Financial Education is Good for the Employer’s Bottom Line

1. Financial Education is Good for the Employer’s Bottom Line Presented to “Enhancing Retirement Education Programs” Sponsored by World Research Group www.worldrg.com January 27, 2004 – Scottsdale, AZ E. Thomas Garman

2. Planned Outcomes • What employees and employers want from retirement education. • Why many are not saving for retirement. • How many adults are overly indebted and financially distressed. • Negative impacts of employee debt on employer profitability. • What employers can do.

3. Employees Want • To save and invest enough to have a financially successful retirement. • Someone else to save and invest for them.

4. Employers Want • A high participation rate so the highly-compensated can contribute the maximum. • To avoid lawsuits from retirees and employees.

5. Not Saving for Retirement • Half of all full-time employees have not yet started saving for retirement. • Where 401(k) plans are available the participation rates are 80% at large employers and 35% at small employers. • Most who are saving for retirement are not saving enough. The mean retirement plan portfolio is $51,500; median is $16,000. • For many people, their VISA balance is larger than their 401(k) balance.

6. Not Saving for Retirement • 20% have a loan from their 401(k) plan; at some companies 50% have a loan. • When changing employers, 401(k) participants age 20-59 -6% rolled retirement money to new employer. -26% rolled to an IRA. -68% took a lump sum distribution. -40% of withdrawals are “to alleviate financial pressures.”

7. Percent of Employees Who are Not Saving or Saving Enough

8. Reasons Why Employees Don’t Save for Retirementa Reason #2 - 35% “I do not know enough about the retirement plan.” aData from an award-winning research study conducted by Dr. S. Joo who is on the faculty at Texas Tech University.

9. Reasons Why Employees Don’t Save for Retirementa Reason #1 - 47% “I do not have enough money.”aData from an award-winning research study conducted by Dr. S. Joo who is on the faculty at Texas Tech University.

10. “I do not have enough money” MEANS WHAT? • “I don’t have any extra money.” • “I run out of money before I run out of month.” • “I am on a tight budget.” • “I have a lot of expenses.” • “I would rather take a cruise.” • “I spend more than I earn.” • And the most accurate reason is ”I’m up to my eyeballs in debt.”

11. Pay No Attention To The Elephant

12. How Many Adults are Overly Indebted and Financially Distressed? In the nation’s 107 million households: • 30 million are overly indebted and an additional 10 million are financially distressed. • These people have credit problems that negatively affect their lives, their families and their employers.

13. Overly Indebted • Only 39% of household have a safe debt-to-income ratio of 0% to 15%. • 56% of credit users have a debt-to-income ratio of 25% or higher, and 46% have a ratio of 50% or higher. • 8.4 million consumers declared personal bankruptcy in the last 6 years, 12.3 million bankrupts including spouses. • 9 million called a credit counseling agency for help last year.

14. Financially Distressed • 66% of employees are “extremely” or “very concerned” about making ends meet. • 52% report they live paycheck-to-paycheck. • 30% of consumers are “very” or “somewhat concerned” about paying mortgage or rent. • 40% have been reported to FICO as 30+ days late and 20% have been 60+ days late. • 34% to 53% are dissatisfied with their present financial condition.

15. What Overly Indebted and Financially Distressed People Do in Life • Pay credit card bills late. • Pay late fees on credit cards. • Receive overdue notices from creditors. • Use cash advances from one card to pay another creditor. • Write bad checks with insufficient funds. • Pay utility bills late. • Try to avoid telephone calls from creditors and collection agencies.

16. Negative Impacts ofEmployee Debt on U.S. Navy • 60% Denied security clearances. • 40% Trouble paying monthly bills. • 30% Bounced checks. • 25% Asked for financial assistance. • 20% Letter of indebtedness. • 14% Expensive fatal accidents. • 10% Wages garnished. • 6-11% Left service due to finances.

17. Negative Impacts of Employee Debt on Employer Profitability • 85% Use work time to deal with personal financial concerns. • 70% Do not contribute to retirement plan. • 70% Feel insecure about retirement. • 30% Are very stressed about finances. • 30% Admit that money concerns interfere with job performance. • 15% Hold a part-time job elsewhere. • 40% Say health has been affected by financial problems.

18. Negative Impacts of Employee Debt on Employer Profitability Waste 20+ work hours a month thinking about and dealing with money matters. “These employees are like sharks swimming around the workplace taking bites out of the bottom line.”

19. Negative Impacts of Employee Debt on Employer Profitability Direct Costs – Work time wasted dealing with financial concerns, more absenteeism, reduced presenteeism, and lower job productivity. Indirect Costs – Stress, health care, turnover, accidents, substance abuse, thefts.

20. Negative Impacts of Employee Debt on Employer Profitability Going Forward • Since 25% to 50% of employees will not have saved and invested enough, many will stay at their jobs longer instead of retiring. • Older employees will cost more in salary, health care and Social Security taxes. • Some will file class action lawsuits against their employers.

21. Think Twice Employers:It’s Their Debt, But It Is Your Problem

22. What Employers Can Do The big-picture answer: Empower employees to make the best financial decisions for themselves.

23. What Employers Can Do • Credit Union Provide access to credit union so employees can obtain debt consolidation loans and information on budgeting and credit management.

24. What Employers Can Do • Workplace Financial Education Provide continuing access to workplace financial education that emphasizes budgeting and credit management.

25. Research Findings on Workplace Financial Educationa • 401(k) participation rate. • Personal savings satisfaction. • Positive performance rating. • Increased 401(k) contribution. • Reallocated portfolio. • Retirement savings satisfaction. • Confidence about a secure retirement. • Financial well-being. • Better health.aFindings from Chemical Study as well as from an award-winning research study by Dr. J. Kim who is on the faculty at the University of Maryland.

26. Research Findings on Workplace Financial Education • Best employees - those who have average or high financial well-being.ab • Worst employees - those who are dissatisfied with their financial situation.ab • Financial well-being directly PREDICTS employees’ performance ratings, pay satisfaction, absenteeism, and conflicts between work and money matters.baThis was an award winning research study by Dr. S. Joo who is on the faculty of Texas Tech University. bThis was an award-winning research study by Dr. J. Kim who is on the faculty at the University of Maryland.

27. What Employers Can Do • Credit Counseling Provide access to non-profit credit counseling agency for information on budgeting and credit management as well as a debt management program.

28. Research on Credit Counseling • Financially distressed employees are less committed to their organizations, are less productive workers, and are absent more frequently from work.ab • Personal financial well-being explains about 20% of employee health; this is not a correlation, this is predictive.b a This was an award winning-research study by Dr. J. Kim who is on the faculty at the University of Maryland. b Current studies by Garman, Sorhaindo, Kim, Bailey, and Xiao.

29. Research on Credit Counselinga • Financial well-being. • Job productivity (quantity and quality of performance and supervisor’s rating). • Employer job outcomes (reduced absenteeism, improved presenteeism, and less work time wasted dealing with personal financial concerns). • Health status increased, and frequency of being bothered by health problems decreased.aThis was an award winning-research study by Dr. D. Bagwell who is on the faculty at Texas Tech University, as well as current studies by Garman, Sorhaindo, Kim, Bailey, and Xiao.

30. What Employers Can Do? • Employee Financial Well-being Assess employee financial well-being regularly to demonstrate improvements.

31. Employers Profit When Helping Improve Employee Financial Well-being • Each employee who only slightly increases his or her financial well-being will contribute an extra $450 to the employer’s bottom line of profitability. • The return comes from reduced employee absenteeism and less work time wasted dealing with financial problems. • This is $135,000 to an employer with 1,000 employees where 30% of the workforce makes relatively minor but genuinely positive changes in financial well-being.Data from an award-winning research study conducted by Dr. S. Joo who is on the faculty at Texas Tech University.

32. Indicators of a Successful Financial Program • Top management supports financial education programs • Financial education and information are part of organization’s culture. • Services available in financial information, education and advice as well as credit counseling. • Frequent communications to employees.

33. Results of aSuccessful Financial Program • Surveys find employees report improvements in personal financial well-being. • Surveys find 90+% agree that they “are on track for a financially successful retirement.” • Attendance continues at workshops on credit and money management. • Supervisors report few employees dealing with money problems during work hours. • Financially successful employees enjoy working for employer.

34. Tom’s Advice “Don’t give employees a raise; instead, give them access to quality financial information, education and advice.”

35. Thanks! E. Thomas Garman, Advisor and Author Professor Emeritus Virginia Tech University 8044 Rural Retreat Court Orlando, FL 32819 Tele: (407) 363-9048 E-mail: tgarman@bellsouth.net Web: www.EThomasGarman.net Research studies and other statistics cited in this presentation are available at www.EThomasGarman.net Also see on the website a speech by W. Arnone: “Selling the Value of Employee Financial Education to Management.”