Upload
shea-bulger
View
214
Download
0
Tags:
Embed Size (px)
Citation preview
The Business Case for Financial Education
Personal Financial Wellnessand Employee Productivity
E. Thomas Garman
Presented to The Conference BoardAtlanta and San Diego
1998
Introduction
The majority of financial education programs are traditional, narrowly focused retirement education
Smart employers are broadening their perspectives about financial education
Want to help workers make good decisions about:– Investment choices within employer-
sponsored retirement plans
– Other employer-furnished fringe benefits
– Personal budgeting Are helping workers with money
problems learn to overcome such obstacles so they can fully fund their retirement plans
Smart Employers
The Rationale for Comprehensive Financial Education Is Strong
What if someone promised you the employer a plan to achieve the following:
– increased worker productivity– reduced absenteeism to take care of personal
financial matters– reduced HR administrative costs– increased participation in and contributions to
retirement plans
- reduced social security payroll taxes
- reduced stress over financial matters and stress-related illnesses
- fewer accidents
- improved use of and satisfaction with employer-provided fringe benefits
- reduced hr administrative costs
- reduced turnover
- reduced pressure to increase salaries
- increased morale and loyalty
- increased number of worker retirements on time, rather than delayed
- reduced exposure to future litigation based upon fiduciary liability as fewer retirees have financial problems
- a positive return on every dollar invested in comprehensive financial education
Research findings are promising,
although more research partners
are needed to definitively prove
the case for comprehensive
financial education
Research by Joo Shows Financial Wellness and Key
Measures of Work Productivity Are Positively Related
Those with poor financial wellness are more likely to be: Frequently absent from work Receive poor performance ratings Spend excessive time at work dealing
with personal financial problems Experience a decline in job productivity
from one year to the next
Workers That Employers Love -Those with Good Financial Wellness
Come to work Receive high performance ratings Use a minimum of time at work
attending to personal financial matters Enjoy consistent or increasing job
productivity
Additional Joo Conclusions
The likely first year return on investment for financial education that improves the personal financial behavior and wellness of a worker is about $400
The potential return comes from fewer absences, less work time spent on dealing with personal financial matters, and increases in job productivity
Traditional and Narrowly Focused Retirement Education Programs Have Limited Effectiveness
For many employers, retirement planparticipation rates have reached a plateau.
Some Workers Will Not or Cannot Contribute to
Their Retirement Plans
Two reasons exist:
1. Some workers have money problems and cannot afford to
save for retirement
2. Some workers are not convinced that they should save for
retirement
Employers Have Questions About What More to Do in Financial Education
What would it take to get the participation rate higher?
What would it take to help workers change their asset allocation to better diversify their investment portfolios?
How much would a comprehensive financial education program cost?
Does financial education work?
Can a financial education program be utilized as a recruitment tool?
Would expenditures on financial education result in a positive return on investment?
Can financial education be utilized as a retention tool?
What numbers do I need to convince top management that more money should be committed to a comprehensive financial education program?
The Cost of Providing Only Retirement Education
Is Horribly High Not all workers are secure in their money
matters A full 2/3 of Americans say “they have
trouble paying their bills and worry about money”
75% of Americans report that they recently faced at least one significant financial problem
Financial matters and financialstress affect not only an individual’s personal and family life, but also a person’s work life.
Approximately 15% of workers in the U.S. are currently experiencing stress from poor financial behaviors to the extent that it negatively impacts their productivity.
Poor Financial Behaviors Result in Extremely High Costs Incurred by Employers
1. Absenteeism 2. Tardiness 3. Fighting with co-workers and supervisors 4. Sabotaging the work of co-workers 5. Job stress 6. Reduced employee productivity
7. Lowered employee morale
8. Loss of customers who seek better service
9. Loss of revenue from sales not made
10. Accidents and increased risk taking
11. Disability and worker compensation claims
12. Substance abuse
13. Suicide and murder
14. Increased use of available health
Care resources by the employee and relatives
15. Thefts from employers
16. Loss of security clearance
17. Nondeployment of employee to an overseas operation
18. Lack of employee focus on the strategic goals of the employer
19. Greater use of EAP services, including those for spouse and child abuse
20. Employer time to deal with poor financial behaviors of employees
21. Loss of trained personnel
Research by the Military Family Institute concludes that the direct and indirect costs to the Nnavy for poor personal financial behaviors of workers is between $208 and $294 million annually
The cost to the Department of Defense, an employer of 1.4 million, is about
$1 billion annually
New Research by Virginia Tech’s Joo Reveals:
54% of average income workers in a sample of white-collar occupations are dissatisfied with their financial wellness
30% feel they are always in financial trouble and 35% find it hard to pay bills
51% worry about how much they owe 44% do not set aside money for retirement 60% do not have enough money set aside
to live for longer than 2 months if they lost their jobs
Reasons for Not Voluntarily Contributing to an Employer-Sponsored Retirement Plan:
49% - do not have enough money 34% - do not know enough about the
retirement plan
There is a growing national movement to offer financial education in the workplace, partially because so many workers are going to have extreme difficulty finding money for retirement
Smart Employers Offer Comprehensive Financial Education
That Helps Workers Make Informed Decisions About:
Employer-sponsored retirement plans Other employer-furnished fringe benefits Credit and money management Consumer protection rights
Smart Employers Realize Financial Education Is a
Key Factor in Recruitment and Retention
The best workers are typically: in control of their personal finances contribute to their pension plans
These workers are happier in theirfinancial lives and it shows in their work
Smart Employers Will Do Two Things
1. Provide employees with comprehensive financial education
2. Identify and help workers with money problems overcome obstacles to fully fund their retirement plans
How Can Employers Help Workers With Money Problems?
Smart employers provide workers with non-profit budget and credit counseling and basic information on consumer protection laws
Why?
Such information empowers people to get out of difficult situations and avoid them in the future
Two-thirds of workers with financial problems can improve their financial situations with professional help within about 12 months, and begin to save for retirement
Yet, fewer than 1/5 of large employers are offering financial education that includes emphasis on personal budgeting and credit management
The Best Employers Will Meet and Succeed
at Two Challenges:
1. Move from offering workers an average financial education
program to providing a model program
2. Partner with other organizations thatare currently helping people
resolve money problems
Employers Should Know That
It is not necessary for employers to get into the credit counseling business
Well-qualified, non-profit national providers of information on effective management of money and credit exist
Other experts can help workers avoid consumer rip-offs and frauds
#1 Finding Money for RetirementAfter receiving comprehensive financial education, a typical 45-year old married dual-earner couple with a family can find over $4000 a year to fund their retirement plans:
$300 a month by wisely choosing among employer-furnished fringe benefits
$80 a month by gaining control of consumer credit and managing money more effectively
$10 a month by avoiding consumer rip-offs and frauds
#2 Finding Money for RetirementAfter receiving comprehensive financial education, a typical 35-year old single worker can find over $2,500 a year to fund his/her retirement plan:
$170 a month by wisely choosing among employer-furnished fringe benefits
$60 a month by getting in control of consumer credit and managing money more effectively
$10 a month by avoiding consumer rip-offs and frauds
Results of Implementing a Comprehensive Financial
Education Program
Retirement education helps workers save for their retirements
Comprehensive financial education works even better!
Employers Reap the Benefits
Very high participation rates in 401(k) plans (90+ percent range)
Reduced net cost of operations
Workers Gain Benefits, Too Increased financial wellness Lower household debt-to-income ratio Increased self-esteem and improved attitude
about work Increased satisfaction with employer-provided
fringe benefits Increased capability to participate in and
contribute to retirement plans Increased saving for retirement
What Is the Cost of Providing Comprehensive
Financial Education?
Between $75 and $455 annually:– Retirement planning ($30-$275)– Other employer-furnished
fringe benefits ($25-$40)– Credit and money management ($10-$20)– Consumer rights ($10-$20)
Return on Investment for Comprehensive
Financial Education
Research shows that it ranges from 3:1 to 10:1, depending upon a number of factors
An Example Where the Benefit-cost Ratio Is 3:1
The employer gains $3.00
in value for every $1.00
spent on a comprehensive
financial education program
for workers
Situation:- 1,000 workers. Average salary of $40,000
- 60% participation rate in the 401(k) plan
- 20% participation rate in the pre-tax health and dependent care programs
- 15% experience personal financial difficulties to the extent that it negatively affects their job productivity
- $200,000 (or $200 per worker) invested in a comprehensive financial education program
1. $125,000 - increased job productivity
from 100 workers who resolved money problems 2/3 of workers who formerly had money problems (150 workers x 2/3 = 100) improved their situations and job productivity by 15 minutes per day 15 minutes = 3.13% of one workday
x $40,000 salary = $125.20 savings per worker x 100 workers
Results:
2.$80,000 - Reduced absenteeism from the same 100 workers who no
longer take time off work to attend to personal financial matters
2/3 of workers who formerly had personal money problems (n=100)
now do not take 5 days off each year
to attend to money matters $800 a week x 100 workers
3. $12,000 - Reduced administrative
time to process wage garnishments,
requests for payroll advances,
and 401(k) loans for the same 100
workers who formerly had personal
money problems - $120 x100
workers
Important!
The entire $200,000 cost of the financial education program already has been returned to the employer based solely upon the gains from the 100 workers who resolved their personal money problems
In fact, the employer is already $17,200 ahead!
4. Increased job productivity from 200 workers who formerly did not participate in the employer’s retirement plan and now do contribute
5. Increased job productivity from 150 workers who increased their contributions to retirement plans
6. Increased job productivity from the majority of the remaining workers - 400 of 650 - who participated in the financial education program
7. Reduced social security payroll taxes on employers because 500 more employees utilize pre-tax health and dependent care
8. Reduced stress-related illnesses from alcohol and other substances
9. Reduced premiums for health care
10. Fewer accidents
11. Improved use of and satisfaction with fringe benefits
12. Reduced human resource administrative costs
13. Reduced turnover
14. Reduced pressure to increase salaries
15. Increased morale
16. Increased acceleration of employee retirements
17. Reduced exposure to future litigation
A Positive Return on Dollars Invested in Comprehensive
Financial Education This illustrative 3:1 ratio is calculated by
dividing the $651,050 in benefits by the $200,000 cost of the financial education program ($651,050/$200,000)
Note that comprehensive financial education is less expensive and more effective than the alternative of offering workers a 3% match
What Is Virginia Tech’s Personal Finance
Employee Education Effort?
The mission of the PFEE outreach effort is to host national conferences that demonstrate model financial education programs which motivate and enable workers to overcome obstacles to fully fund their retirement plans.
At the time of this speech, Garman was Professor and Fellow, Center for Organizational and Technological Advancement, and Director of the National Institute for Personal Finance Employee Education, Virginia Tech, Blacksburg, VA 24061. Garman retired in 2000 as Professor Emeritus at Virginia Tech. E. Thomas Garman, Distinguished Scholar and Director of Educational Services, InCharge Institute of America, 1768 Park Center Drive, Suite 400, Orlando, FL 32835; E-mail: [email protected]; Phone: 407-532-5883; Fax: 407-532-5750; Web: InCharge.org