How to cultivate employee financial literacy

Financial literacy education isn't something that's commonly taught in school. This oversight is costing American employees their hard-earned money.

According to a National Financial Educators Council¹ report, 38% of people said their lack of financial literacy training cost them at least $500 in 2022. On top of that, 15% of those surveyed said it set them back by $10,000 or more. Additionally, Standard Poor's Global Financial Literacy Survey2 found that only 57% of adults in the United States are financially literate. This lack of education, along with the country's rising personal debt for student loans, car repairs, and medical bills, has left many in a bind.

With all of these worries on the minds of your employees, it may be difficult for them to focus on or engage in their work properly.

In this article, we'll explain how employers can mitigate the consequences of financial illiteracy by providing resources for financial education and debt management. Plus, we'll explain how employee benefits can help alleviate your employees’ financial stress.

What is employee financial literacy?

Financial literacy is the understanding of and the ability to use financial skills such as money management and budgeting. It encompasses everything related to personal finances and investing, like taking out loans, retirement planning, saving money, and paying bills and other expenses.

Those who are financially illiterate often have a more challenging time understanding how to save money, plan for retirement, and balance their budget, leading to increased stress and uncertainty.

Employee financial literacy programs, also called financial wellness programs, help teach your employees to make informed financial decisions. Your employees can walk away from a financial wellness program with a better understanding of their financial situation, how to manage income and expenses, and how to build their financial security.

Why should you put in the time and effort to introduce financial wellness into your employee benefits package? Improving your employees' financial literacy can help your organization in several ways, which we'll explore in the following section.

Why is employee financial literacy important?

Financial literacy can help your employees plan for their future and remove potential stressors and feelings of uncertainty that often carry over into the workplace.

Your employees need to understand how to navigate some of the most significant decisions they'll make in their lives, such as investing in their retirement and purchasing real estate.

According to a Credit Karma³ study, nearly one-in-five people 59 and older don’t have a retirement account, the highest percentage of any generation. Additionally, 17% of people saving for their retirement say they’ve decreased their contributions because of inflation.

Financial responsibility for individuals is also increasing. In the past, many employers might have provided a pension plan for retirement, which requires no involvement from the employee. Now employees must know how to manage and set up retirement plans such as a 401(k).

Stress about current and future finances can lead to employees being distracted at work as well as increased absenteeism. It could also lead to turnover if employees look for a higher-paying job elsewhere.

What are some of the benefits of improving financial literacy?

Improving employee financial literacy can have a significant impact on your organization.

Benefits of improving employee financial literacy include:

• Improved focus and productivity at work
• Reduced stress, leading to improved well-being
• Less absenteeism
• Improved employee retention

Many employees admit to being distracted by their finances while at work. According to PwC's 2023 Employee Financial Wellness Survey, 44% of employees are distracted by finances at work, with 56% of those employees saying they spend three or more hours at work each week thinking about or dealing with issues related to personal finance.

When employees better understand how to manage their finances, they can take steps toward improving their situations. When they don't need to worry about their finances during the day, they can focus more on their work, improving overall productivity.

Empowering your employees to improve their personal finances can reduce stress, improve employee well-being, and even reduce healthcare costs. Reducing stress can lead to better physical health, which can increase morale and engagement.

When employees deal with challenging financial situations, they are more likely to be absent to deal with them. Helping employees overcome their financial hardships with financial wellness programs and employee benefits can reduce how often employees are absent for financial reasons.

An employee financial wellness program is a crucial employee perk that can affect recruitment and retention. Employees who see the value of your financial wellness program will be more likely to stay at your organization instead of pursuing other opportunities.

How to set up an employee financial wellness program

The most effective financial wellness or financial education programs are both personal and comprehensive. They provide each employee with a complete picture of their particular financial health and support for taking care of short-term and long-term needs.

Such programs should help employees create financial plans and provide tools for managing those plans. Important topics to address with employees include health insurance, budgeting, building an emergency fund, improving credit, and saving for retirement.

Here's how to set up an employee financial literacy program.

Step 1: Establish goals for your financial wellness program

The first step to a successful financial literacy program is to identify what you want to accomplish with the program.

Is your goal to reduce absenteeism or improve productivity? Or do you want to give your employees an additional incentive to stay with your organization?

Determining your goals for the program can help you measure the results over time.

Step 2: Determine what your program will cover

Now that you have your goals, you need to decide what topics your financial wellness program will cover. A good starting point is to ask your employees which topics would be most valuable to them. You can do this with an anonymous survey.

You can also use any employee data or knowledge you already have to build your program. If you have many college-educated employees, you may want to offer resources for managing student loans, for example.

Step 3: Design the program

With your topics selected, it's time to design the program. You should determine how you will provide information and resources to your employees.

You can use a third-party employee financial wellness program or set one up yourself. Employee financial literacy programs can take many different forms, including classes, online groups, or one-on-one meetings with professionals.

Popular components of financial wellness programs include:

• Digital portals with tools and content
• Providing interactive tools like calculators and charts
• Access to financial advisors
• Classes and seminars
• Financial planning

You'll also need to decide if your financial literacy training will be optional or mandatory for employees.

How offering employee benefits can reduce your employees' financial strain

Establishing an employee financial wellness program isn't the only way that you can support your employees financially. Providing employee benefits and increased compensation can help your employees live more comfortably.

There are many high-value benefits options available other than salary increases. You can offer your employees health benefits, wellness programs, flexible schedules or remote work, and retirement benefits, to name a few examples.

Offering health benefits

Medical bills and health insurance are often the largest contributors to personal financial struggles. People often don't have enough money saved to cover surprise medical expenses or emergencies.

Offering traditional group health insurance gives your employees access to coverage so that they don't need to purchase their own individual health insurance policy. However, it can come with a hefty price tag for organizations.

Thankfully, some alternative benefits options are available that can provide major value to your employees while saving your organization time and money.

Health reimbursement arrangements (HRAs) allow organizations to reimburse employees for their qualifying medical expenses tax-free. These can include individual health insurance premiums and out-of-pocket medical expenses. You simply offer your employees a monthly allowance, they make qualified purchases, and you reimburse them up to their allowance amount.

Some of the most popular HRAs available are:

• Qualified small employer HRA (QSEHRA)
• Individual coverage HRA (ICHRA)
• Group coverage HRA (GCHRA), also known as an integrated HRA

You could also offer your employees a health stipend. Health stipends work similarly to an HRA, except the allowances are taxable.

While HRAs are often a better choice for organizations, health stipends are a great option if you have employees who receive premium tax credits (PTC), as they'll be able to use their health benefits without affecting their PTC eligibility.

Offering your employees a health benefit can help them save money on their healthcare costs, contributing to their financial wellness.

Offering wellness benefits

Employers sometimes offer financial wellness programs as part of a holistic employee wellness program. Seeing as financial illiteracy and tough financial situations can increase employee stress, offering wellness benefits is a great way to promote healthy living without incurring additional expenses upon your employees.

A taxable wellness stipend enables you to give employees money for their wellness expenses, such as gym memberships, exercise equipment, meditation apps, fitness classes, and more. This allows your employees to live healthier lives and de-stress, improving productivity in the workplace.

Offering education benefits

Student debts in the United States sit at $1.757 trillion, according to the latest statistics gathered by Education Data⁴. With an average debt of $37,113 per student, offering a student loan repayment or reimbursement benefit to your employees can help you attract college-educated talent.

Other education benefits include in-house training programs, personal development courses, 529 college savings plans, and employer-sponsored scholarships.

With this type of benefit, you can put a dent in your employee's student debt and show them that you're willing to invest in their continued growth and success at your organization. A Linkedin Learning report⁵ found that 94% of employees say they would stay at a company longer if their employer invested in their career and personal development.

Offering remote work benefits

Allowing your employees to work remotely can also significantly improve their financial well-being. When employees work from home, they don't need to commute to the workplace. This saves them from buying as much gas for their vehicles or using public transportation, helping them save money each month.

If your employees work from home, you can also provide them with a remote work stipend. This allows you to reimburse them for their home office setup costs, internet access, cell phone bills, and more.

Conclusion

When offering employee benefits, organizations should include a financial literacy or financial education program. These programs can help your employees create and maintain financial plans according to each employee's distinct needs. When your employees are able to make informed decisions about their finances, they're less likely to be stressed at work, enabling them to be more productive and positive in the workplace.

You can also provide employee benefits such as HRAs to contribute to your employees' financial well-being.

If you're interested in offering flexible benefits to your workforce, PeopleKeep can help. Our HRA administration software makes it easy to set up and manage your health benefits.

Scheduled a call with an HRA specialist to see how health employee benefits can work with your organization!

This blog article was originally published on June 17, 2016. It was last updated on June 1, 2023.

1. https://www.financialeducatorscouncil.org/financial-illiteracy-costs-2/
2. https://www.investopedia.com/the-push-to-make-financial-literacy-into-law-4628372
3. https://www.creditkarma.com/about/commentary/americans-have-a-net-worth-problem-and-its-not-positive
4. https://educationdata.org/student-loan-debt-statistics
5. https://learning.linkedin.com/content/dam/me/learning/en-us/pdfs/linkedin-learning-workplace-learning-report-2018.pdf