The Business Case for Financial Education - Personal Financial Wellness and Employee Productivity

1. The Business Case for Financial Education- Personal Financial Wellnessand Employee Productivity E. Thomas Garman Presented to The Conference Board Atlanta and San Diego 1998

2. Introduction • The majority of financial education programs are traditional, narrowly focused retirement education • Smart 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 plans • Other employer-furnished fringe benefits • Personal budgeting • Are 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 productivity • reduced absenteeism to take care of personal financial matters • reduced HR administrative costs • increased 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 Related Those with poor financial wellness are more likely to be: • Frequently absent from work • Receive poor performance ratings • Spend excessive time at work dealing with personal financial problems • Experience a decline in job productivity from one year to the next

9. Workers That Employers Love - Those with Good Financial Wellness • Come to work • Receive high performance ratings • Use a minimum of time at work attending to personal financial matters • Enjoy 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 $400 • The 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 plan participation 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 retirement 2. 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 matters • A 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 financialstress 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. Absenteeism 2. Tardiness 3. Fighting with co-workers and supervisors 4. Sabotaging the work of co-workers 5. Job stress 6. Reduced employee productivity

18. 7. Lowered employee morale 8. Loss of customers who seek better service 9. Loss of revenue from sales not made 10. Accidents and increased risk taking 11. Disability and worker compensation claims 12. Substance abuse

19. 13. Suicide and murder 14. Increased use of available health Care resources by the employee and relatives 15. Thefts from employers 16. Loss of security clearance 17. 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 abuse 20. Employer time to deal with poor financial behaviors of employees 21. 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 annually The 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 wellness • 30% feel they are always in financial trouble and 35% find it hard to pay bills • 51% worry about how much they owe • 44% do not set aside money for retirement • 60% 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 money • 34% - 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 plans • Other employer-furnished fringe benefits • Credit and money management • Consumer 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 finances • contribute to their pension plans These workers are happier in their financial lives and it shows in their work

27. Smart Employers Will Do Two Things 1. Provide employees with comprehensive financial education 2. 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 laws Why? 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 retirement Yet, 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 modelprogram 2. 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 business • Well-qualified, non-profit national providers of information on effective management of money and credit exist • Other 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 retirements • Comprehensive financial education works even better!

35. Employers Reap the Benefits • Very high participation rates in 401(k) plans (90+ percent range) • Reduced net cost of operations

36. Workers Gain Benefits, Too • Increased financial wellness • Lower household debt-to-income ratio • Increased self-esteem and improved attitude about work • Increased satisfaction with employer-provided fringe benefits • Increased capability to participate in and contribute to retirement plans • Increased 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 that it ranges from 3:1 to 10:1, depending upon a number of factors

39. An Example Where the Benefit-cost Ratio Is 3:1 The employer gains $3.00 in value for every $1.00 spent on a comprehensive financial education program for 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 money problems 2/3 of workers who formerly had money problems (150 workers x 2/3 = 100) improved their situations and job productivity by 15 minutes per day 15 minutes = 3.13% of one workday x $40,000 salary = $125.20 savings per worker x 100 workers

42. 2. $80,000 - Reduced absenteeism from the same 100 workers who no longer take time off work to attend to personal financial matters 2/3 of workers who formerly had personal money problems (n=100) now do not take 5 days off each year to attend to money matters $800 a weekx 100 workers

43. 3. $12,000 - Reduced administrative time to process wage garnishments, requests for payroll advances, and 401(k) loans for the same 100 workers who formerly had personal money problems - $120 x100 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 problems • In fact, the employer is already $17,200 ahead!

45. 4.Increased job productivity from 200 workers who formerly did not participate in the employer’s retirement plan and now do contribute5.Increased job productivity from 150 workers who increased their contributions to retirement plans

46. 6.Increased job productivity from the majority of the remaining workers - 400 of 650 - who participated in the financial education program 7.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 substances 9. Reduced premiums for health care 10.Fewer accidents 11. Improved use of and satisfaction with fringe benefits

48. 12. Reduced human resource administrative costs 13. Reduced turnover 14. Reduced pressure to increase salaries

49. 15. Increased morale 16. Increased acceleration of employee retirements 17. 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