Should Companies Provide Financial Education to Employees?
I am working on my doctoral degree in Business Administration with a specialization in Finance. Since my company focuses on creating paths to financial literacy, I wanted to explore a business problem that focused on financial education. In my search for a topic for my doctoral research study, I decided to explore the impact on employer costs and worker performance and productivity when companies offer financial education to employees.
A lot of research has been completed on this topic, but most researchers analyze the impact of financial education from an employee’s perspective and not as much on the business metrics. Interestingly, data do show financially stressed employees call in sick more often; are less focused while at work; quit jobs more frequently; spend more time dealing with financial issues while on the job; are more inclined to steal; and, struggle with interpersonal work relationships. While this is not an exhaustive list by any means, it gives you an idea the impact financial stress has on the workplace.
Companies, therefore, experience increased costs due to absenteeism; shrinkage; low retention; decreased performance and productivity; illness; and, more. Another issue is low morale when a financially stressed employee is not getting along with their co-workers. If you have ever been stressed about finances, you know how distracted you can be at work. In my early twenties, I already had a couple of collection items due to not understanding how to manage my finances. Some days, it was difficult to focus on work because I was so stressed about how I was going to pay my bills. The stress made me less productive which made me feel guilty which caused me to quit my job which caused more stress. The cycle just continued over and over with each new job until I began to learn how to manage my money. However, it took a couple of years to begin learning how to manage my money because I did not know where to look and I did not have the funds to pay for books and other materials to learn.
The biggest question for those running companies may be, “Why should I be concerned about the financial literacy of an employee?” It is a great question, and it should be asked! The Consumer Financial Protection Bureau stated in 2014 in Financial Wellness at Work: A Review of Promising Practices and Policies, that financially stressed employees are less productive at work which leads to increased costs for employers. How much are those costs, exactly? George and Kane completed a study in 2016, Financial Stress: The Impact on Individuals, Employees, and Employers, and determined that companies annually spend $5,000 per financially stressed employee. They also discovered 70% of 3,000 human resource professionals stated 47% of employees allow financial stress to affect their workplace performance negatively.
In other words, if a company has 100 employees and 47% or 47 of them, are financially stressed and costing the company $5,000 each, the company is losing $235,000 on an annual basis. Of course, depending on the company, industry, and product, the numbers can fluctuate. The bottom line, though, is that companies can reduce those costs significantly when they offer financial education to their employees. For example, the other day I was talking to someone about this topic. They stated after they took some financial education classes, they removed themselves from the health insurance plan at their work onto their spouse’s health insurance plan. They had two separate health insurance plans which were costing them more money. The move also decreased the health insurance cost for one company. These small actions begin to add up over time.
If a company decides to begin offering financial education as a wellness benefit to employees, they should track metrics to analyze if they are getting a return on their investment. While offering financial education to employees is a good way to promote social change, it should also be financially beneficial to the company.