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Benefits of Workplace Comprehensive Financial Education

When employers offer comprehensive workplace financial education, everyone wins...employers, employees, and society.

Workplace financial education remains the best arena for reaching the most people; but it is not living up to its potential (Vitt, 2005). Workers are more likely to save through the workplace than on their own; more than 8 in 10 eligible workers (82%) say that they participate in workplace retirement savings plan (EBRI, 2005). To maximize the impact of these savings, employers need to offer comprehensive financial education programs that cover basic money management skills, as well as benefits education and retirement planning. Unfortunately, too many companies offer limited "benefits education" rather than comprehensive financial education.

"The traditional approach (to employee financial education) is to put together presentations focused exclusively on company benefits and how to enroll in them. This approach does nothing to provide a framework for decision making for very different employee situations. Another traditional alternative is to suggest employees find a financial advisor and wash your hands of any obligation and fiduciary liability. Neither approach provides a background for employees to feel more comfortable in their own ability to making increasingly sophisticated decisions regarding their financial future. We feel that people that are economically secure in their own lives are more productive employees."

— A UPS Corporate Compensation Manager


Since the 1980's, the increase of defined contribution plans [primarily 401(k)s] has shifted the decision making responsibility from employers as plan sponsors to employees as plan participants. Less than 1/3 of all employees are confident in their ability to make the right financial decisions for themselves and their families (MetLife, 2010). Most employees are in desperate need of reliable information that provides them with the knowledge and confidence to adequately plan for a financially secure retirement.

Benefits to Employers

Financially secure employees are more productive employees! Employees who increase their financial knowledge will also increase their ability and confidence to make quality financial decisions and reduce financial problems. Doing so enables employees to focus more energy on work activities and less on financial problems. The ultimate benefits to employers from providing comprehensive worksite financial education include legal, financial, and social impacts as follows:

Comprehensive financial education is less expensive and more effective than the alternative of offering workers a 3% match (Garman, 1999).

Benefits to Employees

Employees want financial education! Over 80% of employees indicate they would participate in financial education and counseling if it were available in the workplace. (Joo & Grable, 2000). When employees are provided with financial education in the workplace, the road to saving for retirement will be a much "smoother ride." Worksite financial education benefits employees in the following ways:

money

Benefits to the Community

The local community, the state, and the nation also benefit when employees become more financially secure.

money

Why Benefits are Needed Now

Employees of all ages are becoming increasingly responsible for their financial security. Since the 1980's there has been a major shift in retirement planning; the shift has been away from defined benefit plans and toward defined contribution plans. This means that the responsibility has shifted away from the employer and toward the employee.

Now is the time for worksite education to make a major shift and to evolve from "'pre-retirement planning" for a selected few to the comprehensive, holistic, later life planning that is needed by employees of all ages. Now is the time for workplace education to provide individuals with the knowledge, skills, and confidence to plan for as much as thirty years of life after age 60.

The statistics are staggering...

The Minnesota Department of Human Services and the Minnesota State legislature recognize the need to help Minnesotans plan for their retirement and later life. Specific needs include:

Employees need workplace financial education to understand the saving and investing options open to them at their workplace to save for retirement and later life.

Workers are more likely to save through the workplace than on their own. The time has come for employers to support workplace financial education and to enable it to reach its full potential. This can happen only when employers provide comprehensive worksite financial education for all employees.

References

Bailey, W. C., Woodiel, D. K., Turner, M. J., & Young, J. (1998). The relationship of financial stress to overall stress and satisfaction. Personal Finances and Worker Productivity: Proceedings of the Personal Finance Employee Education Best Practices and Collaborations Conference, 2(2), 198-206. Roanoke, WA: Virginia Polytechnic Institute and State University.

Bernheim, B. D. (1998). Financial illiteracy, education, and retirement savings. In O. Mitchell & S. Schieber (Eds.), Living with defined contribution plans (pp. 38-68). Philadelphia: University of Pennsylvania Press.

Bernheim, B. D., & Garrett, D. M. (1996, March). The determinants and consequences of financial education in the workplace: Evidence from a survey of households (Stanford Economics Working Paper #96-007). Retrieved from http://ideas.repec.org/p/nbr/nberwo/5667.html

Employee Benefit Research Institute. (2010). Age comparisons among workers (2010 Retirement Confidence Survey Fact Sheet #4). Retrieved from http://www.ebri.org/pdf/surveys/rcs/2010/FS-04_RCS-10_Age.pdf

Blakely, S. & VanDerhei, J. (2010, March 9). Americans confidence stabilizing, but preparations for retirement continue to erode (EBRI news release based on 2010 Retirement Confidence Survey). Retrieved from the Employee Benefit Research Institute website: http://www.ebri.org/pdf/PR.868.9Mar10.RCS-10.Final.pdf

Helman, R., Salisbury, D. Paladino, V., & Copeland, C. (2005, March). Encouraging workers to save: The 2005 retirement confidence survey (Issue Brief No. 280). Retrieved from the Employee Benefit Research Institute website: http://www.ebri.org/pdf/notespdf/0405ib.pdf

Helman, R. & Paladino, V. (2004). Will Americans ever become savers? The 14th Retirement Confidence Survey (Issue Brief No. 268). Retrieved from the Employee Benefit Research Institute website: http://www.ebri.org/pdf/surveys/rcs/2004/0404ib.pdf.

Garman, E. T. (1999). The business case for financial education. Personal Finances and Worker Productivity: Proceedings of the Personal Finance Employee Education Best Practices and Collaborations Conference, 2(1), 81-93. Roanoke, VA: Virginia Polytechnic Institute and State University.

Gorbach, T. R. (1997). A case for comprehensive financial education in the workplace. Personal Finances and Worker Productivity: Proceedings of the Personal Finance Employee Education Best Practices and Collaborations Conference, 1(1), 66-70. Roanoke, VA: Virginia Polytechnic Institute and State University.

Joo, S. & Garman, T. E. (1998). The relationship between personal financial wellness and employee productivity: The Joo model. Personal Finances and Worker Productivity: Proceedings of the Personal Finance Employee Education Best Practices and Collaborations Conference, 2(2), 162-171. Roanoke, VA: Virginia Polytechnic Institute and State University.

Joo, S., & Grable, J. E. (2000, March). Improving employee productivity: The role of financial counseling and education. Personal Finances and Worker Productivity: Proceedings of the Personal Finance Employee Education Best Practices and Collaborations Conference, 37, 2-15. Roanoke, VA: Virginia Polytechnic Institute and State University.

Lusardi, A. (1999). Information, expectations, and savings for retirement. In H. Aaron (Ed.) Behavioral dimensions of retirement economics. (pp. 81-115). Washington, D.C.: Brookings Institution Press and Russell Sage Foundation.

Metropolitan Life Insurance Company. (2010). Study of employee benefit trends (8th Annual). Retrieved from http://www.metlife.com/

Minnesota Board on Aging. (2005). Data tables: 2005 survey of older Minnesotans. Retrieved from http://www.mnaging.org/en/Advisor/SurveyOlderMN/~/media/MNAging/Docs/SOM2005Tables.ashx

National Endowment for Financial Education. (2004, May). Motivating Americans to develop constructive financial behaviors. (Report on a Denver, Colorado Think Tank.) Retrieved on from http://www.nefe.org/.

Office of Personnel Management. (2005). Retirement financial literacy and education strategy. Retrieved from http://www.opm.gov/retire/pre/botdg/training/finlit.asp

Pomeroy, W. R., & Reed, E. V. (1998). Evolution of financial education in the United States. Personal Finances and Worker Productivity: Proceedings of the Personal Finance Employee Education Best Practices and Collaborations Conference, 2(1), 27-35. Roanoke, VA: Virginia Polytechnic Institute and State University.

Powell, E.A. (2006, February 9). Saving is a struggle for many. The Forum, C1-C3.

Storms, R. (1999). Financial education: Employer trends, benefits and considerations. Personal Finances and Worker Productivity: Proceedings of the Personal Finance Employee Education Best Practices and Collaborations Conference, 3(3) 25-28. Roanoke, VA: Virginia Polytechnic Institute and State University.

Vitt, L. A., Reichbach, G.M., Kent, J. L. & Siegenthaler. J.K. (2005). Goodbye to complacency: Financial literacy in the United States 2000-2005. Washington, D.C.: AARP.

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