“Financial Education in the Workplace: New

Thinking” “Workplace Financial Literacy Summit”

Texas Society of CPAs

Federal Reserve Bank, Dallas, TXSeptember 21, 2007

E. Thomas Garman

President, Personal Finance Employee Education FoundationProfessor Emeritus and Fellow, Virginia Tech University

©Personal Finance Employee Education Foundation, Inc., 2007.

USA System of Retirement Income

SecurityThe metaphor is a 3-legged stool:1. Social Security2. Employer provided

pensions3. Personal savings

USA Retirement FinancesDefined-Benefit Retirement

Pensions(DB Plan = Monthly checks for life) Most USA workers earn Social Security

Administration credits during their working years, and retirees are eligible for a SSA defined-benefit pension

• Example: $1,000/month Aged adults who never worked and those

with limited income and resources are eligible for SSA-administered Supplemental Security Income defined-benefit pension

• Example: $300 to $600/month Some working employees qualify for and may

receive an employer-sponsored defined-benefit pension. In 1981, 112,000 plans covered 37% of workers; now 31,000 plans cover <20%

• Example: $800/month

USA Retirement FinancesDefined-Contribution

Retirement Savings Plans(DC Plan = Lump sum at retirement to manage)

Employer-sponsored voluntary retirement plans for individually accumulated savings, such as 401(k) and profit-sharing:

Only half of workers are employed by companies that offer a defined-contribution plan

Only 2 in 3 eligible employees join Of those who do participate, 7 in 10 are not

saving enough for a financially successful retirement (median balance is $58,000)

Observation

Financing retirement in the USA today is the sole responsibility of the employee

Realities of Saving for Retirement

(All Are Negatives) Participation and deferral rates in USA

retirement savings plans are inadequate Most are not saving enough for retirement Workplace education and advice programs

have been less than successful Millions of employees say they cannot afford

to save for retirement, and 1 in 4 say credit card debt is a reason

Employees do not know what they don’t know

Employers and employees do not understand the value of paying for good help — effective workplace financial programs

“The lack of financial literacy–spending plans, credit management, and

savings—is the major reason why employees

do not save for retirement”

The Financially Unhealthy

30 million American workers— 1 in 4—report they are seriously financially distressed and dissatisfied with their personal finances

National Norms for Financial

Well-Being on PFW Scale©

5.46.9

8.29.2

14.5 14.2 13.8

12.211.4

4.2

0.02.04.06.08.0

10.012.014.016.0

1 2 3 4 5 6 7 8 9 10

Percentage

(Mean=5.7; SD=2.4)

Source: InCharge Education Foundation, National Norms on InCharge Financial Distress/Well-Being Scale© for General Adult Population. 1 Means “Overwhelming Financial Distress/Worst Financial Well-Being”; 10 Means “No Financial Distress/Excellent Financial Well-Being” ©Copyright by InCharge Education Foundation and E. Thomas Garman, 2004-2007. All rights reserved.

(1-4: 30%)High distress (5-6: 28%)

(7-10: 42%)Low distress

National Norms: 30% Are Failing Financially

With Scores of 1-4

Big Point

“Financially unwell employees do not make the best decisions for themselves… or their employers”

Passive

Anxious

Not Engaged

Confused

What Does Poor Financial Literacy Cost?

Research says, “Every time someone on your work team brings his/her money worries to the job, workplace productivity drops”

Pay no attention to the elephant!

Can you recognize a financially stressed employee? No!

“Employees with money problems are like sharks

swimming around the workplace taking bites out of

the bottom line”

Research Proves ALL These Factorsare Correlated in the Ways Expected

Personal Finances:• Financial well-being• Financial

satisfaction• Financial distress• Financial stressor

events• Financial behaviors• Credit card debt• Credit card

delinquencies

Job Outcomes:• Work satisfaction• Pay satisfaction• Absenteeism• Presenteeism

(cutting down on normal activities)

• Personal financial matters interfering with work

• Work time used to handle personal finances

• Health

What Does Not Decrease Financial Distress?

• Salary increases• Bonuses• Attending 401(k) retirement

planning seminars and workshops

• Pastoral counseling• Employee Assistance Programs

Which Purposefully Decreases Employee Financial Distress and Increases Financial Well-

being?

Marriage counseling? NoEmployee Assistance Programs? NoRetirement Education Programs? NoCredit Counseling? Yes

What Else Can Decrease Financial

Distress/Improve Financial Well-Being?

• Provide employees easy access to:–Basic financial education–Benefits education–Credit union–Financial advice

Estimated Annual Costs of Ignoring Financial

Illiteracy ©1. Lost productivity $450a

2. Health care costs (poor health) 300b

Subtotal = $7503. Health care reimbursement (FICA) 92c

4. Dependent care reimburse (FICA) 382d

5. Traditional health plan choice 800e

6. TOTAL $2,000+

© Personal Finance Employee Education Foundation, Inc. 2007.

“Employer cost for no action is $750 to $2,000+ per employee!”

How Can EmployersSave $750 - $2,000?

1. Demand more from your current 401(k) financial education providers

2. Insist they provide a quality program that emphasizes the basics of personal finance:

• Spending Plan• Credit Management• Saving

Financially Literate Employees Are Engaged

With Money Issues• Comparison shop• Achieve short, medium and long term

savings goals• Match product

selections with savings goals

• Enjoy average to above average

financial well-being

AwareActive

Confident

Motivated

Results for EmployeesFrom Quality Financial

Program Lower financial distress Increased financial well-being Better health Adequate retirement

preparation Improved family relationships Gains in job performance

Both Gain…When Employers Provide Employees With

Quality Financial Programs

Employee Employer

Big Point

“Employers do not realize they can improve profits

–and prove it–by providing employees easy

access to quality financial education programs to

improve personal financial behaviors”

Personal Finance Employee Education Foundation

“PFEEF Advocates Best Practices”

Provide employers no-cost-to-use tools and expertise to detail the bottom-line benefits of quality financial programs

Identify companies whose workplace programs genuinely improve employees’ personal financial behaviors and increase employer profits

Use PFW to Benchmark Employee Personal Financial

Well-Being1. Survey employees using the

Personal Financial Well-Being (PFW) scale.

2. PFW is 8-item questionnaire that measures financial distress and financial well-being.

3. PFW is a peer-reviewed valid and reliable measure (over 20 years in development).

4. Use of PFW is free with permission.

Financial Well-Being andLast Year’s Job Outcomes

1. Survey Personal Financial Well-Being (PFW) of employees, and array scores into 5 groups (20% in each).

2. Compare the mean scores of highest 20% group with lowest 20% on last year’s job outcomes. What are the differences?

Human Resources can decide to do nothing. Or, do something!

Project Employer’s ROI“Estimate What the Employer Can Gain By

Demanding More From Financial Providers?”

1. HR assigns cost values to each job outcome.

2. Estimates projected impacts of financial program on job outcomes.

3. Adds up projected savings.4. Adds up projected financial

program costs.5. Calculates projected ROI.PFEEF can help with this effort at no cost

Prove Financial Program Works

(One Year Later)

Number of employees with improved personal financial behaviors

PFEEF can help with this effort at no cost

AwareActive

Confident

Motivated

Lower financial distressIncreased financial well-being

Prove Value to Employers(One Year Later)

• Number of employees with improved job outcomes

• Calculate employer’s return on investment (ROI)

Review changes in job outcomes Add up the savings Add up financial program costs Calculate real ROI

PFEEF can help with this effort at no cost

Many Employers RecognizeProblem But Do Nothing

“You can lead a horse to water, but you can’t make it drink.”

Key Messages1. 30% of USA employees are dissatisfied with

their personal financial situations (scores of 1-4 that are less than middle [5-6])

(What’s the percentage at your workplace?)

2. Employer uses PFW to survey employee financial well-being to establish baseline information

3. Checks company data to project return on investment for improving employee financial well-being

4. Hires the best providers to improve employees’ financial decision making

5. Researches one year later to prove the real bottom-line results

Conclusions on Financial Literacy and Workplace

Productivity1. Financially illiterate adults do notmanage their personal finances

very well and they do not saveand invest enough for a

financially successful retirement2. It is in the employer’s best

interest—more profits—to provideemployees easy access toquality financial programs

Why Offer EmployeesQuality Financial Programs?

1. Legal – “insurance” against litigation (ERISA and SOX liability and CFO nightmare)

2. Bottom-line benefits – better productivity and retention

3. Human resources – attract, retain, reward, motivate the right employees

4. Benefits – facilitates benefit plan changes and behavioral changes

5. Culture – links the program to the values the company wants to instill in employees

6. Social/Moral – it is right thing to do as stewards of employee well-being

*Delivering Financial Literacy Instruction to Adults, Garman & Gappinger, 2008, taken from Ernst & Young’s Bill Arnone’s comments on pages 31-35 (Heartland Institute of Financial Education [303-597-0197])

In Closing

• I leave you with the immortal words of the great baseball player, Yogi Berra, of the New York Yankees, who often fractured the English language with his truisms like:

•“If you don’t know where you are going, you will end up somewhere else”

Thanks!

Information/FootnotesDr. E. Thomas Garman

Professor Emeritus and Fellow, Virginia Tech UniversityPresident, Personal Finance Employee Education Foundation9402 SE 174th Loop, Summerfield, FL 34491 USATele/Fax: 352-347-1345E-mail: ethomasgarman@yahoo.comWeb: www.personalfinancefoundation.org

To examine the PFW scale and read research articles about its use, see http://www.afcpe.org/pages/journal_abstract.cfm?journal_id=290&top_id=21 http://www.afcpe.org/pages/journal_abstract.cfm?journal_id=303&top_id=21

New Book: Delivering Financial Literacy Instruction to Adults, Garman & Gappinger, Heartland Institute for Financial Education (303-597-0197)

For permission to use the PFW scale, fill out form on websiteFootnotes:

a Based on reduced absenteeism and less work time dealing with personal financial concerns. See research and press releases at www.PersonalFinanceFoundation.org

b Conservative estimate; research underwayc $1,200 contribution to health reimbursement plan ($1,200 X 0.0765)d $5,000 contribution to dependent care reimbursement plan ($5,000 X

0.0765)e Employee stays in high-cost health plan instead of choosing less

expensive CDHC policy (consumer driven health care)

ABC Company Projected 1-YearWork Outcomes

1. Projected 1-year changes in work outcomes:– 12% will improve job performance rating– 16% fewer garnishments– 16% will have reduced absenteeism– 5% less turnover compared to average– 10% will spend less work-time spent on personal

finances– 8% less short-term disability– 9% lower health care costs– 21% will contribute to 125-plans– 5% fewer accidents/workplace violence– 5% fewer thefts– 10% fewer workers’ compensation claims– 14% increase in contributors to 401(k) plan

2. Next assign costs to each factor and estimate increases in work outcomes.

Summary of Projected 2.8 ROI

for ABC Company*1. Program offered to 28,000 employees

2. Program impacts 30% of employees, 8,400, in

varying degrees of effectiveness resulting in

improved financial behaviors and job outcomes for

some

3. Total value of projected improved job outcomes

$4,499,000

4. Projected cost of financial program = $1,600,000

5. Projected ROI 2.8/1 ($4,499,000/$1,600,000)*These calculations are reasonable estimates, not guarantees. Some numbers are very low estimates and ABC Company’s Human Resources Department has the most accurate cost data. Decreases in accidents, workplace violence, and theft, and reduced fiduciary liability are additional ROI values, and they are not part of this ROI calculation, although they should be included.

Projected 2.8 ROIfor ABC Company Detail*

1. Program offered to 28,000 employees2. Program impacts 30% of employees, 8,400, in varying degrees of

effectiveness resulting in improved financial behaviors and job outcomes:a. Garnishments (2,484 X 0.30 = 745 X $600) $ 447,000b. Absenteeism (56,000 X 0.30 X 0.10 = 1,680 X $100) 168,000c. Short-term disability (1,259 X 0.30 X $100) 37,000d. Turnover (28,000 X 0.0025% = 140 X $6,000) 840,000e. Health care costs (28,000 X 0.30 X 0.10 = 840 X $400) 336,000f. Workers’ compensation claims ($32M X 0.005) 1,600,000g. Health care spending plan (1,353 X 1 X $1,000 X 0.0765) 10,000

(cash)h. Dependent care spending plan (259 X 1 X 1,000 X 0.0765) 19,000

(cash) i. Job performance rating (28,000 X 0.30 X 0.05 = 420 X $2,100) 882,000j. Work-time on finances (28,000 X 0.30 X 0.05 = 420 X $167) 70,000

3. Total value of projected improved job outcomes $4,409,0004. Cost of financial program = $1,600,0005. ROI 2.8/1 ($4,409,000/$1,600,000)

*These calculations are reasonable estimates, not guarantees. Some numbers are very low estimates and ABC Company’s Human Resources Department has the most accurate data. Additional ROI values from decreases in accidents, workplace violence, and theft, and reduced fiduciary liability are not included in this ROI calculation.