Wednesday, October 30, 2013

Is There Financial Literacy in Your Workplace?

It’s not difficult to see that some Americans make poor financial decisions. We’ve been bombarded with reports of the so-called sub-prime mortgage credit crisis--mostly because borrowers didn’t fully understand what they were getting into and the possible consequences. Depending where you are, you see ads for “car title loans,” Payday loans, and “refund advance loans” on your anticipated income tax refund. All of these incur, on an annual basis, astronomical interest rates, but are sold as putting cash in your pocket for “just a few dollars.” What about the person who accepts paying a $2.50 fee to withdraw $10 from an ATM once a week?

This situation has attracted the attention of high levels in our government. The Federal Reserve Bank of Kansas City has highlighted both the need for and the benefits of financial education conducted in the workplace. President Bush has recently formed an Advisory Council on Financial Literacy, appointing Janet Parker, SPHR, to the Council. Appointing the chair of SHRM to the Council clearly signals that the HR profession belongs in this national discussion. What is consistently seen as a tool to address the financial illiteracy concern is some sort of Financial Education in the Workplace.

Indeed, if financial education in the workplace is a part of the solution to this problem, HR professionals, as the stewards of employee education, will be in the forefront of the effort. Whether expressed as “financial literacy,” “financial education,” “financial stabilization,” or a catchy, easily-turned-into-an-acronym name (such as “Consolidated Approach Simplifying Handling Money, or “CASH Money”), employers on the leading edge of addressing this issue will become employers of choice.

What does your organization’s program look like? Is it truly literacy? Merely “education”? Voluntary brown-bag lunch-and-learn sessions? The minimum required by law (e.g., ERISA)? If this has been your program for a long time, and your employees are still in financial straits from poor decisions because today’s financial world is much more complicated than it was 10 or 20 years ago, don’t you think you need a change? After all, as the joke goes, doing the same thing over and over expecting a different outcome is akin to insanity.

So what does work? Let’s look at an allegory that you probably already have in place--your “health and wellness program.” It usually consists of health education, building an exercise plan, stopping smoking programs, and providing a time and place to exercise, sometimes at the workplace, sometimes a reduced membership fee at the gym. Change some of those words around and you have a financial wellness program: providing financial education, building a budget, stopping over-spending programs, and providing the access to real-world experts who can make the “financial exercise” actually pay off. As can be said, “learning about aerobics, studying the physiology of exercise, and knowing you should go to the gym” does not make one physically fit. You have to actually do the dieting, aerobics, workouts, that is, one must change one’s behavior to make it work.

The same is true for financial wellness. “Brown-bag seminars” alone will not get your employees on track with managing their financial affairs. It’s getting them to change financial behavior that does it. Sometimes it’s necessary to set up the conditions for your employees to get smarter and to change (for the better) what they do with their money. Setting them up for financial success can be as important to your organization as setting them up for professional success.

“Sure, but what’s in it for the organization?” Great question. If there’s a payoff, it makes even more sense to do it. The bottom line matters greatly. So, let’s turn the question around a bit. Is it worth something real to the organization if:

• Your payroll administrators have fewer garnishments and other legal actions to process?
• Your retention improves because employees return the loyalty shown “down” from management in helping them to take care of difficult matters?
• Your employees’ participation in tax-advantaged retirement plans (such as 401(k) plans) increases?
• Absenteeism is reduced, because your employees feel stronger loyalty and (surprisingly) are healthier?
 Employee theft (“shrinkage”) is reduced because of the improved loyalty?
• Overall productivity improves because employees are at their jobs more, instead of missing work to handle legal issues, for example?
• Overall productivity improves because employees are more focused on their work, instead of worrying about their financial woes?

The following two hyperlinks bring you to results from research conducted by independent researchers and The Federal Reserve Bank of Kansas City. Is there any reason to believe that your organization would be that much different from those in the research? Would you like to be known as an employer of choice because of all the personal, valuable, financial literacy you give to your employees, or just another organization who does only the mandatory one-hour lecture on the retirement plan?

Notice that this whole concept is independent of whether employees are exempt or non-exempt, professional, technical, skilled, or unskilled. Certainly, there is more for the organization in ascertaining if participants in the financial literacy benefit are likely to be retained--but success in the program can be a big motivator for those considering leaving the organization. It’s also independent of income level--six-figure-income employees can and do make poor financial decisions as well as entry-level ones, and often with bigger dollar consequences.

The research is done, and there’s plenty of it--improving the financial literacy of employees brings tangible benefit to both employers and employees. Why not do it in the workplace, where the link between the employer’s goals and the individual employee’s goals merge. The cutting edge is there. Will you help take your organization there?

Richard L. Virgilio, SPHR, is a retired Navy submarine Captain, a former study leader and analyst for The Johns Hopkins University Applied Physics Laboratory, and independent HR consultant. ( )

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