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Financial Education Benefits Employees and the Employers that Sponsor These Programs

Today's challenging economic conditions and increasingly varied and complex financial products make employee financial literacy more important than ever. Yet, only a fraction of employers provide workplace-based financial education, beyond the investment information associated with retirement and 401(k) plans. These low numbers are somewhat surprising, given that such programs can improve employee productivity, and as a result deliver a positive return on the investment an employer makes in them.

A survey from the Personal Finance Employee Education Foundation reports how employers are noticing the results of economic pressures on their employees: 51% are seeing an increase in wage garnishments, 42% are seeing an increase in emergency loans, and 34% are seeing an increase in requests for more time off to handle financial issues. Additionally, 70% of this surveyed employer group thought that having workplace-based financial education would be important or extremely important to the overall level of productivity in their organization. However, while 88% of these employers provided the investment/retirement education associated with retirement plans, only 28% offered even a basic financial education program, covering such issues as budgeting, debt reduction and crisis management.

For the surveyed employers, reasons cited for not offering programs to enhance financial literacy included too many higher priorities (71%), concerns that employees would sacrifice work time to participate in workplace financial education activities (58%), uncertainty whether upper management would buy into any such program (50%), and, finally, cost (49%).

According to information published by the Federal Reserve Bank of Kansas City and the Federal Reserve Bank of Atlanta, research suggests that 15% to 20% of employees have financial problems severe enough to negatively affect productivity. Just how severely? A financially stressed employee, in one month, spends an average of 20 hours of work time tending to financial problems.

The benefits to employees of having financial education available at work may be common sense, but what can an employer gain from offering such programs? Employers may see some of the following from having a financially literate work force:

Reduced absenteeism and presenteeism (a term to describe employees who come to work, but are distracted and lack focus, and thus aren't performing up to the expected level).
Increased employee productivity.
Reduced incidences of employee theft.
Improved employee health, with associated health plan cost savings.
Lower costs related to wage garnishments.
Better participation in, and employee contributions to, the 401(k) plan.
More loyal employees, resulting in reduced employee turnover.

Financial education programs can include a variety of components, delivered through seminars, one-on-one coaching, and electronic media. Topics covered typically include basic financial education (budgeting, debt management and saving); how to maximize tax-preferred savings plans, such as 401(k)s; pre-retirement education; smart (and not smart) ways to use credit; education on mortgage products; the importance of insurance; information on the wide range of investment products in today's marketplace; managing money in retirement; tax preparation and management; and estate planning.

As noted above, one reason employers decline to bring financial education programs into the workplace is cost concerns. According to the Financial Reserve Banks' publication cited above, program costs will vary, depending on program specifics and the number of employees. However, studies indicate that financial education programs can bring up to a three-to-one return on investment for an employer, a result of reduced direct costs and improved productivity. That's the kind of investment that many employers will conclude they simply can't afford not to make.

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Financial Education Benefits Employees and the Employers that Sponsor These Programs

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