How do interest rates work? What is the best way to get a handle on paying off debt? What are the basic principles of long-term investing in stocks and bonds?
If your employees are unsure of how best to answer questions like these, they’re not alone, according to a study by the FINRA Foundation. In fact, the study found a full two-thirds of Americans would fail a financial literacy test.
It’s not that surprising, actually. Most Americans face a somewhat bumpy road to financial literacy and wellness. Busy schedules, stagnant wages, and a culture of consumerism all work against becoming smarter about how we manage our money. Sixty-five percent of employees report that just keeping up with monthly expenses represents their biggest financial worry. Sixty-four percent of employees worry about running out of money in retirement.
Employers are increasingly recognizing this concern and attempting to help improve employees’ financial literacy in new and different ways. After all, financial literacy and wellness is important to employers since financially healthy employees make for a better engaged, productive and reliable workforce.
According to recent reports, 59 percent of employers are very likely, and another 33 percent are moderately likely, to focus on the financial well-being of workers beyond retirement decisions.
What steps are employers taking to improve the financial literacy and wellness of their employees?
1. Provide an initial financial assessment
A quick financial assessment can be a fantastic learning experience for most employees. The assessment provides a snapshot of the person’s strengths and pain points. It engages employees and provides a great baseline for financial goal-setting.
People often feel anxious about finances because they aren’t sure of their stress’ root cause. The assessment not only can help uncover those reasons but even provide some initial relief simply by understanding where they should focus their efforts. Similar to completing a health-risk appraisal, the financial assessment can even act as the catalyst for taking actions to improve their financial health. For example, someone who’s struggling to make ends meet may be focusing too much on retirement instead of managing their debt.
2. Encourage employees to discover free financial resources
Between newspapers, online articles, specialized websites and podcasts, there are more options for financial knowledge than ever. But with so much diverse content, where to start? Try using two criteria to help filter through it all. First, determine the area of focus. For example, maybe you’re aware that many employees are attempting to pay off debt. Stick with that topic and source articles that explore the various payoff strategies, interest rate negotiation tips, and programs or services that can assist them.
Second, recognize that people differ in how they best absorb and learn new information. For example, some like to read short articles online, you can subscribe to a couple of blogs on your company’s intranet site. If people are focused on debt, check out the Man vs. Debt blog. Maybe your population prefers an old fashioned book and wants to discover everyday money saving tips. Copies of Clark Howard’s Living Large for the Long Haul could be a contender for a company lending library. And if people prefer to listen, a podcast might fit their needs best. Let’s say the focus is learning more about investing, give the recommendation for the Motley Fool Money podcast.
3. Suggest employees create a monthly budget and track spending
One of the best things employees can do to learn more about managing their money is also one of the simplest: start a monthly budget. Our clients who use our MoneySteps Financial Wellbeing Program have access to a suite of calculators and tools to help them establish (in many cases) their first monthly budget. By using these tools to track monthly spending, your employees will see exactly where their money is going each month, and where they could potentially save down the road. This is usually one of the most eye-opening experiences for employees. Your credit union may be a resource for a similar budgeting tool.
4. Help employees better understand basic financial principles
Learning the basics of money management is absolutely critical to making smarter financial decisions. You can help employees by educating them on fundamentals like how interest rates work, the power of compound interest over time in retirement savings and the different kinds of financial investment products (stocks vs. mutual funds vs. bonds).
One of the best tools I’ve found for helping employees better understand some of these basic financial principles is a fun, informative, and succinct online training course. For most people, they’ve never had a formal introduction to personal finance. Instead they’ve had to discover it on their own… usually making plenty of mistakes along the way. However, there are a number of online educational series covering finances in general or diving deep into a specific topic. You can find them on Udemy, Coursera, and even YouTube. These are great for exploring a topic conveniently.
5. Provide individual coaching
Obviously, I am biased, as this is my job, but I believe the most important thing any employer can do to help improve the financial wellbeing of their employees is to provide access to a financial coach. There’s no shortage of financial information or best practices, but we still have no replacement for an unbiased, experienced financial guide to help us navigate the waters and highlight a path forward that makes sense to a particular employee based on their individual needs.
Many times, people know they want to change, but they don’t know if they’re making a good or bad decision. When a coach is available to discuss ideas or affirm an employee’s instincts, people can usually take concrete actions. One of the greatest assets that a coach brings is confidence building: confidence in financial knowledge, decision-making, and goal setting. We know that massive achievements are not made overnight. They’re made over time through countless small steps.
Peter Waitzman is a senior financial coach for the MoneySteps financial wellbeing program.