Presented byPresented by

“Workplace Financial Programs Are Profitable When Done Right”

©3 Square Financial, 2009

Personal financial challenges and Personal financial challenges and problemsproblems

Why employee financial illiteracy is an Why employee financial illiteracy is an employer problememployer problem

Employer costs of financially unhealthy Employer costs of financially unhealthy employeesemployees

Results of quality workplace financial Results of quality workplace financial programsprograms

How 3 Square Financial projects How 3 Square Financial projects employer’s ROIemployer’s ROI

Recommendations and conclusionsRecommendations and conclusions

Agenda for TodayAgenda for Today

Participation in and deferral rates to retirement savings Participation in and deferral rates to retirement savings plans are plans are inadequateinadequate

Most are Most are not saving enoughnot saving enough for retirement for retirement

Workplace education and advice programs have been Workplace education and advice programs have been underutilizedunderutilized

Millions of employees say they Millions of employees say they cannot afford to reachcannot afford to reach their financial their financial goals, and 65% say debt is the reasongoals, and 65% say debt is the reason

Employees Employees do not knowdo not know how to help themselves how to help themselves

Employers Employers do not understand the value of providing their employees do not understand the value of providing their employees easy access to the best mix of quality financial programseasy access to the best mix of quality financial programs

Employee Personal Financial Challenges in Retirement Saving

Credit Card DelinquenciesCredit Card Delinquencies – 38% +90 days – 38% +90 days overdue, 85% have outstanding debt on cards overdue, 85% have outstanding debt on cards

Credit Card LossesCredit Card Losses — — Most pay only “minimum Most pay only “minimum amount due”amount due”

Household DebtHousehold Debt – 21% in crisis – 21% in crisis• Spending $1.16 for every $1 of discretionary incomeSpending $1.16 for every $1 of discretionary income• 58% of new debt to meet day-to-day living expenses58% of new debt to meet day-to-day living expenses• 19% have missed one or more mortgage payments19% have missed one or more mortgage payments• Home prices declined 15% in last 2 yearsHome prices declined 15% in last 2 years• 10% would not be able to raise $500 in emergency10% would not be able to raise $500 in emergency

Employee Personal Financial Problems

SurveysSurveys

80% - worried about their personal finances and think financial times will get worse

60% - trouble making ends meet

37% - no emergency fund

$392 – average savings balance

10% - delinquent in bills

15 million – calls from collectors

Employee Personal Financial Problems

Credit card payments ($11K) $330-$430 monthVehicle payments ($15K) $400-$500 monthCollege loan payments ($30K) $400-$600 monthSavings $33 monthChild-care ($5-$21K) $400-$1200 monthProperty taxes $Homeowner’s insurance $

“Don’t give employees a raise! Offer help with money management challenges”

Employee Personal Financial Problems“60% live paycheck-to-paycheck and do not save enough for retirement”

5 million Canadian workers

–1 in 3 –

report they are seriously financially distressed and dissatisfied with their personal finances

Employee Personal Financial Problems – Millions of Financially Unhealthy Workers

Source: InCharge Education Foundation, National Norms on InCharge Financial Distress/Well-Being Scale© for General Adult Population. 1 Means “Overwhelming Financial Distress/Worst Financial Well-Being”; 10 Means “No Financial Distress/Excellent Financial Well-Being” ©Copyright by InCharge Education Foundation and E. Thomas Garman, 2004-2009 All rights reserved.

(Mean=5.7; SD=2.4)

1 2 3 4 5 6 7 8 9 1 0

5.46.9

8.2

9.2

14.5 14.2 13.8

12.2 11.4

4.2

0 .0

2 .0

4 .0

6 .0

8 .0

10 .0

12 .0

14 .0

16 .0

Per

cen

tag

e

(1-4: 30%)High distress (5-6: 28%)

(7-10: 42%)Low distress

Employee Personal Financial Problems Reflected in Financial Wellness National Norms on PFW Scale©

30% Are Failing Financially!

(Scores of 1-4 on PFW)

30% Are Failing Financially!

(Scores of 1-4 on PFW)

Over 80 studies prove that employee personal finances and the employer’s bottom line go together

Research says that: “Employees with money problems are like sharks swimming around the workplace taking bites out of the bottom line”

“Every time someone on your work team brings his/her money worries to the job, workplace productivity drops”

Employee Financial Illiteracy is an Employer Problem

“Financially unwell employees do not make the best decisions for themselves…

or their employers”Research shows:

30-80% of ALL workers waste time at work on money issues

How much time?

12 – 20 hours per month

Employee Financial Illiteracy is an Employer Problem

Employee Financial Illiteracy is an Employer ProblemEmployee Financial Illiteracy is an Employer Problem

Financially Illiterate adults do not manage their personal finances very well…

And they do not save and invest enough for a financially successful retirement

THIS contributes to lower productivity as well as higher health care costs

Employers Often Recognize These Issues…

But Do Nothing.Employers Often Recognize These Issues…

But Do Nothing.“You can lead a horse to water, but you can’t make it

drink”

Employee Financial Illiteracy is an Employer Problem

Personal Finances:Personal Finances: Financial well-beingFinancial well-being Financial satisfactionFinancial satisfaction Financial distressFinancial distress Financial stressor Financial stressor

eventsevents Financial behaviorsFinancial behaviors Credit card debtCredit card debt Credit card Credit card

delinquenciesdelinquencies

Job Outcomes:Job Outcomes: Work satisfactionWork satisfaction Pay satisfactionPay satisfaction AbsenteeismAbsenteeism Presenteeism (cutting down Presenteeism (cutting down

on normal activities)on normal activities) Personal financial matters Personal financial matters

interfering with workinterfering with work Work time used to Work time used to

handle personal financeshandle personal finances HealthHealth

Employer Costs: Research Proves ALL These Factors are Correlated in the Ways Expected

Employees with financial distress report poor health.f

Financially distressed employees have worse health than other workers.g

40 to 50% of financially distressed workers report that financial problems caused their health woes.h

1/3 of professional employees say are so sad or down they couldn’t perform job tasks due to financial distress.i

Positive changes in financial behaviors are related to improved health.j

Employer Costs: Research Shows that Health and Personal Finances are Correlated

“Employer cost for not providing basic financial education that changes behaviors and job outcomes is $750 to $2,000+ per

employee!”

Employer Costs: Annual Cost to Employer for Ignoring One Worker’s Financial Illiteracy

Quality Workplace Financial Programs Rescue Employees and

Employers by

Quality Workplace Financial Programs Rescue Employees and

Employers by

1. Decreasing employee personal financial distress

2. Increasing employee personal financial wellness

Salary increases? No

Bonuses? No

Most retirement education workshops? No

Marriage counseling? No

Employee Assistance Programs? No

What does NOT reduce employee financial distress and increase financial wellness?

Employers who provide employees easy access to quality financial programs:

Basic financial education Credit counseling Benefits information/education Retirement education Financial advice Financial coaching that changes behaviors

“Bring together the basic financial resources to truly help employees”

What DOES reduce financial distress and increase financial wellness?

This is knowledge about

• Spending Plans

• Credit Management

• Savings

“AND The lack of financial literacy is the major reason why employees do not save for retirement”

Quality Programs Emphasize “Basic Financial Literacy”

Quality Programs Result in Financially Literate Employees Who are Engaged with Money Issues

Human resources professionals can help make this happen

• Comparison shop

•Achieve savings goals

•Enjoy average to above average financial well-being

1. Employer demands more from current financial program providers

2. Employer insists one provider give leadership to deliver a coordinated quality program that emphasizes the basics of personal finance:

Spending Plan Credit Management Savings

3. Provider must use targeted communications to motivate employees to change

Quality Workplace Financial Programs Reduce Employee Financial Illiteracy and Save Employer $750 - $2,000+

“It’s not a matter of money spent on financial education - It’s a matter of demanding effectiveness!”

Lower financial distressLower financial distress Increase financial well-beingIncrease financial well-being Better healthBetter health Retirement preparationRetirement preparation Improved family relationshipsImproved family relationships Gains in job performanceGains in job performance

Quality Financial Program Result in Quality Financial Program Result in Improved Employee Financial WellnessImproved Employee Financial Wellness

“Employers do not realize they can improve profits

–and prove it–

by helping employees improve personal financial behaviors”

Quality Financial Programs Result in Improved Employer Profits

Return on Investment (ROI):The Personal Finance Employee Education Foundation expects employers typically will receive a ROI of 3:1 (or more) annually for quality financial programs

Example: Cost: $500 invested in financial programs by employer

Benefit: $1,500

ROI = 3:1

Quality Financial Programs Result in a Positive ROI for Employers

3 Square Financials’ Approach to 3 Square Financials’ Approach to Projecting Employer’s ROIProjecting Employer’s ROI Benchmark employee financial health by asking

workers to respond to “Personal Financial Wellness (PFW)” scale questions

PFW is an 8-item online and/or pencil-and-paper questionnaire that in 3-4 minutes measures financial health

PFW is a valid, reliable, peer-reviewed, and published measure (over 25 years in development) with national norms

1. 3 Square Financial and your HR professional estimate projected impacts of financial program on job outcomes/other employer variables

2. Assign values to each key job outcome3. Calculate projected benefits of financial program4. Identify program cost and calculate employer’s

projected return on investment (ROI)

3 Square Financials’ Approach to 3 Square Financials’ Approach to Projecting Employer’s ROIProjecting Employer’s ROI

3 Square Financial Projects 1-Year Changes 3 Square Financial Projects 1-Year Changes in 6 Variablesin 6 Variables

1. Less work-time spent on personal finances

2. Less absenteeism

3. Reduced turnover

4. Improvements in job performance

5. Fewer workers’ compensation claims

6. Fewer garnishments

3 Square Financial Could Project Additional Variables 3 Square Financial Could Project Additional Variables as Part of Employer’s ROIas Part of Employer’s ROIAdditional factors that could be included in the project ROI calculation that may contribute to increasing benefits over the costs are:

1. fewer payroll advances

2. fewer loans from pension plans

3. fewer accidents

4. less workplace violence

5. less substance abuse

6. fewer thefts

7. increase in job engagement

8. improved morale

9. increased participation in pension plan

10. reduced human resource department costs

11. reduced fiduciary liability

3 Square Financial Assumptions Behind Employer 3 Square Financial Assumptions Behind Employer Costs and Projected ImprovementsCosts and Projected Improvements1. Employer cost assumptions are grounded

in data available from industry sources as well as from the employer’s HR professionals

2. Projected improvements in personal financial behaviors based on research

3. Projections for improved job outcomes are reasonable and conservative

4. Projected impacts are for one year following participation in quality financial program

3 Square Financials’ Conservative Assumptions of Program 3 Square Financials’ Conservative Assumptions of Program ImpactsImpacts

1.1. Program Program offered to all employeesoffered to all employees

2.2. Program Program does not impact 70%does not impact 70% of employees of employees

in meaningful and measurable ways or in meaningful and measurable ways or

result in improvements in their personal result in improvements in their personal

financial behaviors and financial healthfinancial behaviors and financial health

3.3. Program Program does impact 30%does impact 30% of employees of employees

with with varying degreesvarying degrees of effectiveness of effectiveness

resulting in a resulting in a rangerange of improved financial of improved financial

behaviors and job outcomes/other employer behaviors and job outcomes/other employer

variablesvariables

Make us prove it by measuring increases in PFW scores as well as the quality of savings

Give us 12 months to produce success

All the time knowing that your ROI will be 3:1or higher

Recommendations

It is in the employer’s best interest—more profits—to provide employees easy access to quality financial programs

Conclusions about Employee Financial Literacy and Employer Profits

“It also is the right thing to do as stewards of employee well-being!”

“It also is the right thing to do as stewards of employee well-being!”

ff Bagwell & Kim, 2008; Drentea, 2000; Drentea & Lavrakas, Bagwell & Kim, 2008; Drentea, 2000; Drentea & Lavrakas, 2000; Garman et al, 2004; Genco et al., 1999; Garman et 2000; Garman et al, 2004; Genco et al., 1999; Garman et al., 2007;l Jacobson et al., 1996; Lyons & Yilmazer, 2005; al., 2007;l Jacobson et al., 1996; Lyons & Yilmazer, 2005; Kim, Sorhaindo, & Garman, 2004; Prawitz et al., 2007; Kim, Sorhaindo, & Garman, 2004; Prawitz et al., 2007; Shatwell et al, 2007.Shatwell et al, 2007.

g g Kim, Sorhaindo, & Garman, 2003; Prawitz et al, 2007; Kim, Sorhaindo, & Garman, 2003; Prawitz et al, 2007; O’Neill et al, 2005 (2 articles); Sorhaindo & Garman, 2002.O’Neill et al, 2005 (2 articles); Sorhaindo & Garman, 2002.

hh Garman et al, 1999; Kim, Garman, & Sorhaindo, 2003 Garman et al, 1999; Kim, Garman, & Sorhaindo, 2003 (AFCPE and ACCI); Kim, Sorhaindo, & Garman, 2004; (AFCPE and ACCI); Kim, Sorhaindo, & Garman, 2004; O’Neill et al, 2006; Weisman, 2002.O’Neill et al, 2006; Weisman, 2002.

ii Unpublished data. Unpublished data.

jj Kim, Garman, & Sorhaindo, 2003 (AFCPE and ACCI); Kim, Garman, & Sorhaindo, 2003 (AFCPE and ACCI); O’Neill et al, 2006; O’Neill et al, 2005 (2 articles).O’Neill et al, 2006; O’Neill et al, 2005 (2 articles).

Footnotes