distracted by money: helping distressed workers during tough financial times e. thomas garman...

Distracted by Money: Helping Distressed Workers During Tough Financial Times

E. Thomas GarmanPersonal Finance Employee

Education Foundation February 2008

E. Thomas GarmanPersonal Finance Employee

Education Foundation February 2008

4SummitQuestions@valueoptions.com

Employee Personal Finances and the Bottom-line

• Financially illiterate adults do not manage their personal finances very well.

• And they do not save and invest enough for a financially successful retirement.

• THIS contributes to lower productivity as well as higher health care costs.

Employers Often RecognizeThese Issues

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

But do nothing

Let’s Talk About

Employee’s finances Employer’s bottom-line

USA System of Retirement Income Security

The 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 U.S. workers earn Social Security Administration credits during their working years, and retirees are eligible for a SSA defined-benefit pension.

• Average today: $963 per month

Aged adults who never worked and those with limited income and resources are eligible for SSA-administered Supplemental Security Income defined-benefit pension.

• Average today: $466 per month

Some working employees qualify for and may receive an employer-sponsored defined-benefit pension. Only 17% of today’s retirees get corporate defined-benefit pension.

• Average today $641 per month)

USA Retirement Finances Defined-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 2 in 3 eligible employees join DC plans Of those who do participate, 7 in 10 are not

saving enough for a financially

successful retirement (Median balance=$58,000; Fidelity says $32,000)

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

underutilized. Millions of employees say they cannot afford to save for

retirement; 1 in 4 say credit card debt is a reason. Employees do not know how to help themselves. Employers do not understand the value of providing

their employees easy access to the best mix of quality 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 FinancialWell-Being on PFW Scale©

5.46.9

8.29.2

14.5 14.2 13.8

12.211.4

0.02.04.06.08.0

10.012.014.016.0

1 2 3 4 5 6 7 8 9 10

(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, 2004-2008. All rights reserved.

(1-4: 30%) High distress (5-6: 28%) (7-10: 42%) Low distress

30% Are Failing Financially! (Scores of 1-4)

60% of Employees“Live Paycheck-to-Paycheck”And Do Not Save Enough for Retirement

Credit card payments ($2-6K) $100-$200 month Vehicle payments ($15K) $400-$500 month College loan payments ($30K) $400-$600 month Child-care ($5-$12K) $400-$1200 monthMortgage loan payments $Property taxes $Homeowner’s insurance $ ½ do NOT budget 30%-80% waste time at work on money issues

Don’t give employees a raise! Offer help with money management problems.

“Employees with money problems are like sharks swimming around the workplace

taking bites out of the bottom line.”

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!

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

Which Purposefully Decreases Employee Financial Distress and Increases Financial Well-being?

Salary increases? No

Bonuses? No

Most retirement education workshops? No

Marriage counseling? No

Employee assistance programs? No

An Exception

Aha, there is an exception on the list of what does not purposefully decrease employee financial distress and increase financial well-being. ValueOptions’ EAP with financial coaching support and education does change employee financial behaviors.

What Reduces Financial Distress & Increases Financial Well-Being?

Employers who provide employees easy access to quality:Basic financial educationCredit counselingBenefits information/educationCredit unionRetirement educationFinancial adviceFinancial coaching that changes behaviors

Bring together the basic financial resources to truly help employees.

Estimated Annual Costs of Ignoring Financial Illiteracy ©

1. Lost productivity $450a

2. Health care costs (poor health) 300b

Subtotal = $750

3. Health care reimbursement (FICA) 92c

4. Dependent care reimburse (FICA) 382d

5. Traditional health plan choice 800e

6. TOTAL $2,000+

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

($7,982 - $1,690 = $6,292 - $800)

Research Shows that Health and Personal Finances Are Correlated

• Those with more financial distress report poor health.f

• Financially distressed employees have worse health than others.g

• Financially distressed workers (40%–50%) report their financial problems cause their health woes.h

• Positive changes in financial behaviors are related to improved health.i

How Can EmployersSave $750 - $2,000+?

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

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

• Spending plan• Credit management• Saving

It’s not a matter of money spent on financial education— it’s a matter of effectiveness!

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

The Big Point

“Employers do not realize they can improve profits–and prove it–by providing employees easy access to quality financial education programs that 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-Being

1. Survey employees using the Personal Financial Well-Being (PFW) scale.

2. PFW, an 8-item questionnaire, measures financial distress and financial well-being.

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

4. Use of PFW is free with permission.

PFEEF can help with this effort at no cost.

Prove Financial Program Works or Not (One Year Later)

Number of employees with improved PFW scores

AwareActive

Confident

Motivated

Lower financial distressIncreased financial

well-being

Key Messages

1. 30% of U.S. 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. Employees complete “Annual Financial Health Checkup”

online (8 questions in 4 minutes).3. PFEEF projects ROI for quality financial program (no

cost to employers).4. Employer hires the best providers to improve employees’

financial decision making.5. Visit www.achievesolutions.net/(company handle) for

additional information and content on financial-related matters.

Conclusion About Employee Financial Literacy and Employer Profits

It is in the employer’s best interest—more profits—to provide employees easy access to quality financial programs.

Thanks!

InformationDr. E. Thomas Garman

President, Personal Finance Employee Education FoundationProfessor Emeritus and Fellow, Virginia Tech University9402 SE 174th Loop, Summerfield, FL 34491 USATele/Fax: 352-347-1345E-mail: info@pfeef or ethomasgarman@yahoo.comWeb: www.PersonalFinanceFoundation.org

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

Footnotes

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

f Bagwell & Kim, 2008; Drentea, 2000; Drentea & Lavrakas, 2000; Garman et al, 2004; Genco et al., 1999; Garman et al., 2007;l Jacobson et al., 1996; Lyons & Yilmazer, 2005; Kim, Sorhaindo, & Garman, 2004; Prawitz et al., 2007; Shatwell et al, 2007.g Kim, Sorhaindo, & Garman, 2003; Prawitz et al, 2007; O’Neill et al, 2005 (2 articles); Sorhaindo & Garman, 2002.h Garman et al, 1999; Kim, Garman, & Sorhaindo, 2003 (AFCPE and ACCI); Kim, Sorhaindo, & Garman, 2004; O’Neill et al, 2006; Weisman, 2002.i Kim, Garman, & Sorhaindo, 2003 (AFCPE and ACCI); O’Neill et al, 2006; O’Neill et al, 2005 (2 articles).

Compare Financial Well-Being With Last 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. The differences?

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

PFEEF Projects Employer’s ROIEstimate What the Employer Can Gain By Demanding More From Financial Providers

1. Assign cost values to each job outcome.

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

3. Add up projected savings.

4. Add up projected financial program costs.

5. Calculate projected ROI.

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. Assign costs to each factor and estimate increases in work outcomes.

Summary of Projected 2.8 ROIfor 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 employees

2. 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) $ 447,000

b. Absenteeism (56,000 X 0.30 X 0.10 = 1,680 X $100) 168,000

c. Short-term disability (1,259 X 0.30 X $100) 37,000

d. Turnover (28,000 X 0.0025% = 140 X $6,000) 840,000

e. Health care costs (28,000 X 0.30 X 0.10 = 840 X $400) 336,000

f. Workers’ compensation claims ($32M X 0.005) 1,600,000

g. 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) 882,000

j. 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 = $4,409,000

4. Cost of financial program = $1,600,000

5. 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.

Prove ROI 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 savingsAdd up financial program costsCalculate ROI

distracted by money: helping distressed workers during tough financial times e. thomas garman...

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