Bridging the gaps in financial literacy programs

April was Financial Literacy Month. Coined by the National Endowment for Financial Education, every year, April serves as a time to recognize the importance of financial literacy. It’s a necessary observance – in fact, the Global Financial Literacy Excellence Center’s most recent Annual Personal Finance Index (P-FIN Index) only saw adults answer 48% of questions correctly, showcasing the massive lack of financial literacy amongst U.S. adults.

Amid record inflation, business leaders are beginning to recognize the importance of financial wellness for their employees. Recent data from Bank of America revealed that 96% of employers view themselves as somewhat or extremely responsible for their employee’s financial well-being, and rightly so. Financial strain can have massive implications at work; a 2023 study from PWC revealed that financially stressed employees are less engaged at work, view financial stress as a distraction at work, and are twice as likely to be looking for a new job.

Though employers are often aware of these issues, according to the data from BoA, only two out of five employers offer financial wellness programs to their employees. These programs often stress the importance of financial literacy, and do little to support employees on their journey to financial health. Though financial literacy can be a powerful tool in combating financial strain, it will only take people so far – and frankly, these programs often benefit employers more than employees.

For example, financial literacy programs typically address budgeting, savings, and responsible credit use. While these are valuable skills, they don’t address systemic issues like low wages, unpredictable work schedules, or a lack of access to affordable financial products. Someone struggling to make ends meet on a low income might find budgeting advice less helpful than an immediate solution to covering bills.

There’s a marked difference between financial literacy and financial health – the former is only one aspect of the latter. When building a financial wellness program, one must look beyond the education required to achieve financial wellness and take a hands-on approach. Programs that allow people to put what they’ve learned about financial literacy into action will be the most successful. Yes, financial literacy and education are important, but alone, it does not do much to bolster employees toward financial health. Two other components should be considered in crafting a successful and engaging employee financial wellness program: (1) pay optionality and (2) emergency savings fund.

Putting the power in employee’s hands

Allowing employees to take control of their finances is necessary for achieving a successful program. This requires employers to rethink the traditional pay cycle; we must move away from the two-week pay period, and the associated benefits.

Living paycheck to paycheck is a reality for 78% of Americans. Pay optionality is a multifaceted approach to financial benefits that offers employees flexibility and control over the way they receive their earnings and can include pay options such as earned wage access (EWA), electronic tips, digital wallets, etc. These options are powerful tools that are meant to bridge the gap between paydays. Instant access to earned wages is a reality now – and employers must adapt to evolving employee demands.

Giving employees the ability to access their wages as needed allows them to cover costs, instead of having to wait until the end of the traditional pay cycle to access resources they may need immediately, such as food, gas, emergency costs, or unexpected bills. Additionally, earned wage access can even be a helpful tool in building an emergency savings fund since EWA allows one to access a portion of their earned wages before a regular payday. Instead of using EWA for immediate needs or wants, a portion of wages could be set aside for the savings fund.

Emergency savings accounts are great to have, but when facing financial strain, it can be challenging to find the funds to allocate to them. 63% of American employees are unable to cover a $500 emergency expense. What if employees were able to deduct a small amount of each paycheck to go directly into an emergency savings account and be matched by an employer, the same way that 401(k) deduction works? This way, employees are building their savings with every paycheck, and seeing the immediate benefit.

Both of these solutions not only lower the barriers of access to funds, but offer employees financial support when they need it, instead of waiting for their paycheck to come on traditional payday, or to cash out their 401(k) upon retirement.

Related: Employees want financial wellness, but what are they really asking for?

Providing a guiding hand

Providing simpler access to earned wages is important. Perhaps more important, though, is guidance to properly allocate those funds in a way that builds financial health. This is where financial literacy education comes into play, and employers should consider tools that allow employees to easily implement those learnings.

Tools that can encourage financial health come in many shapes and sizes. There are a multitude of services that provide budgeting, investing, financial planning, and wealth management out there – but most of them come at a cost. Employers should consider covering the cost of access to these services as a benefit to their employees.

In the same way that many organizations offer fitness programs and mental health services as a benefit, these services are equally as important in encouraging happy, healthy, and satisfied employees.

There is no one-size-fits-all approach or solution to implementing an employee financial wellness program. However, there is a formula: financial literacy education, reduced barriers to wages, and tools or benefits that can help mold habits that will eventually lead to financial health. When all of these components are at play, an employee financial wellness program can be a powerful tool for creating better financial futures for your employees.

Tal Clark is the Chief Executive Officer at Instant Financial.