Financial literacy training promises improved performance and higher retention

Why do high-performance organizations train employees in financial literacy, even if they don’t handle money for the organization?

Results of a recent study tell us why. Financially stressed people are likely not to do their best work. Over 80% of Americans and Canadians spend time at work thinking about their personal finances, according to human capital management firm Ceridian and Canada’s Financial Wellness Lab.  The survey of 4,200 employees revealed that fully one-quarter of working people spend at least an hour at work every day on thoughts about their financial health, most of whom were classified by the study as “stressed” over their finances.

Withstanding the shocks

Of course, financial education and training isn’t a panacea. Financial catastrophe can befall almost anybody unless they’re independently wealthy. But financially literate employees who understand the ways and means of achieving financial stability are more likely to be able to withstand financial shocks.

And from the employer point of view, they’re more likely to be able to concentrate on their work. Advocates of financial literacy programs say they also have a beneficial effect on stress-related employee turnover.

According to the Society for Human Resource Management (SHRM), employers can tap into online financial literacy programs for anywhere between $10 and $30 per month per employee. These modules cover things like making and sticking to budgets, creating an emergency fund, reducing debt, saving for current expenses and retirement, and affording big-ticket items like a house, college educations and weddings.

The payoff

What’s the payoff in dollars and cents, you ask?

Well, the Ceridian/Financial Wellness Lab study suggested productivity lost due to employees’ personal financial preoccupations may be as high as $614 billion a year in the United States, and $50 billion in Canada. Any reduction in numbers like these has to be welcome.

For individual employees, the payoff can be substantial, too. For example, SHRM says, M&T Bank reports that its financial literacy program has spurred $5.1 million in employee debt reduction plus increased savings. One provider of personal financial training, Smart-Dollar, claims that the average participant in its programs enjoys a $16,200 savings-plus-debt-reduction bump in the first year.

What to think about

Here are some points to consider when starting a financial literacy program:

• Who will run it? Experts say trying to create a program in-house will run up against employee suspicions about discussing their finances with the company. Using a third-party vendor alleviates this potential problem.
• Will you pay people to enroll? SHRM estimates that about one-third of companies with a financial literacy program pay cash incentives to employees who sign up, with these bonuses averaging $250. Others provide non-cash incentives like gift cards, electronic tablets or vacations.
• Tap your employees’ experience. Providers say that prior to starting a program, it’s a good idea to arrange conversations about financial literacy, savings and debt reduction among the different generations of your employees. Older and younger people can learn from and encourage each other.
• Don’t neglect newcomers: Of course you’ll want to make the introduction of the program as big a deal as possible, promoting it through all your avenues of employee communication. But don’t forget to give new employees “the talk” as they later come on board. You could also make some financial literacy training part of the new-employee orientation process.
• Institutionally encourage savings: It’s fine to educate people about good financial choices, but other kinds of organized encouragement can help. For instance, you might consider making 401(k) programs for new employees opt-out instead of opt-in, so they start saving from the get-go.
• Open the books: If you’re suggesting that employees get better at managing their finances, show them how the company manages its own. Some CEOs boost employees’ financial savviness with “open-book management” that makes the company’s accounting transparent. This may not work for every organization, but it does for some, especially where there’s a degree of employee ownership.

This blog post is based in part on the white paper “Ceridian Study Finds Financial Stress Among North Americans Highest Since 2008.”