Transcript Client Summit Slides - Financial Distress

Distracted by Money:
Helping Distressed Workers During
Tough Financial Times
E. Thomas Garman
Personal Finance Employee
Education Foundation
February 2008
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.
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4
Employers Often Recognize
These Issues
But do nothing
“You can lead a horse to water, but you can’t make it drink.”
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5
Let’s Talk About
 Employee’s finances
 Employer’s bottom-line
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6
USA System of
Retirement Income Security
The metaphor is a 3-legged stool:
1. Social Security
2. Employer provided
pensions
3. Personal savings
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USA Retirement Finances
Defined-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.
•

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: $963 per month
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)
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USA Retirement Finances DefinedContribution 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)
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Observation
Financing retirement in the USA
today is the sole responsibility of
the employee.
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10
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.
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“The lack of financial literacy–spending
plans, credit management and
savings—is the major reason why
employees do not save for retirement.”
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12
The Financially Unhealthy
30 million American workers—
1 in 4—report they are seriously
financially distressed
and dissatisfied with
their personal finances
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13
National Norms for Financial
Well-Being on PFW Scale©
Percentage
(Mean=5.7; SD=2.4)
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
14.5
14.2
13.8
12.2
11.4
9.2
8.2
6.9
5.4
4.2
1
2
3
4
(1-4: 30%) High distress
5
6
7
(5-6: 28%)
8
9
10
(7-10: 42%) Low distress
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.
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30% Are Failing Financially!
(Scores of 1-4)
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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 month
 Mortgage 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.
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“Employees with money problems
are like sharks swimming around the workplace
taking bites out of the bottom line.”
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17
Big Point
“Financially unwell employees
do not make the best
decisions for themselves … or
their employers.”
Not
Engaged
Passive
Anxious
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Confused
18
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!
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Research Proves ALL These Factors
Are 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
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20
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
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21
An Exception
Aha, there is an exception on the list of what
does not purposefully decrease employee
financial distress and increase financial wellbeing. ValueOptions’ EAP with financial coaching
support and education does change employee
financial behaviors.
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22
What Reduces Financial Distress &
Increases Financial Well-Being?
Employers who provide employees easy access
to quality:
Basic financial education
Credit counseling
Benefits information/education
Credit union
Retirement education
Financial advice
Financial coaching that changes behaviors
Bring together the basic financial resources to truly help employees.
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Estimated Annual Costs of
Ignoring Financial Illiteracy ©
1.
2.
3.
4.
5.
Lost productivity
$450a
Health care costs (poor health)
300b
Subtotal = $750
Health care reimbursement (FICA)
92c
Dependent care reimburse (FICA)
382d
Traditional health plan choice
800e
($7,982 - $1,690 = $6,292 - $800)
6.
TOTAL
$2,000+
“Employer cost for no action is $750 to $2,000+ per employee!”
©
Personal Finance Employee Education Foundation, 2008.
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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
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How Can Employers
Save $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!
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26
Financially Literate Employees
Are Engaged With Money Issues
• Comparison shop
• Achieve short-, medium- and long-term
savings goals
• Match product selections
with savings goals
Active
• Enjoy average to
above average
financial well-being
Confident
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Aware
Motivated
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Results for Employees
From Quality Financial Program






Lower financial distress
Increased financial well-being
Better health
Adequate retirement preparation
Improved family relationships
Gains in job performance
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28
Both Gain…When Employers Provide
Employees With Quality Financial Programs
Employee
Employer
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29
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.”
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30
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
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31
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.
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32
Prove Financial Program Works
or Not (One Year Later)
Number of employees with improved PFW
scores
Lower financial distress
Increased financial
well-being
Active
Confident
Aware
Motivated
PFEEF can help with this effort at no cost.
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33
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.
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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.
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Thanks!
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Information
Dr. E. Thomas Garman
President, Personal Finance Employee Education Foundation
Professor Emeritus and Fellow, Virginia Tech University
9402 SE 174th Loop, Summerfield, FL 34491 USA
Tele/Fax: 352-347-1345
E-mail: info@pfeef or [email protected]
Web: 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 (303-5970197)
For permission to use the PFW scale, fill out online form
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Footnotes
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 underway
c $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).
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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 can help with this effort at no cost.
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40
PFEEF Projects Employer’s ROI
Estimate 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.
PFEEF can help with this effort at no cost.
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41
ABC Company Projected 1-Year
Work 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.
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42
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.
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Projected 2.8 ROI
for ABC Company Detail*
1.
2.
3.
4.
5.
Program offered to 28,000 employees
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
Total value of projected improved job outcomes = $4,409,000
Cost of financial program = $1,600,000
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.
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44
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 savings
Add up financial program costs
Calculate ROI
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