Employee benefits play a bigger role in workplace retention than most people think. According to a 2021 Workhuman survey, 66 percent of employees are waiting to review their company’s new benefits offerings before deciding whether they want to stay or go.
While paid leave, health insurance, tuition reimbursement, and mental health services top the list of the most sought-after employee benefits, financial education programs are quickly catching up.
Employers are putting greater focus on their employees’ financial health. Workers are also looking to their employers for assistance. Approximately 51 percent of employees believe that employers have a responsibility to help them in improving and maintaining their financial wellness, according to TIAA’s 2022 Financial Wellness survey.
When making the decision whether or not to provide financial education to employees, consider the countless advantages of financial literacy. Learn more about why financial education is important and how it can help employees better understand how money works and how to handle their finances responsibly.
Why Is Financial Education Important?
While some employers do not believe that financial education programs are worth the expense, research shows a different side. According to a Highland Solutions survey, 63 percent of respondents say they have been living paycheck to paycheck since the pandemic with millennials being the hardest hit demographic.
Employee financial education programs teach staff how to make effective and informed decisions regarding their finances. These programs help employees develop the skills they need to better manage their income and expenses. Employees also learn how to efficiently build wealth and financial security.
Helping employees gain a better grasp on their finances can have numerous benefits for businesses. It can help employees improve their personal situations and in turn, maintain a greater focus on their work and improve productivity.
Financial awareness can also reduce stress in the workforce. It gives workers the skills needed to control their own finances and gain an understanding of the differences between dangerous and useful solutions. These programs can also show workers what steps they should take to improve their financial health.
Financial education can also have other benefits, such as less absenteeism, better retention, greater loyalty, and a better potential for workers to upskill themselves. Here are some other reasons why financial education is important:
Ensure Employees Pay Off Debt
Debt is a common problem among employees of all ages. According to a study of full-time employees conducted by the Financial Health Network, 63 percent of employees working for mid-to-large-sized companies reported having unsecured debt. These debt holders revealed that debt stress has had a direct impact on their work.
Financial education can help teach employees about the perils of debt. Debt can affect employees’ use of retirement savings accounts, making it difficult for employees to save for their future. Many employers do not understand that retirement savings accounts are often less important to employees who have major debt obligations that cause them to struggle with their day-to-day needs.
Debt stress has a greater effect on certain groups of people. Lower-income employees tend to have higher total debt. These employees often do not have access to debt-related benefits, despite having greater than average levels of debt stress. Gender also plays a role in debt accumulation. Female employees are more likely to claim that they do not have access to or use debt-related benefits.
Financial literacy is made up of many components. Employees should have a solid understanding of inflation-adjusted earnings, compounding interest, and the relationship between monthly payments, interest rates, and the total cost of borrowing. They should also understand the relationship between interest rates and bond prices, as well as the impact of diversification in investing.
Financial education programs can provide employees with information on effective budgeting, how to track spending, dealing with setbacks, choosing an appropriate bank or credit union, establishing checking and savings accounts, proper use of credit cards, and many other important components of financial wellness.
Encourage More Retirement Contributions
The ideal contribution percentage to save for retirement is between 15 and 20 percent of an employee’s gross income, according to Investopedia. Contributions are typically made into a 401(k) plan, a 401(k) plan match from an employer, an IRA, a Roth IRA, or another taxable account.
A study conducted by Fidelity reports that employees contribute an average of 8.8 percent, while employers contribute approximately 4.6 percent. Employee contributions can help reduce current taxable income as investment and contribution gains are not taxed until the time of distribution. This allows small, regular employee contributions to grow to a sizable retirement sum.
Through financial education, employees can learn about the importance of saving for retirement and why they should begin making contributions to a retirement account as soon as possible. Starting early and remaining steady with contributions can help employees reach their retirement savings goal sooner.
If available, employees should be encouraged to contribute as much as possible, especially if the employer offers to match contributions. Automating investments can make it easier for employees to maintain a steady pace of contributions. Often, 401(k) contributions are automatically deducted from employee paychecks. Employees can also set up IRA contributions to be automatically deducted from their bank or paycheck.
Some companies offer different types of retirement plans, ranging from 401(k)s and traditional IRAs to profit-sharing plans (PSPs) and 457 plans. The more that employees know about these different types of retirement plans, the better equipped they are to choose a plan that best fits their needs.
Offering financial education to employees can also help workers boost their retirement savings, regardless of age. Encourage employees age 50 or older to take advantage of catch-up contributions available to staff with 401(k)s and IRAs.
Also, discuss the benefit of delaying Social Security as they near retirement age. Every year that an employee delays receiving Social Security payments before age 70, the more they will receive in the future.
Improve Mental Health for Employees
Mental illness is a serious problem in the U.S., affecting one in five adults, according to the National Alliance on Mental Illness (NAMI). Unfortunately, a large percentage of these individuals never receive help for their condition. As a result, these employees often miss work or are unproductive on the job.
Anxiety and depression cost the global economy more than $1 trillion each year in lost productivity, according to the World Health Organization (WHO). However, WHO also found that for every $1 that is spent on treating common mental health disorders, there is a return of approximately $4 in improved productivity and health.
There are countless benefits of improving mental health in employees, such as increased retention, improved productivity, and decreased disability and health costs. There is a direct connection between mental health and physical health and employers in all industries should help employees improve their mental health whenever possible.
Financial education has the power to help reduce mental health concerns among employees. This starts by gaining an understanding of how mental health impacts workers and how to recognize signs of emotional distress. The use of tools, such as mental health calculators, can help determine the prevalence of untreated conditions.
It is no surprise that a person’s finances could have a major impact on their mental health, especially when unprepared to handle a financial crisis. A general lack of financial knowledge during challenging times can make an employee feel inadequate, overwhelmed, anxious, and stressed about the future.
Financial education provides employees with the tools and finance-related skills they need for good financial well-being during hard times. Employers have the opportunity to make mental health a priority in the workplace by providing workers with the financial literacy education they need to face financial challenges head-on.
Should Your Organization Provide Financial Education?
Offering financial education to employees does not only benefit staff directly but also the company as a whole. Financial stress within work environments can have a ripple effect that impacts entire businesses. Investing in financial education can help improve the efficiency and success of an organization.
Employers that wish to improve productivity and engagement in the workplace should also consider offering financial education to employees. Financial literacy can encourage employees to do their best and maintain higher levels of morale. Reduced stress in the workplace helps improve overall health.
In addition, companies may experience a reduction in turnover when they show that they genuinely care for their employees. Employees want to know that the organization that they work for is truly vested in their well-being and success, especially when they are stressed about money.
Providing employees with financial education can help save employees money and improve the company’s overall culture. Potential outcomes in many areas are also improved, such as debt management, better use of employer discounts, reduced credit card interest and loan fees, lower tax rates, and increased benefits from retirement accounts.
Financial education programs may also attract new job candidates. Top talent is often looking for more when it comes to employee benefits and educational programs are in high demand. When organizations choose to fulfill an information gap, it can be viewed as a sign of the business’s commitment to invest in their workforce.
Speak With New City About Financial Educational Programs
Financial education is a topic commonly overlooked when developing employee benefits packages. However, the benefits of financial literacy for employees are clear. At New City Insurance, employers can discover a better way to structure their employee benefits.
New City advisors can help employers build effective plans at half the cost of the national average without reducing network access or benefits. To learn more about offering financial education to employees or to request a consultation with an employee benefits advisor, reach out to New City Insurance.