Many Americans lack the knowledge to properly manage their money. Employee education programs are working to change that
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According to the Standard & Poor’s Ratings Services 2015 Global Financial Literacy Survey, 43 percent of Americans are not financially literate, based on five questions about four key topics: risk diversification, inflation, interest and compound interest. Only 57 percent of U.S. credit card holders understand the concept of interest.
The U.S. education system has begun addressing this problem, but data is inconclusive about the effectiveness of school programs.
Some experts say financial lessons are most effective when you receive them as you need them — a “just-in-time” approach. For instance, a high school senior might be very teachable on the subject of car financing or student loans but not so much on mortgages or retirement planning.
That’s where employee education programs come in. “The workplace is another place consumers turn to for financial information,” says Janneke Ratcliffe, an assistant director for the office of financial education at the Consumer Financial Protection Bureau (CFPB). “For many adults, it’s the only place they’ll receive any financial information at all … and it’s through the workplace that people make critical financial decisions.”
There’s an incentive for employers, too. Financial education is a recruitment and retention tool that increases productivity, and decreases sick days and access to health plans, according to Bruce Elliott, manager of compensation and benefits at the Society for Human Resource Management.
“Employers don’t do this to be nice,” he says. “Employers that adapt will have a real edge.”
Beyond retirement planning
The CFPB is working with employers, providing ideas about what kinds of programs and information they could offer workers. Some employers, in turn, are reporting back to the CFPB on what they’re finding effective. A review of those programs is included in the CFPB’s 2014 financial wellness at work report.
Ratcliffe says the workplace is the first point to put financial lessons into practice as adults learn them. “It’s a teachable moment,” she explains. “The moment you introduce an idea and encourage employees, you also give them the decision on what to save and what to put away into retirement.”
Employers don’t do this to be nice … Employers that adapt will have a real edge.
|— Bruce Elliott|
Society for Human Resource Management
Traditionally, workplace education centered on retirement planning, but CFPB research in recent years shows that Americans need information about other topics, including credit scores and reports, student loan repayment, managing debt and collections, and building emergency savings. “People can’t establish long-term financial security until they have [security] in the present moment,” Ratcliffe says.
Quality Living Inc., a rehabilitation residency in Omaha, Nebraska, is finding success in this approach. Alicia Elson, QLI’s vice president of human resources, says more than 150 employees have taken part in its program since it began in 2005. The company outsources the training to Waddell & Reed, a financial planning firm, for an eight-session class that covers money management, budgeting and financial planning, among other issues.
Following the two-month course, employees and their immediate family members have one-year access to a counselor to create and carry out customized debt repayment and financial plans.
QLI covers 50 percent of the cost while employees have to cover the other half — roughly $160. “We feel they have to have some skin in the game,” Elson explains.
The company’s investment in finlit is paying off: Elson says QLI records fewer sick days and higher productivity. Workers are saving their vacation time and planning leaves because they can afford trips.
QLI collaborated with Waddell & Reed to carve out a second tier course for doctors, speech therapists and other specialists in high demand. Their focus isn’t on debt repayment or budgeting. Instead, they’re interested in retirement planning, life insurance and investing, for example.
In a war for talent in the medical industry, QLI is hoping this extra benefit will be an enticing recruitment tool.
Different lessons for different life stages
Employers need to take a personalized approach, according to Gene Lanzoni, assistant vice president of group and worksite marketing at the Guardian Life Insurance Company of America.
He says his organization’s annual workplace benefits study suggests employees’ desire for financial education is steadily increasing. “They’re really making these choices and these decisions kind of in the dark,” he says. “Whatever the employer can do to provide support can add value.”
In its 2015 report, researchers found Americans who had entered the workforce within the past five years said they wanted guidance on how to address their immediate financial needs, such as paying bills and reducing debt. Older workers — those within five years of retirement — had different priorities, zeroing in on creating a comfortable retirement with sufficient savings.
“There’s a call for a more tailored kind of recommendation, it’s not one-size-fits-all,” Lanzoni says.
To reach employees at different life stages, tools need to be varied and far-reaching.
Take the U.S. Army, for example: it’s using online portals, mobile phone apps, and in- person and phone consultations to help educate its soldiers and civilian employees on financial matters.
|TRAINING THE TRAINERS|
|The Army has produced a fellowship to train military spouses to become accredited financial counselors. Participants in the program, which was created with in collaboration with the Financial Industry Regulatory Authority, receive education and then provide hours of volunteer service required to earn the certification.|
The accreditation provides them with a portable occupation they can take with them around the globe, wherever their partners are deployed. So far, the Army and FINRA have awarded 1,360 fellowships.
During the 2015 fiscal year, 460,000 soldiers (including retirees) and their loved ones completed financial training. Gale Johnson, the financial readiness program manager for the U.S. Army’s Installation Management Command Family Programs,
says the military’s “lifestyle-based” approach to financial readiness starts with eight hours of mandatory financial education in basic training and carries on until retirement or separation from the military.
Keep in mind, the U.S. Army’s employees have unique financial needs — families are separated when a soldier is deployed, relocation is common and they need constant credit checks for their security clearances. “When we’re talking about challenges for our military members, it’s coupled with security clearances, which can hinder and hamper them,” Johnson says.
“The financial readiness of soldiers and their families has a direct effect on army readiness,” she says. “Soldiers can’t do their jobs if they’re worried about money at home.”
After initial training, at their first post, soldiers can opt in to complete further financial training or their commander can make a referral. “Commanders know their soldiers, their families, they interact, so they’re able to intervene early before there’s an issue,” she explains.
“Our army community service members are trying to break the stigma so folks come through our doors,” she says.
Elson says financial education has had that effect at QLI. At first, supervisors tapped employees for financial training, but as more workers returned with success stories, the program’s popularity grew. Saving your first $1,000 or paying off and closing a credit card became common water cooler talk. “When your team members are all doing it, it becomes the cool thing to do. Everyone cheers you on,” she says.
To measure the Army’s success, West Point Assistant Professor William Skimmyhorn combed over 33,000 credit reports and found that course attendees reduced their debts tied to credit cards, auto loans and finance loans by about $635, or about 10 percent.
The Army’s eight-hour course costs the Department of Defense about $240 per employee, according to estimates in the CFPB’s report. Other types of corporate wellness programs typically cost about $144 per employee (QLI says it spends $160 per employee).
Elliott says the SHRM conducts lunchtime literacy programs for employees at no cost to employees. The organization works with banks and vendors for information sessions on saving, paycheck planning and how to decode your credit report.
Annually, employees sit down with human resources experts to go over medical plans, retirement savings options and any other questions they may have about payroll or benefits.
Elliott advises companies to “Keep it simple and brief and offer free food,” especially for employees who are paid hourly wages and not salaries. Use webcasts if you’re reaching employees near and far, he says.
He’s certain financial literacy is here to stay, and its best bet is in the workplace. “If it does find a home, it will be in a wellness program because that’s where it belongs,” he says.
“We know there’s a direct link to financial hardships, stress and well-being. If you’re under stress, you have a better chance of getting sick, which results in an expense to the organization.”
|HOW WORKPLACE FINLIT CHANGED ONE WOMAN’S LIFE|
Mary Sheldrick, 55, says the financial training she received while on the job at Quality Living Inc. transformed her life.
Two years into her full-time job as a certified nursing assistant at the rehabilitation residency, Sheldrick, a Bellevue, Nebraska, native was nearly $40,000 in debt. That’s despite the fact that she’d also been picking up overnight nursing shifts at other facilities and even moonlighting at a gas station to make ends meet.
She remembers standing in the cereal aisle in the grocery store and realizing she couldn’t even pay for a box. “I had credit card debt, house payments, car payments, and it got to the point where I was working at QLI and other jobs and was still trying to make everything work,” she says.
When her supervisor asked if she was interested in signing up for a financial education session, she agreed. In groups of about 12 people, Sheldrick and her colleagues were taught about savings, paycheck planning and how to talk to creditors, she says.
“I learned I wasn’t the only one in a financial crisis so my biggest, darkest secret didn’t make me less than others,” she explains.
“It gave me a voice again so I could talk instead of cringe every time the phone rang and [collections agencies] were going to tell me what a scumbag I was when I was doing the best I can.”
With the help of a debt counselor, Sheldrick created a budget, set up automated accounts and whittled away at her debt. In 2012, she became debt-free. “This summer, my credit score was in the 700s and I bought a 2015 Ford Escape. They begged me to buy the car, so it’s been a night and day difference,” she says.
She’s celebrating her 11-year anniversary with QLI and says she’s ahead on her car payments — a huge milestone following her history with money.