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Published on : March 03, 2012

Financial Education Programs Benefit both Employers and Employees

Financial Education Programs Benefit both Employers and Employees

In Met Life’s 9th Annual Study of Employee Benefit Trends, there are these statistics: 53 percent of employees are concerned about having enough money to make ends meet with 40 percent claiming to live paycheck to paycheck and 30 percent admitting trouble paying their bills. Such results show that there is a significant number of employees who are uncomfortable with their financial situation; a concern which causes them to have increased stress.

Stress from debt can cause a variety of health problems from relatively minor issues, such as muscle tension and in some cases even heart attacks. A majority of employers report that financial concerns contribute to employee absence and thus, a loss of productivity. Nearly 25 percent of employees agreed that financial stress may cause them to be absent from work. 

A recent study by the Society for Human Resource Management supports these results with 83 percent of human resource professionals indicating that personal financial challenges affect overall employee performance. Unfortunately, many employees have not yet recovered from the 2008 financial crisis with 80 percent of them facing more financial challenges than five-years ago.  

With the increasing demise of defined benefit plans over the last twenty years or more, and the rise of employer 401(k) plans, employees must take greater responsibility toward providing for financial security in their retirement years. It is true that many employers provide financial information and education with regard to making contributions to 401(k) plan investments. However, as mentioned previously, a large number of employees are not only living paycheck to paycheck, but many of them are also having trouble paying their bills - and therefore do not believe they have the ability to make 401(k) plan investments. 

The impact of employees with financial concerns, not only affects 401(k) contributions, but that employees experiencing personal financial distress are also not as focused and productive at work. In recent interviews with business executives, researchers at Eastern Kentucky University found that employers rated appropriate use of credit cards and budgeting as the most critical financial skills which employees lacked; and that if acquired, (these skills) would have the greatest impact on performance in the workplace. The executives interviewed agreed that financially distressed employees engage more frequently in personal telephone calls, are absent more often, and are less productive because they are distracted by personal financial problems. Consequently, it is of value to employers to provide financial education programs, which go beyond explaining how the 401(k) plan works. Basic financial concepts should be included such as budgeting and handling debt.

A few years ago, the Federal Reserve of Kansas City undertook a study to examine the effects of financial education in the workplace.  Several positive results were found. At the end of the course, more employees had a better understanding of debt, and its impact, and were paying their credit card balances in full at the end of the month. There was an increase from 45 percent to 70 percent in participation in flexible spending accounts (enabling the employer to reduce its contribution to Social Security and Medicare).  In addition, the participation in the 401(k) plan went from 65 percent to 100 percent and at the time, there were no requests for loans from the plan. This was significant since these requests had been quite common in the past.

For the 401(k) plan, there is added value. Because employees with lower salaries are more likely to participate in the financial education offerings, and then have the money available to set aside to enroll in the 401(k) plan, the workplace financial education program helps employers comply with fiduciary responsibilities under ERISA. These responsibilities include the requirement that the percentage of those benefiting from the plan making less than $100,000 must be at least 70 percent of the percentage of those whose salary is greater than that amount.

While there has been greater interest on the part of employers in the last couple of years in providing a financial education benefit to their employees, the cost concern still arises as a barrier in preventing their introduction to the array of employer benefits. On the other hand, because financial stress results in more employee absence and then takes a toll on worker productivity, the Personal Financial Employee Education Foundation has been able to show that increased financial wellness enables fewer employee absences, reduced healthcare costs and greater participation in flexible spending accounts. As noted previously, the Federal Reserve of Kansas City also found that workers who had participated in a financial education program put aside more money in flexible spending accounts.

In addition to improvements in workplace outcomes, such as reduced absenteeism and increased 401(k) participation, researchers also have reported positive outcomes for employees themselves. Additionally, increased financial knowledge had been reported by employees who participated in workplace financial education programs. Participants also have reported that they have put what they have learned into practice through improved financial behaviors such as paying bills on time, adhering to a weekly or monthly budget and building personal savings. Such improvements in personal financial knowledge and practices contribute to the reported increases in perceived financial wellness of employees. This in turn supports their overall well-being. 

For employers who decide to offer comprehensive financial education as an employee benefit, there are an increasing number of solo professionals and organizations providing this service through a variety of approaches.  Workplace seminars remain a common delivery approach.  However, online education courses have become available, and individual counseling, often called money coaching, is sometimes provided through an EAP.

If employees have access to a financial education program at their workplace, it is of benefit to both the employee and to the employer. The employee is able to maintain a better handle on his or her finances and the employer gains in the productivity of its employees.

About The Author

Judith Cohart is President and CEO of the Personal Finance Employee Education Foundation.  She is a graduate of Cornell University with a masters of arts in teaching from Yale University and a law degree from Catholic University.  She is a past president of the Association of Financial Counseling and Planning Education.