Articles

Does Your Employee’s Financial Health Impact Your Bottom-line?

Posted on 21 October 2009 Dean Piccirillo – HBK Sorce Insurance, LLC

 

Due in part to the housing crisis, high unemployment and the general economic downturn, many American workers are under a considerable amount of financial stress.  The question for the small business owner is, “Does my employee’s financial health and related stress impact my company’s net income?”

 

A Real Impact on Productivity

If asked, most employers can think of situations in which the financial difficulties of their employees directly and adversely affected workplace productivity. On a personal level, any of us can certainly appreciate the stress that would be created in our own lives in the event of a spouse’s job loss or other reduction of family finances.  Worry over looming debt, mortgage payments, and providing for our children’s needs could easily overtake our thoughts, causing a dramatic drop in the amount of time spent on productive business operations.

 

Numerous studies conducted within a variety of industries and fields indicate a direct connection between financial duress, work performance and overall productivity of employees.  The Personal Fianance Employee Education Foundation estimates that at any given time between 15 and 30% of the American workforce is under significant financial stress.

 

Increased “Presenteeism”

The financial stress suffered by employees is thought to lead to increased “presenteeism”.  Presenteeism refers to time spent during regular work hours dealing with personal matters that are not directly related to the individual’s job. According to April 2009′s Human Resources Magazine, over 53% of employees experiencing financial stress spend time during work hours to attend to their financial issues. This time may be spent dealing with creditors, discussing personal financial situations with colleagues, and worrying about financial matters.  It is not difficult to imagine how employees faced with significant financial challenges and the need to deal with them during the work day will have lower productivity.

 

Workplace Financial Education

One of the ways that many employers have chosen to address lost productivity from employee financial stress is by incorporating a financial literacy or financial education program as part of their training calendar.  Many employers provide personal development education and training not directly related to their industry because they feel it is the right thing to do for their valued team members.  After examining the studies related to lost workplace productivity due to employee financial stress, employers can also make an excellent business case for enhancing employee financial literacy.

 

Due, in part, to advances in technology that make communicating with employees much easier, financial literacy training can now take many forms.  Employers who have embraced workplace financial education are making use of tools such as online training programs that employees can attend on their own time, providing books, and other materials on personal finance. They are also offering seminars and workshops on personal financial planning, both on and off company time.

 

There are other benefits associated with an employee financial literacy program including increased employee morale, more effective use of the benefits that are available to a company’s workforce, and even increased employee health.  In future articles on this subject, we will explore these and other benefits along with the most effective methods employers are using in their financial education programs.

 

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Eight Tips to Ward off Employee Theft

Marcia Wade Talbert

 

Since the beginning of the recession not only has fraudulent activity increased, but the amount of money lost to fraud has increased as well.

 

U.S. businesses lose 7% of annual revenue, equaling $994 billion, to fraud, but small businesses are even more vulnerable, according to a report from the Association of Certified Fraud Examiners.

 

Small businesses suffered both a greater percentage of frauds (38%) and a higher median loss ($200,000) compared with companies that have 100 to 10,000 employees that only suffered losses between $116,000 and $176,000, according to the report.

 

Between the recession and loss due to fraud, small business owners are under even more pressure to stay profitable and stay in business. Lawyer, accountant, and identity theft expert Sonya Smith-Valentine lays out eight steps that small business owners should take to keep their assets safe from in-house thieves.

1. Keep important items locked up. Make employees who have access to sensitive information lock office doors and file cabinets at the end of the workday. Keep the mailbox locked and limit the keys to the mailbox. Make sure all computers have automatic password protection and instruct users to log off when they step away from their computers. Put passwords on your bank accounts so that only specific people can order new checks.

2. Check employee references. At a minimum, run a civil and criminal background check on employees, and as your business grows, hire bonded bookkeepers. Even get background information from building management about cleaning crews that have access to your offices. If an employee has anything to do with money, check their credit report to learn about their debts. “If their credit is really jacked up and they are really hard-pressed for money, they might not be the person you want,” says Smith-Valentine.

3. Sign your own checks. If one person is doing all the bookkeeping they might make payouts to companies that you haven’t done business with. They may set up a dummy billing system to make it seem like you received a bill for services and they are just paying the bill. If you sign checks yourself, you are more inclined to pay attention to where the money is going, and employees are also less likely to embezzle, says Smith-Valentine. If the owner isn’t available to sign the checks, then require the signatures of two different employees on checks.

4. Separate the responsibilities of accounts payable employees. Make sure the person who is paying the bills (i.e. signing checks) is different from the person who is logging the information into the computer. When you split the two job responsibilities it becomes harder to manipulate the data, says Smith-Valentine. Also, don’t allow the data entry employee access to the mail. This will reduce the data entry clerk’s ability to steal a check and cover it up.

5. Perform random audits of vendors and clients. Let your staff know that once every six months you will choose a business that your company does business with and randomly audit it. Randomly choose checks from your bank statements, find out who the checks were made out to, and then audit that company. Consider hiring an outside accounting firm to do this; it will put the employees on notice that there are people other than you watching them.

6. Encourage employee watchdogs. Implement a process for employees to anonymously report abuse and fraud. Also let them know that they could be rewarded if information they provide leads to the arrest of an offender.

7. Purchase employee dishonesty insurance coverage. Taking time to detect fraud and clean up the aftermath is time you could be using to run your business. You can purchase inexpensive insurance plans to help defer some of the costs that occur as a result of fraud or embezzlement.

8. Encourage employees to take vacation time. A lot of small business owners are happy when their employees work as much as possible. But the embezzling employee will never take off time. They come in early, stay late, and they always want to discourage you from looking up information on your own, says Smith-Valentine. “If something strange is going on, it is probably going to pop up while they are gone.”

Black Enterprise Magazine – December 2009

 

  

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Employee financial education means higher employer profits       

Written by Personal Finance / Efren Ll. Cruz    

Sunday, 28 June 2009  

 

For a number of years now I have been conducting personal-finance education seminars for employees, and it has not been easy. The perceived benefit to corporations of such a seminar is probably how the average person would view life insurance—just an expense. But is employee financial education really just an expense on something that is nice to have? I will answer the question on whether life insurance is just an expense in another article.

 

Perhaps more today than ever, individuals face challenges from:    

• Overspending from the hype in consumerism.

• Back-breaking amortization payments on easy-to-access but high-cost debt.

• Inadequate protection against risks to life and property.

• The arduous task of creating, growing and passing on wealth.

 

All of these challenges take the mind and body away from work. And while the “in” thing at work is to multi-task, it cannot be denied that such challenges cost time and result in what is probably the greatest pilferage in companies today—the pilferage of time. And these lost man-hours result inn lower employer profits.

 

How does employee financial stress manifest itself? Here are but a few areas where such a stress rears its ugly head:    

• Unscheduled vacation leaves.

• Repeated sick leaves due to simple illnesses (e.g. LBM, fever, ordinary flu, headache, muscle pains, etc.).

• Active availment of health-care benefits.

• Low-quality output, like with increased production rejects or below- standard reports.

• Poor performance by a salesman relative to the average for his team.

• High new-hire training costs arising from high employee turnover.

 

What do studies and reports show?

• Workers’ financial stress may hurt productivity (Stephanie Armour, USA Today, 9/5/07).

• Poor personal financial planning behaviors breed productivity-inhibiting stress for roughly 15 percent of US workers (Garman, Leech and Grable; Virginia Tech, 1996).

• Job stress leads to increased absenteeism, tardiness and desire to quit (Journal of Occupational and Environmental Medicine).

• One in four of American workers are seriously financially distressed, causing negative impacts to individuals, families and employers (Garman, et al., 3/23/05).

 

Dr. E. Thomas Garman, who has done over 20 years of research on financial literacy, calculates that the benefit-to-cost ratio to employers of empowering their employees financially through financial education is 3:1. While these studies and calculations are for US workers, Filipino workers should not be far behind.

 

When asked what would make them financially free, employees would normally say a higher pay. But both Dr. Garman and I believe that more money is not the answer; better personal financial management is. Nearly half a century ago, C. Northcote Parkinson, in his book The Law and the Profits, already wrote, “Individual expenditure not only rises to meet income but tends to surpass it, and probably always will.” This tendency to spend more than what we earn is what employee financial education aims at minimizing, if not eradicating altogether.

 

Employee financial education is a critical component of employee-wellness programs. When properly executed, employee financial education will help reduce stress both at the workplace and at home. Again, studies have shown that the reduction of employee financial stress leads to higher employee productivity (due to less absenteeism and less work time devoted to personal financial matters), fewer health problems, increased confidence and self-worth of the employee, and inevitably a higher bottom line for the employer.

 

Teaching money management skills can also enhance:   

• Company loyalty—as it sends the message that a company cares about its employees’ well-being.

• Better appreciation of and participation in company benefits.

• Employee retirement readiness—as a financially secure employee will be more likely to accept an offer of early retirement.

• I have personally seen the benefits of providing employee financial education. After each seminar, I would ask the participants to write out a contract to themselves with the following guide questions:

• What are the most important or significant ideas that you’ve learned, thought or heard of in this seminar?

• What do you intend to do within the next 30 days as a result of your new ideas?

• By your actions, what results do you hope to achieve? 

 

The participants’ individual contracts are kept confidential while a broad summary is sent to the human-resources department of their employer. To remind the individual participants of their respective contracts, I e-mail or mail their contracts back to them after 30 days.

 

Truly, the contracts are amazing and inspiring to read. They not only reflect an awakening of the participants to the urgent need to get their personal finances in order, but also provide concrete action plans to reach the common goal of attaining financial freedom. And the replies I get after I resend the participants’ contracts are equally inspiring. Many would have already indicated progress on the road to financial freedom.

 

While a financially free employee will redound to better profits for his employer, perhaps the best reward to the employer is articulated in this quote from Dr. Garman, “What could be more important to your employees, morally and socially, than to have them be better off financially when they leave you than when they started with you?”

  

Employee Financial Literacy Will Help Companies Weather Challenging Times

Thursday February 28, 2008

 

The best hedge U.S. companies can have against the looming economic downturn is making sure their employees completely understand business acumen and financial literacy — basically, how a company makes and spends money.

 

Raymond D. Green and Catherine J. Rezak, co-founders of Paradigm Learning, a corporate training and communications company that specializes in business games, business simulations and Discovery Maps, said it’s imperative for employees to be able to think like CEOs so they can make smarter on-the-job decisions and recognize how every action can affect the company’s bottom line and their own professional futures.

On the heels of recent news that the U.S. economy lost jobs for the first time in four years and surveys showing the economy overtaking the Iraq war as Americans’ top concern, “Financial literacy and business acumen are more important than ever,” said Green, Paradigm Learning’s CEO. “More and more, companies want employees to be more productive, but they often have big expectations without giving employees the tools they need to do it.

 

“Everyone is counting pennies on a personal level these days, and now they’re supposed to do it at work, too, with the stakes just as high. Companies have an obligation to make sure employees have the necessary information and education.”

 

Financial literacy, a basic understanding of numbers on a corporate ledger, is at the heart of business acumen, which is an ability to interpret financial information and act upon it — a key characteristic of effective managers.

 

“Sometimes, employees think there’s an inexhaustible amount of money for supplies, inventory, marketing and benefits if they see sales are rolling in,” said Rezak, Paradigm Learning’s chairman of the board. “But it’s harder for them to see the real costs of operating a business.”

 

Such education has strong potential for being boring, however, which is why, almost 15 years ago, Green and Rezak developed “Zodiak: The Game of Business Finance and Strategy,” a business simulation that puts participants in the driver’s seat of a fictional company, forcing them to make key decisions over three time-compressed years. By the end of the day, participants have absorbed the main concepts of financial literacy and business acumen and can connect them to their real-life jobs.

 

Zodiak has been played by more than 1 million people in 600 organizations worldwide and translated into six languages in 13 countries.

 

“Business games and simulations are a perfect way to introduce and reinforce concepts to the broadest possible audiences, far more effective than traditional methods such as lectures and memos,” Rezak said. “By being immersed into hands-on situations, participants can actively receive the information being presented.”

 
 

Employee Financial Stress is Costing Your Company a Bundle– And How You Can Stop It Now!

Synopsis: There is a silent epidemic that afflicts 30 million workers in the US—a quarter of the American workforce—and it could cost your businesses up to $15,000 per year per affected employee. In this report, you’ll learn the true impact of employee financial stress, and five ways to combat it.

 

There is a silent epidemic that afflicts 30 million workers in the US—a quarter of the American workforce—and is costing businesses $15,000 per year per affected employee.  Over 25 years ago, it was reported that an employee’s personal finance problems had a direct negative affect on their employer’s profitability. When first reported in 1979, 10% of working adults reported that they routinely experience personal financial difficulties; today that number is up to 25%. Financial stress is frequently listed as the top source of all the stress experienced by employees.

 

The Problem – “It’s their debt, but it’s your problem!”

 

Following are five ways your financially stressed employees are costing your business huge losses every month of every year. Unless your workforce is unique, at least 25% of your employees–regardless of their position or salary–are affected.

 

1. Reduced Employee Productivity – 20 hours per-month/per-employee [1]

That’s how much time on-the-job a financially stressed employee spends distracted by their personal financial difficulty. This distraction takes them mentally away from the work you pay them for. If that estimate seems high, then ask yourself if the following scenarios sound familiar: Employees spend time dealing with calls from creditors; arranging debt consolidation loans; worrying about how bills are going to get paid; worrying about having enough money to pay for medical bills, college tuition, and retirement; day dreaming about what a life without financial stress would be like; or dealing with banks about bounced checks.

 

Employer Cost: $7,000 per-employee/per-year in lost productivity alone!

 

2. Workplace accidents – 60% to 80% of on-the-job accidents are stress related [2][3]

The distractions and inattentiveness caused by personal financial stress are significant contributing factors to the level of workplace accidents. Stressed employees can physically injure themselves and co-workers. Distracted employees are a danger to the company’s property and equipment. Distracted employees are more likely to damage manufacturing equipment or other equipment than employees who are fully focused on their work. In the medical field, inattentiveness can literally be a “life and death” situation. Many worker compensation claims and medical malpractice claims are tied directly to employee inattentiveness or distractions caused by personal financial stress. In many cases, the actual malpractice claim and the cost paid for the claim will occur long after the financially stressed employee has left the company.

 

Employer Cost: In 2001, it cost employers $29,000 per work place accident in lost productivity, uninsured costs, accident investigation, production slowdowns, and new employee training. In 2005, these costs are expected to be significantly higher.

 

3. Health and welfare issues – 75% to 90% of all doctor visits are stress related [4][5] 

Hypertension, insomnia, tension, anxiety, depression, headaches, abdominal and digestive problems, ulcers, eating disorders, fatigue, and drug and alcohol abuse. Do any of your employees suffer from these stress-related illnesses? What about psychological and marital counseling? How many marriages are strained as a result of financial stress? These stress related problems are costing your business a bundle in increased employer healthcare costs and in absences caused by these illnesses. On any given day, over 1,000,000 employees are on sick-leave as a result of stress related issues.

 

Employer Cost: $300 per day/per employee in lost productivity for each day an employee is absent. This does not include lost revenue or increased healthcare cost. $11,000 to $13,000 per-year for each drug user in the workplace. Alcohol and drug abuse may cost employers up to 10% of their total payroll costs.

 

4. Employee turnover – 40% of employee turnover is due to stress [6]

Financially stressed employees believe they can “earn” their way out of their financial problems. Financially stressed employees often change jobs just to earn more short-term income which they mentally commit to use to pay off outstanding debts. Unfortunately, without learning new money management skills, these employees only expand their lifestyle to fit their new salary. Rather than resolve the old financial problems, these employees often create new and bigger financial problems to be resolved at a later date.

 

Employer Cost: It costs an employer between $3,000 and $13,000 to replace the average employee.

 

5. HR Department Distractions.[7]

In most cases, your HR Department bears the brunt of the employee financial stress related issues. Most HR Departments are not staffed to handle the variety of issues that arise related to employee financial stress. Handling calls from bill collectors, helping employees file bankruptcy claims, processing 401(k) loans, calls from ex-spouses concerning past due child support payments, processing wage garnishments and processing advanced wage payments are only a few of the distractions that financially stressed employees create for your HR Department. Financially stressed employees not only experience personal loss of productivity, but can also serve as a distraction to fellow employees.

 

Employer Cost: Up to 10% of your Human Resource Department payroll budget.

 

Summary of Financial Stress Costs to Company

• Reduced Employee Productivity $7,000 Per Employee Per Year

• Workplace Accidents $29,000 Per Workplace Accident

• Health and Welfare Issues $300 Per Day Per Employee

• $13,000 Per Year Per Drug User

• Employee Turnover $8,000 Average Cost To Replace Employee

• HR Department Distractions 10% of HR Dept Payroll Budget

 

The Solution – “What’s good for your employees is good for your business!”

 

Like other personnel problems, you can either treat the symptoms of financial stress or you can treat the cause of financial stress. Treating the symptoms through stress reduction techniques and stress counseling only teaches employees how to deal with the stress; it does not prevent the stress from recurring nor eliminate it. To increase productivity and profits, employers must treat the cause of the stress; employers must take the lead in teaching their employees how to manage their own money and how to reduce their debt levels. As basic as that sounds, over 98% of the workforce has had no education in managing their money. Employer sponsored financial education is fast becoming a “best practice” among industry leaders who want a productive and profitable workforce.

 

6. Components of an Effective Employee Financial Education Program

1. Unbiased Information To be most effective, employee financial education must be presented by professionals who are unbiased in their recommendations. Employees want solid and unbiased information and do not want to workshops that are merely sales presentations for insurance or investment programs. Effective employee financial education workshops should be “selfcontained” and should not require the purchase of any supplemental material such as books, tapes, videos, or CDs.

2. Money Management and Investing Education Effective employee financial education should first teach employees how to manage their money, reduce their debts, and ease financial stress before teaching them how to invest for retirement. Financial stress usually arises from employees who are unable to meet their monthly obligations and not from the feeling they are investing too little into their 401(k).

3. Face-to-Face Presentation Effective employee financial education should be offered in small workshops where employees play an active part in learning the tools and techniques. Distance learning is not an effective way to teach money management skills. Employees need the opportunity to ask questions and share their opinions in an open and inviting forum

4. Teach Easy-To-Use Money Management Tools Effective employee financial education empowers employees to take control of their personal financial well-being. Effective workshops teach employees the tools and techniques they can use to immediately begin stretching their paychecks and get out of debt. Employees want to be better managers of their money…what they lack are the tools to do it.

5. Ongoing Support The most effective financial education programs allow employees to obtain information and assistance after the workshop is complete. This is most effectively done through confidential e-mail correspondence between the employee and the workshop provider. This follow up information is not “advice” but “education.” The purpose of employee financial education is to empower employees for the long term to take control of their finances.

 

Conclusion

Employers who stay ahead of the curve will reap the benefits of more profits through better employee productivity, lower absenteeism, less work time wasted dealing with financial concerns, lower turnover and better employee health. As the financial realm gets more confusing and volatile, it is more imperative than ever to put in place a financial education system that will benefit employees and the employer alike.

 

Ned Lenhart is President of Financial Literacy Partners, a firm focused on providing quality financial education for employees. Based in Atlanta, Ned holds both a CPA and an MBA. For more information, go to www.LifetimeFinancialLiteracy.com

 

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[1] “The Importance of Workplace Financial Education to Employers” by Dr. E. Thomas Garman, published in the American Express Guide to Workplace Financial Education and Advice, 2004.

[2] The Herman Trend Alert, May 2003, The Herman Group

[3] www.stress.org/job.htm

[4] www.ncaddcnms.org/workplace.html

[5] www.occupatonalhazards.com/safety_zones/53/article.php?id=12257

[6] www.stress.org/job.htm

[7] Based on informal discussion by the author with numerous HR professionals

 

 

Essay on Personal Financial Literacy and Happiness

E. Thomas Garman

 

Personal financial literacy is at the very core of happiness in life. One can have a loving family, good friends, a satisfying job, and a supportive church. But living life with too many bills and no reserve savings account is stressful. Missing a few paychecks and facing an emergency vehicle repair or hospital bill can make life horribly stressful. These kinds of financial events negatively impact one’s health, relationships and work performance.

 

Financially literacy leads one toward positive financial behaviors such as creating an emergency savings account of $500 to $2,000, paying off credit card balances, and saving for retirement. These actions result in decreased financial distress and increased financial well-being.

 

Financially healthy employees make good benefits selections that save them money, as well as save their employers money. When compared to employees with poor financial well-being financially well employees have higher job performance, less absenteeism and short-term disability, better health, fewer wage garnishments, and less turnover.

 

Financial education can help employers’ bottom lines

By Mark A. Nadler

June 1, 2009

 

Most advocates of employee financial education emphasize the benefit to employees; the benefit (and profit) to employers from having a financially literate workforce generally is an afterthought. However, this reverses the true order of importance of employee financial education. Private companies should only make significant investments in employee financial education if it adds to shareholder value.

 

AdvertisementAs a strategy for adding to shareholder value, defined contribution retirement plans and employee financial education are integrated components of a human capital strategy. A DC plan in the absence of employee financial education will fail; a well-designed financial education program will underperform in the absence of a DC plan that allows employees to reach their financial goals. Similar to any other investment, DC plans and financial education programs must generate positive net present values.

 

Both a DC plan and a financial education program each have four components that HR/benefits pros need to analyze:

1. Enrollment.

2. Investment choices.

3. Employer match.

4. Distributions.

 

All are critical variables for any successful DC plan. In addition, financial education programs must address questions in four areas:

1. Topic coverage.

2. Delivery methods.

3. Frequency.

4. Target populations.

 

Let’s look briefly at each of these eight constituent parts, with some recommendations and warnings.

1. Enrollment policy: Companies can choose between two types of enrollment models: opt-in or automatic enrollment. Given employees’ well-documented inertia, the auto-enrollment option is successful in increasing participation rates.

2. Investment choices: Improper diversification and overinvestment in company stock often characterize employee portfolios.  I recommend dealing with these problems by using tiered funds, offering lifecycle funds as an investment option under the plan and educating employees not to overinvest in company stock.

3. Matching: A company match increases participation rates and savings levels. Plan sponsors must calculate the optimal match rate and threshold at which matching stops. Most significantly, matching appears to help low-saving groups that are most at risk of not having sufficient retirement funds. One interesting strategy is to reduce a company’s match rate and extend its threshold. This does not cost a company any more money, and some evidence suggests that it boosts savings rates.

4. Distribution: Rules governing the distribution of funds — both before and after retirement — affect plan participation, contribution rates and post-retirement income. Allowing employees to take loans against retirement accounts boosts participation rates and contributions, but it negatively affects post-retirement income. Employees who leave their employer before retirement and take a lump-sum payment often do not reinvest their money. If one of the goals of a DC plan is to make sure individuals do not outlive their savings, then a life annuity can be a rational choice for employees upon retirement.

5. Topic coverage: Company financial education programs often focus on retirement plan details and investment options. The problem with this strategy is that it neglects the preparation work necessary to allow an employee to take full advantage of the plan. Companies would benefit from helping employees clean up their financial baggage first. This includes paying off excessive credit card debt, having proper insurance and updating their home mortgage. Employees will have the resources to take full advantage of a DC plan once their financial house is in order.

6. Delivery method: Current delivery methods include newsletters, personalized print information (e.g., benefit statements), telephone services, seminars, individual counseling with financial planners and Web-based tools. While benefit statements are the most common, evidence suggests that retirement seminars are the most effective of these methods.

7. Frequency: Research is clear — to achieve success, employee financial education programs should be available on a regular basis, possess a consistent message and be easily accessible.

8. Target populations: Companies are resource-constrained and financial education, like all investments, probably exhibits diminishing returns. Empirical evidence indicates that the working populations with a very low propensity to save are low-income individuals, less-educated workers, blacks and Hispanics. This suggests that companies should prioritize these populations in delivering financial education.

 

Many HR/benefits departments have focused their attention on informing employees about their company’s DC plan. Financial educators have argued for years that employees are in desperate need of financial education.

 

HR/benefits executives must reconceptualize their DC plan and financial education programs as integrated parts of a human capital strategy designed to increase shareholder value.

 

An important part of this strategy is the need for metrics that measure payoffs to various iterations of the eight discussed components.

 

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Financial literacy requires more than just knowledge

Monday, November 30, 2009

BY: John Wyckoff

 

Financial literacy is a hot topic in schools, businesses and the media. In 2003, the Financial Literacy and Education Commission was established to improve Americans’ financial literacy. Efforts are geared toward education and outreach.

 

When the market was good, it may have seemed like everyone was a financial expert. But the truest test of financial literacy is what happens when the markets drop. If the past couple of years have taught us anything, it’s that financial literacy means a lot more than being able to recite a couple of finance-related definitions, balance a checkbook or make a quick buck with one right move in the stock market.

 

In fact, financial literacy has been defined as the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being.

 

Knowledge itself isn’t enough. So what does a truly smart investor need in order to be described as financially literate?

 

A long-term personal plan

Formulating an investment strategy that will work for you depends upon you: your goals, your age and investing timeline and your personal tolerance for risk. Only a plan that takes these elements into account will meet your needs for the long term. Blindly following the herd into a hot deal, or making a choice that doesn’t fit your long-term goals or personal investment strategy, isn’t likely to help you achieve your goals. We call this “chasing performance,” and no one is very good at it. It’s also essential that your plan be a long-term vision, so that you can ride out fluctuations in the market while still progressing toward your goals.

 

A sense of realism

A plan is important; but so is a back-up plan. Even when times are good, it’s essential to consider, and plan for, the worst case scenario. By realizing that your investments, job, marriage, home value, and more are not guaranteed, you can create a more comprehensive and long-term vision that takes into account bad turns – in the market or in your personal life. A realistic approach to finances, and solid savings, can help a smart investor withstand difficult times.

 

A diversified portfolio

You can reduce overall risk by diversifying your investments among different investment classes, thus shielding you somewhat when markets go haywire. Appropriate asset allocation also allows you to combine more moderate investments with riskier ones, balancing your portfolio and reducing risk. Look for solid mutual funds with investment performances that exceed benchmarks. Look at the funds’ underlying investments and examine the track record of the fund managers. And remember that an asset allocation that is right for a 20-something is almost certainly not right for a 50-something.

 

Patience

Resist the urge to tinker with your portfolio when something underperforms for a short period of time, but still meets your investment criteria and fits into your long-term plan. Resist the urge to “do something.”

 

Unless there has been a significant change in your goals or financial situation, your long-term plan is still your best bet to get you where you want to go – so strive to continue to follow it during periods of market volatility. As a long-term investor, you should have time to recover from any short-term losses. Plus, you’ll be positioned to participate in market recoveries. While reviewing your investments is essential, do it on a quarterly basis so you aren’t tempted to make changes based on short-term fluctuations in your investment values.

 

The consequences of making financial decisions without financial literacy are clearly evident in the current economy. Smart, financially-literate investors need more than knowledge of numbers and markets to stay on course when the market goes down or fluctuates wildly. As we teach future generations the foundations of financial literacy, it is essential that we also pass along the values that allow them to combine knowledge with skills and vision to create a lifelong financial plan.

 

Each time you consult with your financial advisor and review your financial plan, you have an opportunity to grow your own financial literacy so you can create, and pass along, a lifetime of financial well-being.

  

How Employers Profit From Employee Financial Education

Video Transcript: Hello. I’m Dr. E Thomas Garman, Professor Emeritus and Fellow, Virginia Tech University.

 

My comments today reflect over 20 years of research on financial literacy. The question posed is “Why should employers care about employee financial literacy?”

 

First of all, most employees would agree they would be better financially if they had more income. While it is nice to have a bigger income that alone is not the solution for better financial well-being. What does increase one’s level of living is improving financial literacy and putting into practice the newly learned good financial behaviors.

 

Employers have a large stake in employee financial literacy. Why? Because increasing employee financial literacy improves employer profits. It is that simple.

 

During my career at Virginia Tech I directed the University’s National Institute for Personal Finance Employee Education. There a collection of scholars conducted breakthrough research on the negative costs to employers for the poor financial well-being of employees. One study found that the Department of Defense loses $1 billion annually in direct costs and reduced productivity due to employee stress about money matters. Examples of direct costs are absenteeism, short-term disability, turnover, wage garnishments, and accidents.

 

A national award-winning research study by Dr. So-hyun Joo 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.

 

Now here are some newer numbers. 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 between $450 and $2,100 annually. This is wasted employer money. And $550 of the larger amount is cash money on the table-employer dollars that need not be given in FICA taxes to the federal government.

Financially literate employees practice good financial behaviors. They save and invest within their employer’s 401(k) plan at a level sufficient to anticipate a comfortable retirement. Where appropriate for their situations they sign up for health care and dependent care reimbursement plans. And when given a choice in health care plans they select one that best suits their situation that often is not the most expensive. Importantly, financially literate employees typically enjoy better health.

 

So, how many employees are we talking about? A national group of academic researchers and business experts recently measured the extent of financial distress in the workplace. The conclusion: “Thirty million workers in America-one in four-are seriously financially distressed and dissatisfied with their personal financial situations.”

 

These employees are unhappy with their finances and they worry about money, debt and bills. They worry about having enough money to live on once they retire. They often lack confidence about their abilities to manage personal finances. Many do not even have hope that they might one day be able to catch up financially. People at all income levels experience distress about financial matters.

 

And it may not be just 25% of your employees who are stressed about money. Other research shows that depending upon where they work, 30% to 80% of financially distressed workers spend time at work worrying about personal finances and dealing with financial issues instead of performing on the job.

 

It is also extremely important for employers to realize that a number of studies show that a large proportion of those who are financially distressed, 40% to 50%, report that their health is directly impacted-negatively-by their financial worries and problems. Health problems caused by financial distress cost employers big money. See my website for a concise valid and reliable measure of financial distress and financial well-being.

 

So, we can conclude that employee financial illiteracy does impact employers. In short, financially illiterate employees do not make the best decisions for themselves or their employers.

 

These findings should motivate employers to offer employees access to resources, education, counseling, and advice to decrease their stress about money matters and improve their financial lives. By the way, my calculations illustrate that for every dollar employers spend on financial education they gain a return of $3 or more. Recognize too that financial literacy is not just about knowledge even though comprehension is key. The most important part of financial literacy is to apply the knowledge by practicing good financial behaviors. People cannot build assets without good financial literacy. Moreover, it is vital to empower employees to be financially literate.

 

I will close with two observations. One, since financially literate employees improve profits find out what you can do to increase the financial literacy of your employees. Two, what could be more important to your employees, morally and socially, than to have them be better off financially when they leave you than when they started with you?

 

  

INVE$TING IN EMPLOYEES’ FINANCIAL WELL-BEING MAKES GOOD BUSINESS SENSE

Executive Summary

 

Money problems are the #1 stressor of Canadian employees today. This is likely related to the fact that there is record high (and growing) consumer debt, as well as decreasing savings in Canada. With work and personal lives closely interconnected, personal money concerns significantly affect employees, and thus, employers, in numerous ways including: higher absenteeism, time off and lateness; higher short-term disability claims; higher staff turnover; more accidents and mistakes; more workers’ compensation claims; and lower productivity. Clearly, there are bottom-line profit implications for businesses.

 

Investing in employees’ financial well-being makes good business sense. Employers who provide their employees with access to quality, comprehensive financial programs and services, help create a win-win situation, i.e. happier, “financially healthier” and more productive employees who in turn contribute to a healthier company bottom-line profit! Money Mentors, an initiative of Credit Counseling Services of Alberta (CCSA), is a valuable resource for Alberta businesses wanting to achieve this “win-win” proposition.

 

Money Problems: The #1 Stressor of Employees

It’s a well known fact that stress affects one’s physical and mental health and well-being. With personal and work lives so interconnected, employee stress greatly impacts the workplace and employees’ job performance.

 

What is less known is that money problems are the #1 source of stress for employed Canadians. In a 2007 survey by Desjardins Financial Security, 44% cited money problems as their #1 stressor, with significantly fewer reporting work pressure (19%), family matters (17%) and workload (16%) as their biggest cause of stress. Another study has shown that out of 14 common “stressors,” those related to money (eg. rising prices, emergency savings, not having enough money for basic necessities) were those experienced by the largest numbers of people (Harris Poll, September 2006).

 

Furthermore, many employees recognize money as a key source of their stress. 30% of Canadian employees feel they are failing financially and are dissatisfied with their personal finances (InCharge Education Foundation, National Norms on InCharge Financial Distress/Well-Being Scale for General Adult Population, 2004-2007).

 

Canadians Have Good Reason To Be Stressed About Money

 

The “state of Canadians’ financial affairs” is far less than ideal.

• Canadians spend, on average, over 25% more than their income. Household debt is over 125% of disposable income and this debt-to-income ratio continues to rise. Fuelling this are all-time high consumer credit levels (with lines of credit increasing more than 50% over the past six years) and an increasing reliance on alternative financial companies (where these “lenders of last resort” charge interest rates of up to 1000%).

• Canadians save only half as much as they should. The average savings rate is 5% of after-tax disposable income – just half of what is recommended by financial experts for a money “safety net.”

• Canadians have less pension and retirement coverage than they used to. Not only are general pension coverage and defined benefit pension coverage declining, but 45% of pre-retirement households (adults 45-64 years of age) in Canada outspend their income, with 38% of pre-retirees reporting their income and investments will be “very inadequate, inadequate or barely adequate to maintain their standard of living” in retirement.

• Canadians have low financial literacy. Research has found that 42% of adult Canadians lack the basic literacy and life skills to cope with the demands of our knowledge society and economy. When it comes to money specifically, it’s been shown that sources of financial information are poorly understood by many people.

Sources: Canadians and Their Money: A National Symposium on Financial Capability, Ottawa, 2005; Statistics Canada, 2005.

 

Employees’ Money Problems Affect The Company’s Bottom-Line Profit

Employees don’t “check” their money concerns at the workplace door. With personal and work lives so interconnected, employees with money concerns not only make less-than-best decisions in their personal lives, but also less-than best decisions in their work. 35% of employees with money problems bring these problems to work with them – and it affects their work (Garman, T. et al, Personal Finances and Worker Productivity, 1999). They are like sharks – often quietly and invisibly, swimming around the workplace taking bites out of the bottom line. Research says “every time someone on your work team brings his/her money worries to the job, productivity drops” (Garman, T., Financial Literacy and Workplace Productivity presentation, Georgia Consortium for Financial Literacy, April 2007). It has been estimated that the return on investment in a personal finance employee education program is as high as a 9-1 dollar ratio (Garman, T., Personal Finance Education Can Save Nation Billions in Lost Productivity, 3rd Annual American Personal Finance Employee Education Conference, November 1998).

 

Employers often don’t realize that it is in their best interest to provide employees with quality financial programs and services. Doing so results in employees who are more in control of – and thus, less stressed about – their personal finances. This in turn leads to many benefits which positively affect the employer, including:

• Less work time spent dealing with money matters

• Less absenteeism, time off and lateness

• Less short-term disability

• Less presenteeism* (i.e. better job performance and productivity, fewer mistakes; increased engagement with job)

• Less staff turnover

• Less health care demand

• Fewer accidents

• Fewer workers ‘compensation claims

• Fewer wage garnishments

*Presenteeism, the “here in body, absent in productivity” situation (eg when employees show up for work sick, injured, stressed, distracted or burned out) is one of the biggest challenges in the field of workplace health today. A worker under financial distress spends an average of 21 hours/month (5 hours a week) attending to personal financial issues while at work (Garman, T. et al, Personal Finances and Worker Productivity, 1999).

 

Other Things Employers Need To Know

 

• Employees want and value employer-provided financial education and support.

Getting and keeping good employees requires more than paying a competitive wage; it also means providing a competitive benefits package and training/development opportunities. Training and development goes beyond technical, work-specific opportunities. More and more, employees are looking to employers to provide them with personal development training opportunities too, including those related to personal finances. Employees who participate in employer-provided financial education have been shown to have more respect for their employer  as well as better manage their money (Hira, T., Financial Education in the Workplace; A Good Business Practice, Proceedings from Financial Forum II, Vancouver, BC. December 2006). For companies hiring younger employees, this is even more important given many younger employees have not had the financial training or experience enabling them to manage their money well, and a significantly larger proportion of them report more impulsive and compulsive buying habits and more debt which create more problems at work and home (Hira, T. Financial Education at the Work Place: A Good Business Practice. Proceedings from Financial Forum II, Vancouver, BC, December 2006).

 

• It’s often difficult, if not impossible, to identify a financially stressed employee.

For most Canadians, money is something not openly talked about. According to a Money Magazine poll in 2005, 50% consider money a sensitive issue, far more than politics or religion. As well, people care about what others think, with 30% admitting to having misrepresented their financial success to friends or family. And with many spending more than they can afford, “keeping up appearances” becomes so much a part of many peoples’ identities that 90% don’t see it in themselves (Genworth Financial Survey, 2005). Or, perhaps we don’t want to see it, as 36% go to great lengths to avoid facing up to financial reality and 17% refuse to look at bank balances or financial statements. Regardless, an employee with money problems is like the “elephant in the room” – big and looming, yet not “seen.”

 

• Being intelligent and well-educated does not always prevent money problems.

Intelligent, well-educated people, those with higher IQs tend to earn more but don’t always save and invest their money wisely. Of those having the highest IQs (i.e. over 125), 6% regularly max out their credit card limits while 11% miss bill payments (Jagorsky, J., Intelligence, Vol. 35, Issue 5, 2007).

 

• Earning a good wage does not always prevent money problems.

Earning a good wage is one thing; managing it – something which requires a whole different set of knowledge and skills – is quite another.

 

What Employers Can Do

1. Accept your role and some responsibility in helping ensure your employees’ personal financial well-being – easily justified given the close connection with your company’s bottom-line profits.

2. Ensure your company has a comprehensive and quality financial program/services for employees.

• “Comprehensive” means it covers the entire “money continuum,” from prevention to treatment. Prevention, aimed at helping keep financially healthy employees/their families financially healthy, includes initiatives such as: seminars for staff on money-related topics, money coaching included in your employee benefits plan, information on money issues in your employee newsletter, Human Resource and/or Employee Assistance Program (EAP) professionals attending relevant training. Treatment, aimed at helping employees with money problems resolve them effectively, includes initiatives as: debt counseling and access to relevant seminars in your employee benefits package.

• “Quality” means the information is clear, complete, unbiased, not misleading and that which is totally focused on the employee and his/her best interests.

 

Tips to help ensure a top quality provider and/or program/services:

• Ensure appropriate provider credentials. Being an accredited member of Credit Counseling Canada (the premiere accreditation body of financial counselors and educators in Canada) and/or a member of the Association For Financial Counseling and Planning Education, is something to look for.

• Ensure mission, goals and values of provider align with those of your company. Check out the source(s) of its funding and its affiliations. This can often be determined by checking a website and/or reading an annual report. Close affiliation with government is often a predictor of credibility, as is  often being a non-profit organization.

• Ensure an approach and style which is aimed at helping individuals develop skills to make informed choices and take action to improve their financial well-being now and in the future. “Helping” means a true client-focus, that which is free of any other motives (i.e. provider/its employees or contractors are not also affiliated with/sell any financial products/services); don’t be afraid to directly enquire about this. “Develop skills” should involve a “do it with them” vs. a “do it to them” approach, so employees learn skills to assess all options now and in the future. If talking to a seminar provider, request an outline of the seminar including goals/objectives and even session notes to help ensure this. “Informed choices” gets at the fact that information should be clear and complete enough to allow the individual to make the right decision with confidence.

• Use due diligence when assessing benefit plans and other money-related opportunities. If “financial counseling” in an employee benefits package means “one, one-hour telephone counseling session,” seriously consider whether this provides adequate coverage for employees.

 

“To Do” List For Employers

• Give a copy of this info sheet to your company’s human resources, employee assistance, management and other relevant personnel, and make a note on your calendar to discuss it further.

• Check your company benefits package’s coverage regarding financial programs/services. If none, set up a meeting with your provider to discuss including one. If you aren’t clear on the details of your existing financial services coverage, set up a meeting with your provider to discuss the specifics and make any needed changes.

• Pick one way to communicate your company’s financial programs/services to your employees. Did you know that most employees are unaware of most of the benefits available in their employee benefits plan (Swartz, M., Take Advantage of Employee Assistance Programs, Toronto Star, 2007)?

• Organize a seminar(s) on money-related issues for employees. Consider inviting their partners/spouses too.

• Arrange training for Human Resource and/or EAP staff so they can better identify and help employees with money problems.

• Choose one way to include some money information (highlighting the company’s existing financial programs/services could be a good start) in the next employee communiqué, whether it be an intranet notice, in your company newsletter, on your company bulletin board, or with the next paycheck stub.

• Contact The Wayne Turner Financial Group to find out how we can help.

 

 
 

The Truth About Employee Financial Education

 By Kimberly Paiva 

 

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Why providing workers with a solid financial education is a wise business decision:

 

Picture this:

 

One of your top performing employees has been distracted lately. You notice they’re spending more time talking on their cell phone and they seem to be carrying the weight of the world on their shoulders.

 

Did you know these are just some of the tell-tale signs that a worker is struggling with financial worries?

 

When employees are distracted by financial troubles it diminishes their productivity, brings unnecessary stress into the workplace and puts a wet blanket on company morale.

 

Conversely, when you help your employees achieve a state of true financial wellness, you empower them to be in control. Be providing employee financial education, you help workers become confident, focused and allow them to experience a sense of security. A company that offers employee financial education is truly making an investment in their business.

 

The following facts are worth considering:

• Up to 50% admit to wasting 21 hours per month while on the job dealing with personal money matters.

• Employees regard financial stress as their number one concern, 5 times greater than personal health.

• Two-thirds say “They have trouble paying their bills on time and worry about money”.

• 90% of the nearly 128 million workers in the US have difficulty managing their money and are not consistently saving for retirement.

 Source: National Institute of Personal Finance Employee Education

 

Is it any wonder more and more companies are actively seeking to provide employee financial education programs for their team members? When an organization begins to understand the profound difference offering financial literacy training can make not only in the lives of their employees, but in their bottom line-they understand that this investment pays for itself many times over.

 

Employee Financial Education Benefits Both Employer And Employee

With financial burdens lifted from their shoulders, workers will be happier and work harder. They’ll enjoy their jobs more. This will lead to a marked decrease in absences, tardiness, and requests to leave early. By ensuring each team member receives solid financial literacy training, companies will see noticeable improvements in the area of productivity and accordingly profitability.

 

Putting a comprehensive employee financial education program in place makes good business sense. It is an investment that can literally change their lives of employees and radically improve the profitability, morale and culture of any organization.

 

Innovative organizations like the Financial Wellness Group are providing leadership and resources to help companies of all sizes implement proven and affordable employee financial education programs.

 

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