Presentation on theme: "E. Thomas Garman Presented to The Conference Board"— Presentation transcript:
1 The Business Case for Financial Education- Personal Financial Wellness and Employee Productivity E. Thomas GarmanPresented toThe Conference BoardAtlanta and San Diego1998
2 IntroductionThe majority of financial education programs are traditional, narrowly focused retirement educationSmart employers are broadening their perspectives about financial education
3 Smart Employers Want to help workers make good decisions about: Investment choices within employer-sponsored retirement plansOther employer-furnished fringe benefitsPersonal budgetingAre helping workers with money problems learn to overcome such obstacles so they can fully fund their retirement plans
4 The Rationale for Comprehensive Financial Education Is Strong What if someone promised you - the employer - a plan to achieve the following:increased worker productivityreduced absenteeism to take care of personal financial mattersreduced HR administrative costsincreased participation in and contributions to retirement plans
5 - reduced social security payroll taxes - reduced stress over financial matters and stress-related illnesses- fewer accidents- improved use of and satisfaction with employer-provided fringe benefits- reduced hr administrative costs- reduced turnover
6 - reduced pressure to increase salaries - increased morale and loyalty- increased number of worker retirements on time, rather than delayed- reduced exposure to future litigation based upon fiduciary liability as fewer retirees have financial problems- a positive return on every dollar invested in comprehensive financial education
7 Research findings are promising, although more research partners are needed to definitively prove the case for comprehensive financial education
8 Research by Joo Shows Financial Wellness and Key Measures of Work Productivity Are Positively RelatedThose with poor financial wellness aremore likely to be:Frequently absent from workReceive poor performance ratingsSpend excessive time at work dealing with personal financial problemsExperience a decline in job productivity from one year to the next
9 Workers That Employers Love - Those with Good Financial WellnessCome to workReceive high performance ratingsUse a minimum of time at work attending to personal financial mattersEnjoy consistent or increasing job productivity
10 Additional Joo Conclusions The likely first year return on investment for financial education that improves the personal financial behavior and wellness of a worker is about $400The potential return comes from fewer absences, less work time spent on dealing with personal financial matters, and increases in job productivity
11 Traditional and Narrowly Focused Retirement Education Programs Have Limited Effectiveness For many employers, retirement planparticipation rates have reached a plateau.
12 Some Workers Will Not or Cannot Contribute to Their Retirement Plans Two reasons exist:1. Some workers have money problems and cannot afford to save for retirement2. Some workers are not convinced that they should save for retirement
13 Employers Have Questions About What More to Do in Financial Education What would it take to get the participation rate higher?What would it take to help workers change their asset allocation to better diversify their investment portfolios?How much would a comprehensive financial education program cost?Does financial education work?
14 Can a financial education program be utilized as a recruitment tool? Would expenditures on financial education result in a positive return on investment?Can financial education be utilized as a retention tool?What numbers do I need to convince top management that more money should be committed to a comprehensive financial education program?
15 The Cost of Providing Only Retirement Education Is Horribly High Not all workers are secure in their money mattersA full 2/3 of Americans say “they have trouble paying their bills and worry about money”75% of Americans report that they recently faced at least one significant financial problem
16 Financial matters and financial stress affect not only an individual’s personal and family life, but also a person’s work life.Approximately 15% of workers in the U.S. are currently experiencing stress from poor financial behaviors to the extent that it negatively impacts their productivity.
17 Poor Financial Behaviors Result in Extremely High Costs Incurred by Employers 1. Absenteeism2. Tardiness3. Fighting with co-workers andsupervisors4. Sabotaging the work of co-workers5. Job stress6. Reduced employee productivity
18 7. Lowered employee morale 8. Loss of customers who seek better service9. Loss of revenue from sales not made10. Accidents and increased risk taking11. Disability and worker compensation claims12. Substance abuse
19 13. Suicide and murder14. Increased use of available healthCare resources by the employee and relatives15. Thefts from employers16. Loss of security clearance17. Nondeployment of employee to an overseas operation
20 18. Lack of employee focus on the strategic goals of the employer 19. Greater use of EAP services, including those for spouse and child abuse20. Employer time to deal with poor financial behaviors of employees21. Loss of trained personnel
21 Research by the Military Family Institute concludes that the direct and indirect costs to the Nnavy for poor personal financial behaviors of workers is between $208 and $294 million annuallyThe cost to the Department of Defense, an employer of 1.4 million, is about $1 billion annually
22 New Research by Virginia Tech’s Joo Reveals: 54% of average income workers in a sample of white-collar occupations are dissatisfied with their financial wellness30% feel they are always in financial trouble and 35% find it hard to pay bills51% worry about how much they owe44% do not set aside money for retirement60% do not have enough money set aside to live for longer than 2 months if they lost their jobs
23 Reasons for Not Voluntarily Contributing to an Employer-Sponsored Retirement Plan: 49% - do not have enough money34% - do not know enough about the retirement plan
24 There is a growing national movement to offer financial education in the workplace, partially because so many workers are going to have extreme difficulty finding money for retirement
25 Smart Employers Offer Comprehensive Financial Education That Helps Workers Make Informed Decisions About:Employer-sponsored retirement plansOther employer-furnished fringe benefitsCredit and money managementConsumer protection rights
26 Smart Employers Realize Financial Education Is a Key Factor in Recruitment and Retention The best workers are typically:in control of their personal financescontribute to their pension plansThese workers are happier in theirfinancial lives and it shows in their work
27 Smart Employers Will Do Two Things 1. Provide employees with comprehensive financial education2. Identify and help workers with money problems overcome obstacles to fully fund their retirement plans
28 How Can Employers Help Workers With Money Problems? Smart employers provide workers with non-profit budget and credit counseling and basic information on consumer protection lawsWhy?Such information empowers people to get out of difficult situations and avoid them in the future
29 Two-thirds of workers with financial problems can improve their financial situations - with professional help - within about 12 months, and begin to save for retirementYet, fewer than 1/5 of large employers are offering financial education that includes emphasis on personal budgeting and credit management
30 The Best Employers Will Meet and Succeed at Two Challenges: 1. Move from offering workers an average financial education program to providing a model program2. Partner with other organizations that are currently helping people resolve money problems
31 Employers Should Know That It is not necessary for employers to get into the credit counseling businessWell-qualified, non-profit national providers of information on effective management of money and credit existOther experts can help workers avoid consumer rip-offs and frauds
32 #1 Finding Money for Retirement After receiving comprehensive financial education, a typical 45-year old married dual-earner couple with a family can find over $4000 a year to fund their retirement plans:$300 a month by wisely choosing among employer-furnished fringe benefits$80 a month by gaining control of consumer credit and managing money more effectively$10 a month by avoiding consumer rip-offs and frauds
33 #2 Finding Money for Retirement After receiving comprehensive financial education, a typical 35-year old single worker can find over $2,500 a year to fund his/her retirement plan:$170 a month by wisely choosing among employer-furnished fringe benefits$60 a month by getting in control of consumer credit and managing money more effectively$10 a month by avoiding consumer rip-offs and frauds
34 Results of Implementing a Comprehensive Financial Education Program Retirement education helps workers save for their retirementsComprehensive financial education works even better!
35 Employers Reap the Benefits Very high participation rates in (k) plans (90+ percent range)Reduced net cost of operations
36 Workers Gain Benefits, Too Increased financial wellnessLower household debt-to-income ratioIncreased self-esteem and improved attitude about workIncreased satisfaction with employer-provided fringe benefitsIncreased capability to participate in and contribute to retirement plansIncreased saving for retirement
37 What Is the Cost of Providing Comprehensive Financial Education? Between $75 and $455 annually:Retirement planning ($30-$275)Other employer-furnished fringe benefits ($25-$40)Credit and money management ($10-$20)Consumer rights ($10-$20)
38 Return on Investment for Comprehensive Financial Education Research shows thatit ranges from 3:1 to 10:1,depending upon a numberof factors
39 An Example Where the Benefit-cost Ratio Is 3:1 The employer gains $3.00in value for every $1.00spent on a comprehensivefinancial education programfor workers
40 Situation: - 1,000 workers. Average salary of $40,000 - 60% participation rate in the 401(k) plan- 20% participation rate in the pre-tax health and dependent care programs- 15% experience personal financial difficulties to the extent that it negatively affects their job productivity- $200,000 (or $200 per worker) invested in a comprehensive financial education program
41 Results: 1. $125,000 - increased job productivity from 100 workers who resolved moneyproblems2/3 of workers who formerly hadmoney problems (150 workers x 2/3 =100) improved their situations and jobproductivity by 15 minutes per day15 minutes = 3.13% of one workdayx $40,000 salary = $ savingsper worker x 100 workers
42 2. $80,000 - Reduced absenteeism from the same 100 workers who nolonger take time off work to attend topersonal financial matters2/3 of workers who formerly hadpersonal money problems (n=100)now do not take 5 days off each yearto attend to money matters $800 a week x 100 workers
43 3. $12,000 - Reduced administrative time to process wage garnishments, requests for payroll advances, and 401(k) loans for the same workers who formerly had personal money problems - $120 x workers
44 Important!The entire $200,000 cost of the financial education program already has been returned to the employer based solely upon the gains from the 100 workers who resolved their personal money problemsIn fact, the employer is already $17,200 ahead!
45 4. Increased job productivity. from 200 workers who formerly 4. Increased job productivity from 200 workers who formerly did not participate in the employer’s retirement plan and now do contribute 5. Increased job productivity from 150 workers who increased their contributions to retirement plans
46 6. Increased job productivity. from the majority of the 6. Increased job productivity from the majority of the remaining workers of who participated in the financial education program7. Reduced social security payroll taxes on employers because 500 more employees utilize pre-tax health and dependent care
47 8. Reduced stress-related illnesses from alcohol and other substances9. Reduced premiums for health care10. Fewer accidents11. Improved use of and satisfaction with fringe benefits
48 12. Reduced human resource administrative costs 13. Reduced turnover14. Reduced pressure to increase salaries
49 15. Increased morale16. Increased acceleration of employee retirements17. Reduced exposure to future litigation
50 A Positive Return on Dollars Invested in Comprehensive Financial Education This illustrative 3:1 ratio is calculated by dividing the $651,050 in benefits by the $200,000 cost of the financial education program ($651,050/$200,000)Note that comprehensive financial education is less expensive and more effective than the alternative of offering workers a 3% match
51 What Is Virginia Tech’s Personal Finance Employee Education Effort? The mission of the PFEE outreach effort is to host national conferences that demonstrate model financial education programs which motivate and enable workers to overcome obstacles to fully fund their retirement plans.
52 At the time of this speech, Garman was Professor and Fellow, Center for Organizational and Technological Advancement, and Director of the National Institute for Personal Finance Employee Education, Virginia Tech, Blacksburg, VA Garman retired in 2000 as Professor Emeritus at Virginia Tech. E. Thomas Garman, Distinguished Scholar and Director of Educational Services, InCharge Institute of America, 1768 Park Center Drive, Suite 400, Orlando, FL 32835; Phone: ; Fax: ; Web: InCharge.org