Ask The Experts: Examining Financial Literacy in the Workplace
The issue of financial literacy, or a lack thereof, has rightfully earned a great deal of mainstream attention in the wake of the Great Recession. It seems that while we refuse to learn our lesson about the dangers of habitual overleveraging, judging from the more than $73 billion in credit card debt that we’ve racked up in the past two years alone, we do want to help future generations avoid repeating our mistakes.
The question is how corporate America fits into the picture. It’s clear that parents and teachers have an inherent responsibility to prepare young people for the financial realities of the “real world,” and most school systems are experimenting with different methods of incorporating personal finance and economics into the curriculum. But do businesses, from small organizations with just a handful of employees to Fortune 500 companies, have any business coming anywhere close to the issue?
There’s a lot more riding on that question than you might think – billions of dollars actually. There are probably more potential marriages between personal and corporate finance than you might think as well.
Financial Literacy, Stress & Employee Productivity
There is a clear and logical correlation between financial literacy, employee productivity, and a business’s bottom line. Let’s work backward.
For a business to survive, it must produce a positive return on its biggest investments. Human capital obviously represents one of the most significant investments any company will make, both from a monetary and time perspective. Given that employee acquisition and training accounts for much of that cost, the most efficient businesses are those that are able to maximizing the productivity and output of existing staff.
The thing is, it’s rather difficult to draw blood from a rock when the rock is always missing work due to stress. Stress is kryptonite to productivity, keeping us up at night and robbing the economy of $60 billion a year in the process. Not only that, but around a million people miss work because of stress every single day. That’s another $300 billion in lost productivity right there.
What are the leading causes of stress? Money, work, the economy, and family responsibilities are the most commonly reported sources, according to the American Psychological Association. What do these things have in common? They all concern our ability to put food on the table, pay the bills, and otherwise support our families. They also reflect a perceived lack of control as well as anxiety about what the future may hold.
So, in summary, employees don’t feel like they’re in control of their financial lives and it is affecting their performance at work. It does make a lot of sense, after all.
“Think about it,” says Mitchell D. Weiss, an adjunct professor at the University of Hartford, management consultant, and serial entrepreneur. “If money’s a worry – you don’t have enough of it to go around, the bills are piling up, the collections companies have begun to call – how clearheaded would you be for the tasks at hand; particularly those that require creative thought?”
But by that same token, it’s fair to wonder how companies – especially small businesses – can address their workers’ financial concerns while dealing with monetary pressures of their own. One of the things you have to consider in that regard is what a more financially pragmatic staff will get you.
Using Financial Literacy to Boost the Bottom Line
Just think: When people are struggling to pay the bills, much of their frustration will inevitably be directed to the source of their perceived-to-be-inadequate salaries. When people know what to do with their money and wind up with a bit of money to save each month instead of an ever-larger balance, the prism through which they view their compensation is decidedly more positive.
The potential therefore seems to exist for workplace financial literacy programs to mitigate resentment in the ranks as well as preclude the need for salary increases or peripheral benefits. They can also be used to identify and correct workplace inefficiencies, says Barry A. Friedman, founder of the SUNY Oswego Center for Human Resource Management and a former longtime ExxonMobil executive.
“When at ExxonMobil, I taught machine operators how to read Profit & Loss statements and find line items they could impact,” Friedman told WalletHub. “They did so and could easily quantify a favorable return on the training investment. Employees loved the process as a form of empowerment and increased involvement”
Ask The Experts: Tips for Starting a Workplace Financial Literacy Program
WalletHub asked university as well as industry experts in the fields of management, marketing, human resources, and finance for tips on how to establish a personal finance employee training program. You can check out their insights on everything from program structure and content sourcing to potential corporate partners and employee engagement below. If you have additional suggestions, feel free to share them in the comments section below!
Given the economic challenges our nation has faced in the recent past and continue to address, I believe it is very important for employers to provide opportunities for employees to strengthen their personal financial management skills and knowledge. A knowledgeable workforce is equipped with the knowledge, skills, abilities, and confidence to be successful, both within and without their work settings. Financial literacy includes important life skills that all employees can benefit from strengthening and enhancing.
How would you structure such a program, balancing cost and effectiveness?
From my personal experiences with developing the program model we offer our students and the guidance I have provided to more than 200 other higher educational institutions developing financial literacy programming for their students, I have learned that one size doesn’t fit everyone.
Every program would need to be created to meet the specific needs of employees, while addressing organizational relationships, cost, and effectiveness. I do not believe there exists one financial literacy program that addresses every concern, need, or background of all employees regardless of their backgrounds or personal situations.
One significant cost and effectiveness aspect is the means by which the financial literacy program would be provided to employees based upon work schedules and work settings. For some work environments, classroom-based instruction is possible, while for others, online training options may work best. Do I expect every university and community college to replicate the UNT Student Money Management Center model? Absolutely not. Financial literacy programs can learn from one another; however, practitioners need to adapt the scope of programming and means by which the services and information are offered, to meet institutional priorities in the most cost effective manner.
Do you believe that such a program could be used to boost employee morale, improve employee finances in lieu of salary increases, and/or attract new talent?
I believe a dynamic financial literacy program can boost employee morale, improve employees’ ability to manage their personal financial resources with confidence and attract new talent. I also believe a fundamental financial literacy program should be mandated for any employee whose job description includes any aspect of fiduciary oversight. Today, I believe it is essential for any organization or company to include financial literacy skills when developing an informed and skilled workforce.
How can financial literacy be tied into existing employee incentive plans in order to foster and reward improved performance?
I cannot address this question from a human resources perspective, but as a financial literacy practitioner and educator I believe a better fit for a financial literacy program is to be affiliated with an employee assistance program; rather than, an employee incentive plan. The challenge for tying a financial literacy program to an incentive program rests in the identification of performance standards that would need to be met for employees to receive the benefit of any incentive. Personally, I have never come across any research that has found a correlation between a person’s inabilities to manage their personal finances and inabilities to professional fiduciary responsibilities.
Companies can promote financial literacy among employees in a number of ways. Below are just a few ways:
• By offering effective financial literacy training and professional development to employees
• By creating financial literacy marketing campaigns that are conspicuous to employees
• By creating incentive/reward programs that reward certain objective outcomes of financial literacy
• By creating employee-peer coaching programs where employees who have a high level of skill in this area partner with employees who need assistance and they serve in a mentor-mentee role
• By being a good role model as an organization (e.g. an organization that is failing may not have much legitimacy in the realm of financial literacy)
This depends on the type of employee (employee demo’s and status) as well as the primary objective (for whose benefit, company of employee). In general, information sessions regarding wages and costs of benefits; costs associated with employee errors, unacceptable behaviors; information of how rewards link to personal expenditures are of interest.
The platform is very robust, offering a multitude money and debt management tools and assistance tailored to the individual user needs. While this is a program for students and alumni, the idea is the same as an employer sponsored program and is indicative of the trend toward valuing these types of resources.
The most relevant economic literacy is not a training course, but an ongoing transparency of financial, marketing, and performance information shared with employees so they know how their personal choices impact business results.
The primary obstacle to a more active role for financial aid personnel in promoting financial literacy is the demand on staff time that is associated with administration of financial aid programs.
Most of my time is spent conducting seminars for student organizations and groups on basic money management such as budgeting, saving, responsible credit card use, building a good credit history/credit score, protecting personal information, and responsible student loan borrowing. In addition, I do one-on-one financial counseling sessions with students and am also available to meet with staff.
Smaller organizations might look to outsource financial literacy training. For instance, several MOOCs (massive open online courses) offer courses in financial literacy that are either free or affordable enough to be subsidized by the organization. Enrollment in such courses can be rolled into new employment orientation sessions or current employees could be offered incentives for completing online courses.
How would we measure the impact of such programs? Do we expect an organizational benefit from such training? Defining how we will determine success would be important in terms of then deciding how to balance that with cost/investment.