Employers, Financial Literacy, and the Bottom Line

A recent Fed survey highlighted that 40% of Americans don’t have $400 saved to cover an emergency. 25% have nothing saved for retirement. This is a stark reminder that we have a personal finance crisis in the US — and it is true of other countries as well.

“Financial ignorance is detrimental not only on an individual level but to a society as a whole”, says Brazilian economist Ricardo Amorim. This seems intuitively obvious, but beyond the individual, does anyone have an incentive to fix this? Is there a role for employers- to not only make the lives of their employees better by providing financial education, but which could also improve the profitability of the employer?

This is a hot topic as of late, and as a result there is considerable evidence to suggest that indeed, the employer may be best positioned to have an impact — and improve their own bottom line in the process. Consider the following:

“Financial stressors are not only negatively impacting employees, but are costing employers. Stressed employees are found to be less productive, take time off from work to deal with their finances, and are more likely to cite health issues caused by financial stress. These findings are concerning and potentially significant for companies looking to evaluate the return on investment of a financial wellness program.”

- Kent E. Allison, Partner & National Practice Leader, PwC

PWC Employee Financial Wellness Survey 2017

In addition, according to the PWC study:

-Nearly one in three employees reports that personal finances have been a distraction at work

-46% of those who are distracted by their finances at work say they spend 3 hours or more at work each week thinking about or dealing with issues related to their personal finances.

-44% of employees think it’s likely they’ll need to use money held in retirement plans for non-retirement expenses.

-51% of Millennials and 57% of Gen X withdraw retirement funds for unexpected expenses.

-22% of Millennials and 18% of Gen X withdraw retirement funds for medical bills

-Employees impacted by student loans continue to be in worse financial shape compared to other employees. They:

-Are stressed about their finances (81%)

-Find it difficult to meet household expenses (64%)

-Use credit cards to afford monthly necessities they can’t otherwise afford (57%)

-Are distracted by their finances at work (55%)

-Withdraw money from their retirement plans (51%)

Helping employees achieve financial freedom reduces absenteeism, illness and time spent at work managing finances. There is also an element of loyalty that comes from employees feeling that their employers have helped them with the issues that matter most in their lives. Loyalty translates into less turnover, which is one of the biggest cost for employers. A win/win.

There was a May 2017 survey of 503 working Americans:

-Where 36% of respondents said that financial stress impacted their ability to do their job at some time during their career

-52% of respondents said that their employer does not provide support, assistance, or benefits to employees who are seeking financial information or answers to personal financial questions

A report published by Financial Finesse Think Tank shows that employees who frequently engage with financial wellness tools and education are in materially better shape than those who are one time users- in other words, there is a multiplying impact on the employee on repeat engagement with these programs.

So how can employers provide financial wellness tools that have a positive impact on their employees so that that they become regular users of these tools and thus, have the maximum benefit? What are the characteristics of a successful employee financial wellness program?

1) Affordable — employers can only reasonably expect to provide these services if the cost is not prohibitive

2) Repeatable — while there is a “feel good” element to providing seminars, this is typically a one-off and doesn’t provide ongoing coaching to employees

3) Tailored — seminars tend to provide general information about personal finance, but don’t give employees bespoke information about their personal circumstances

4) Private — employees are naturally reluctant to air their dirty laundry — or poor past financial decisions- at work. Having a mechanism that protects employee privacy from employers is key

5) Fiduciary — real financial advice has to be in the best interest of the employee- beware sales pitches pushing investment products masquerading as financial wellness information

6) Holistic — the range of issues that people are concerned about is broad and unique to each employee — so having a platform that can address student loan repayment, retirement, home buying, planning for kids, college costs, and more, is essential.

7) Up-to-date — To get people to engage more than once- which is shown to materially improve financial results- the platform used needs to dynamically adjust to the personal circumstances of the employee, as well as market, economic, tax and other changes.

What can do all this? Pefin can! Check it out here!