Thus, the Council recommends that the treasury department implement, maintain and promote the Workplace Financial Education Honor Roll (“honor roll”). The honor roll would serve two main purposes:

• to recognize organizations with exemplary workplace financial education efforts to enhance employee financial understanding and well-being; and
• to encourage other organizations to implement, support and further develop financial literacy programs in the workplace.

Among other criteria, applicants would be evaluated on the content and appropriateness of their financial education programs; the presentation and marketing of those programs to employees; and their measurable positive results.  Invitations to apply for the honor roll distinction would be distributed through financial education and literacy organizations, business groups, human resources associations, and other stakeholders.  Treasury would also market the honor roll selection process annually, and provide those selected with recognition among the public and their professional peers.

Recommendation 8 – Create an Internet-based resource center on the Federal government’s financial literacy web site, www.mymoney.gov, for human resource professionals and employers that consolidates the best financial education information and resources.

Financial education is becoming an increasingly important benefit that human resources professionals can offer.  As this trend continues to develop, human resources professionals and their organizations need to know the full range of resources available to them.  The internet is rich with sites providing free information on basic budgeting, personal finance resources, and the best ways to engage employees.  For instance, several states, such as Wisconsin, have excellent workplace financial literacy sites.  They list local entities that provide financial education and training programs, and information on critical topics like debt and credit management and identity theft.  In addition, many non-profit and private organizations offer valuable information.  The American Institute of Certified Public Accountants (AICPA), for example, provides free on-site workplace education by volunteer accountants trained in personal finance education. The AICPA Web site (www.360financialliteracy.org) also provides valuable resources detailing information needed by individuals at different points in their lives — an ideal way for human resources professionals to introduce information to employees in a way that is timely and relevant to their life events.  Numerous other examples exist. The internet is so vast, however, that it can be intimidating for human resources professionals seeking best practices in financial education.  And the internet continues to be a magnet for hucksters, fraud schemes and misinformation.

In order to effectively deliver financial literacy information, products, and services, human resource professionals and employers need a “one-stop” resource, a place where relevant information has been synthesized, allowing them to identify available programs and resources that match their individual workplace budgets and educational needs. The federal government should assess and consolidate the best information and resources on workplace financial education programs on one page of the federal government’s financial literacy website, www.mymoney.gov.  The site would allow employers to review and understand the options available to them through federal, state and local governments, and non-profit and private organizations. Being able to focus in on the most appropriate resources is the key to giving human resources professionals and employers quick access to the tools they need to design effective financial education programs that are tailored to their own workplaces.

The Council believes that the steps outlined in this chapter will significantly improve the ability and desire of employers to offer robust financial education opportunities to employees.  Doing so would benefit both the employee and the employer.  The employee can receive information from a trustworthy source that will have a positive effect on his or her life both inside and outside the workplace. The employer should realize significant benefits in terms of increased productivity and employee morale. The Council is not unsympathetic to either the expense or time required of employers to implement such programs, but believes strongly that increasing financial education in the workplace is a critically important piece of the overall puzzle of improving financial literacy in the United States.