Since the 1980s there has been a shift in the group retirement world that has moved the responsibility for choosing and managing investments from the employer to the employee. Unfortunately, financial literacy rates in Canada haven’t increased in line with the increased responsibility. As a result, it’s estimated that less than a third of adults in Canada are confident in their ability to make the right financial decisions for themselves and their families.
In a 2009 research study, Annamaria Lusardi, suggests that there are two ideal venues for financial education: our schools and our workplaces. This makes sense when you consider that, on any given weekday, most Canadians can be found either in school or in the workplace which makes it easier to deliver the information. This means that employers and educators have a unique opportunity to impact the lives of others through arranging and/or facilitating financial education sessions. While some employers are understandably reluctant to allow education sessions on company time, there is plenty of research to suggest that, if it is done well, the ROI on financial education at work is considerable. Increased employee morale and productivity as well as higher levels of attraction and retention of long-standing employees are just a few of the benefits that financial education offers:
Employers benefit because:
- Employees tend to be more productive and suffer from less financial stress.
- Employees have a better idea of when they are likely to retire, making workplace succession planning easier.
- Employees want financial education and they see value in the employer providing it.
Employees benefit because:
- They are more informed and have a stronger understanding of personal finance, investing and taxes.
- Financial education can be a “reality check” that encourages saving.
- Better financial literacy tends to lead to improved financial security.
In order to be effective however, financial education at work needs to be more than just an information session that only outlines the features of the workplace savings plan and offers instructions on how to complete the necessary paperwork. This type of session is common but it does little to address the fact that, what most employees are desperate for is reliable information which provides them with the knowledge and confidence to manage their personal finances and plan for retirement.
Rather than just offering “benefit education” that focuses solely on how to enroll in the plan, employers need to offer comprehensive financial education programs that cover a variety of personal finance concepts. Workplace education programs are most effective when they feature multiple sessions on topics such as money management, debt management and retirement planning rather than just a single, “one-off” session. Lusardi’s study shows that workplace programs offering multiple sessions on a variety of topics are far more effective, especially when it comes to groups that traditionally have the lowest levels of literacy such as women and those in the poorer socio-economic groups. Interestingly, these also tend to be the groups who are most receptive to the sessions.
Offering face to face meetings with a qualified industry professional (preferable an individual who has no interest in soliciting employees as personal clients) as well as group sessions has been shown to be particularly effective in increasing both financial literacy and personal savings rates. Employees who are given the opportunity to meet one on one with an advisor, have been shown to have higher rates of participation in workplace plans and higher savings rates. They are also are more likely to commit all or part of their future salary increases and bonuses to their workplace savings plan. Each of these factors contributes to creating a more educated employee, greater financial stability and a brighter financial outlook in retirement.
With so many changes in the financial industry over the past few years, so many different savings and investment vehicles currently available and so many opportunities to spend rather than save, it’s no wonder that many Canadians feel out of their depth when it comes to managing their personal finances. Offering quality financial education at work doesn’t have to be complicated or expensive for employers. Focus on finding an advisor with a sincere desire to help others and an interest in demystifying the world of saving and investing. Then, let their expertise bring added value to your plan and your employees.