From literacy to resilience: How to secure a better financial future for employees
Without financial education, many employees will continue to struggle financially in the aftermath of the pandemic and resulting economic downturn.
As we head into spring, there is an optimism in the air we haven’t felt in well over a year. Shots are getting in arms, the COVID-19 pandemic is lessening and we are all thinking about what our workplaces look like in the new normal. That said, we can’t lose sight of the carnage caused by the pandemic.
Many of your workers have been impacted financially by the events of the last year. We are well aware of the staggering unemployment data and, according to Pew, nearly one-third of all adults have had either their or someone in their household’s hours cut or pay reduced, with 21% saying this happened to them personally.
This has led, naturally, to an increase in financial stress. When Salary Finance surveyed nearly 2,000 US workers at the end of 2019, 40 percent of the workforce was dealing with it. When we surveyed a subset of that group again in June of 2020, two-thirds of the workforce is under the grips of financial stress.
All of this amplifies the need for financial literacy – the skills needed to make informed financial decisions – among your employees. Across the board, American workers struggle to answer even the simplest questions regarding management of personal finances.
Without that education, many will continue to struggle financially in the aftermath of the pandemic and resulting economic downturn. Your employees will be unlikely to build financial resilience without a strong foundation of financial literacy.
Why financial literacy matters
In order to make the right financial decisions for our unique situation, we need to understand money, how to manage it, and the financial tools available to us. Especially in times of increased uncertainty — like what we’ve just lived through — having a financial plan in place is crucial.
Only with a plan can financial resilience be achieved. Applied to personal finances, financial resilience means being able to adapt to the circumstances we’re in – especially unanticipated ones – and to respond quickly without losing our ability to grow and maintain wealth.
Unfortunately, our society doesn’t help all Americans achieve a high degree of financial literacy: only a third of states require high school students to take a course in personal finance. And historical wealth imbalances reinforce this lack of education by perpetuating cycles of poverty and financial illiteracy through generations — particularly among people of color. On average, according to the TIAA Institute, African Americans answered only 28 percent of personal finance questions correctly, versus 62 percent of whites.
The impact of low financial literacy on your employees
Poor financial literacy is also a contributing factor for the high percentage of financial stress we are seeing in our workforce. If you don’t think this has an impact on work, it’s time for a wakeup call. Those experiencing financial stress, according to Salary Finance data, are 11 times more likely to have sleepless nights, nine times more likely to have troubled relationships with co-workers and family, and seven times more likely to be suffering from depression.
People with low levels of financial literacy:
- Find it harder to plan because they aren’t sure where to start. Nearly half of adults say they don’t know exactly how much they can afford to spend now versus how much they should be saving for later
- Are likely to spend more than they make, often using high-interest credit cards. More than 60 percent say that if given the opportunity, they would change the way they used credit cards in the past — in particular, better understanding interest rates
- Are more likely to take out high-cost debt, without understanding the repayment terms. People who haven’t been taught how interest works tend to spend more on transaction fees, run up bigger debts, and incur higher interest rates on loans.
These problems only worsen when looked at through the lens of gender, race, and ethnicity. We already highlighted the disparity with race, but women are not getting the financial education they need, either. Less than 40 percent of women are financially literate – even while more than 90 percent of women have equal share or lead financial and investment decision-making for their households.
This, combined with the already-wide gaps in household wealth between these groups and white males, means that these workers are often kept even further behind when trying to achieve financial resilience.
Employers have an opportunity to help
It wasn’t that long ago that employee finances were off limits for employers, who believed it was crossing a personal line to delve into that aspect of their workers’ lives. However, times have changed and employees trust and look to their employers to put in place solutions that help improve financial literacy and overall financial health. According to our most recent data, nearly 80 percent of those workers with financial stress trust their employer to keep their personal financial situation private, and more than 70 percent say they feel their employer cares about them.
Here are a few areas to focus on:
MEASUREMENT. Helping employees understand their own baseline when it comes to their level of financial literacy is an important first step. You could encourage employees to take FINRA’s Financial Literacy Quiz, which is quick, anonymous, and available online, to see how their results compare to the national average and people in their state.
EDUCATION. While education alone can’t solve issues of financial literacy, it’s a starting point. A robust, easy-to-navigate financial education program should include resources on topics such as: how to budget, open and monitor bank accounts, set aside emergency cash, set financial goals, understand and improve your credit score, and recover from a financial setback. Ideally, materials should be available in different formats so employees can learn in the way they prefer – articles, videos, in-depth guides, calculators, etc.
COACHING AND REFERRALS. Often, people with low levels of financial literacy simply don’t know where to start. Your financial wellbeing benefits should include ways to connect employees to financial coaches and/or non-profits or governmental organizations that can help them solve their most urgent financial issues.
ACCESS TO RESPONSIBLE CREDIT SOLUTIONS: As previously mentioned, people with low levels of financial literacy are more likely to take out high-cost debt because they fall victim to predatory lenders or financial products with unclear terms or fees. Providing financial wellbeing benefits that have transparent, inclusive terms and low rates is one increasingly common way to help employees avoid the trap of high-cost debt.
The worst of the pandemic appears to be in the rearview mirror, but there is a lot for us to rebuild as employers. When thinking about the benefits and programs you can put in place to help your employees regain a feeling of balance and control, don’t forget many are in need of financial education to enjoy those sunny days ahead for us.
