Remarks by Janet Parker
and basic financial education is the first step to achieving that goal.”
This statement by Charles Schwab, chairman of the President’s Advisory Council on Financial Literacy, has particular resonance today as the United States struggles with financial challenges both here and abroad.
This economic crisis affects all Americans, all families, and all employees. It illustrates the importance of financial literacy in everyday life. Yet, as a nation, we have not made understanding money and finances an integral part of our education or training systems.
When individuals join a work force, they are faced with a variety of financial decisions, including how to take advantage of opportunities such as savings programs that can maximize their earnings. But not all employees have the necessary knowledge to make those decisions.
Recognizing that the workplace plays a major role in both the financial and personal aspects of employees’ lives, the President’s Council on Financial Literacy noted that “Employers are in a powerful position to change the landscape on financial literacy, for both their own interests and those of the nation. Using the workplace as a financial education classroom is a tremendous opportunity, one that is logical and makes sense…”
Most Americans receive important assistance in building wealth and financial protection through employer-sponsored benefit programs such as retirement accounts, health insurance, life and disability insurance, plus tax-favored benefits to fund education, child care, and health care. Human resource professionals have traditionally provided employees with an understanding of how to use these benefits and the value in doing so.
However, today’s economic climate suggests that employers should take a serious look at the advantages of expanding the financial education offered at work. For instance, in order to understand how to maximize their workplace benefits, employees need to first understand the tenents of budgeting, debt management, and financial planning. These basics of how to attain financial security are not routinely taught in our schools. Until they are, there is no better place to provide basic financial literacy than the workplace.
Employers are best served by employees who are fully engaged, and not distracted by economic uncertainties. So, helping employees manage their finances is actually an opportunity for employers to realize increased productivity. But given the financial challenges facing most families today, providing that education is also an ethical imperative.
The critical need for financial education in the workplace is illustrated by a few basic facts:
- Only seven states require a personal finance course in order to graduate from high school, reports the National Council on Economic Education. Of the 40 states that have content standards for personal finance, only 28 require those standards to be implemented.
- An online national poll by Harris International found that 47 percent of working Americans say they live paycheck to paycheck just to make ends meet.
- Between 30 and 80 percent of financially distressed employees spend time at work worrying about personal finances and dealing with financial issues instead of working, according to a report by the Personal Finance Employee Education Foundation.
- A report by CFO Research Services found that 80 percent of chief financial officers and other senior executives say financial literacy among employees is the most significant challenge they face in getting them to participate in 401(k) plans.
In 2008, the Society for Human Resource Management (SHRM), the world’s largest association of human resource professionals, surveyed its members and found that the effects of economic stress are real and growing. In a 12-month period, 26 percent of employers experienced an increase in the number of employees having their wages garnished by collection agencies; a 39-percent increase in employees asking for advances on their 401(k) accounts; a 20-percent increase in the number of employees asking for advances on their wages; and a 14-percent increase in the number of employees who reported losing their homes.
The business case for addressing employees’ need for financial education is clear. An employee who is on the phone with creditors throughout the day – or just worrying about debts – is hardly focused on his or her job. In today’s highly competitive marketplace, employers need to help their employees succeed. By minimizing distractions to their most important assets and keeping them engaged in driving results and growing their careers, employers reap increased loyalty, engagement, and productivity.
The President’s Advisory Council on Financial Literacy made several recommendations in its 2008 Annual Report detailing ways to raise the level of financial literacy in the United States.
One key recommendation was to allow individuals the ability to assess their own financial knowledge and then to provide them with information they need to fill the gaps in their knowledge. Making a positive impact on the financial well-being of employees doesn’t require a complex or costly new program. Instead, the key is to just make quality information available to employees in a variety of ways and to aggressively promote the use of those educational materials.
To get started, employers and human resource professionals should consider making a financial “check-up” available to all employees. Employees take a simple, self-administered test. If they don’t score at the recommended level, they should be provided with appropriate educational materials, including Web sites, for self-tutoring. Financial topics addressed should include a variety of basic financial skills, including:
- Budgeting
- Creating an emergency fund
- Understanding credit scores
- Understanding credit
- Understanding compound interest
- Understanding mortgage basics
- Understanding insurance products
- Employer-sponsored programs and benefits
- Retirement planning
- Investment vehicles
Financial education and information is abundant on the internet. HR departments need to help employees identify non-profit sources of information and quality Web sites. Banks or non-profits in the local community may be willing to provide free educational seminars at the workplace. In addition, Employee Assistance Programs (EAP) often have articles, brochures and flyers on financial topics that can be distributed to employees.
As employers begin incorporating financial education in the workplace, they will see that the return on their investment will far outweigh the modest costs of helping their to make employees become financially literate. Employers are in a powerful position to change the landscape on financial literacy, for both their own interests and those of the nation.
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Resources for incorporating financial education in the workplace:
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