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  1. 1. “ Employers Can Profit by Meeting the Educational Desires of Financially Distressed Credit Counseling Clients ” <ul><li>Financial Counseling Network </li></ul><ul><li>Fall Financial Conference </li></ul><ul><li>Orlando, FL – August 29, 2007 </li></ul><ul><li>E. Thomas Garman </li></ul><ul><li>President, Personal Finance Employee Education Foundation </li></ul><ul><li>Professor Emeritus and Fellow, Virginia Tech University </li></ul><ul><li>© Personal Finance Employee Education Foundation, Inc., 2007. </li></ul>
  2. 2. USA System of Retirement Income Security <ul><li>The metaphor is a 3-legged stool: </li></ul><ul><li>Social Security </li></ul><ul><li>Employer provided pensions </li></ul><ul><li>Personal savings </li></ul>
  3. 3. USA Retirement Finances Defined-Benefit Retirement Pensions (DB Plan = Monthly checks for life) <ul><li>Most USA workers earn Social Security Administration credits during their working years, and retirees are eligible for a SSA defined-benefit pension </li></ul><ul><ul><ul><li>Example: $1,000/month </li></ul></ul></ul><ul><li>Aged adults who never worked and those with limited income and resources are eligible for SSA-administered Supplemental Security Income defined-benefit pension </li></ul><ul><ul><ul><li>Example: $300 to $600/month </li></ul></ul></ul><ul><li>Some working employees qualify for and may receive an employer-sponsored defined-benefit pension . In 1981, 112,000 plans covered 37% of workers; now 31,000 plans cover <20% </li></ul><ul><ul><ul><li>Example: $800/month </li></ul></ul></ul>
  4. 4. USA Retirement Finances Defined-Contribution Retirement Savings Plans (DC Plan = Lump sum at retirement to manage) <ul><li>Employer-sponsored voluntary retirement plans for individually accumulated savings , such as 401(k) and profit-sharing: </li></ul><ul><ul><li>Only half of workers are employed by companies that offer a defined-contribution plan </li></ul></ul><ul><ul><li>Only 2 in 3 eligible employees join </li></ul></ul><ul><ul><li>Of those who do participate, 7 in 10 are not saving enough for a financially successful retirement (median balance is $58,000) </li></ul></ul>
  5. 5. Observation <ul><li>Financing retirement in the USA today is the sole responsibility of the employee </li></ul>
  6. 6. Realities of Saving for Retirement (All Are Negatives) <ul><li>Participation and deferral rates in USA retirement savings plans are inadequate </li></ul><ul><li>Most are not saving enough for retirement </li></ul><ul><li>Workplace education and advice programs have been less than successful </li></ul><ul><li>Millions of employees say they cannot afford to save for retirement, and 1 in 4 say credit card debt is a reason </li></ul><ul><li>Employees do not know what they don’t know </li></ul><ul><li>Employers and employees do not understand the value of paying for good help — effective workplace financial programs </li></ul>
  7. 7. “ The lack of financial literacy–spending plans, credit management, and savings—is the major reason why employees do not save for retirement”
  8. 8. Life Activities or Experiences That Apply to You Right Now* <ul><li>Questions Percent </li></ul><ul><li>Coping with a financial crisis or trying to reduce my debt 49 </li></ul><ul><li>Paying for my children’s education 22 </li></ul><ul><li>Saving for/purchasing a home 22 </li></ul><ul><li>NET (ANY OF THE THREE) 67 </li></ul><ul><li>*The Concours Group-Age Wave- Harris Interactive, The New Employer/Employee Equation , 2005. </li></ul>
  9. 9. The Financially Unhealthy <ul><li>30 million American workers— 1 in 4—report they are seriously financially distressed and dissatisfied with their personal finances </li></ul>
  10. 10. National Norms for Financial Well-Being on IFDFW Scale © (Mean=5.7; SD=2.4) 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, 2004-2007. All rights reserved. (1-4: 30%) (5-6: 28%) (7-10: 42%) (1-4: 30%) (5-6: 28%) (7-10: 42%)
  11. 11. National Norms: 30% Are Failing Financially With Scores of 1-4
  12. 12. Big Point <ul><li>“ Financially unwell employees do not make the best decisions for themselves… or their employers” </li></ul>Passive Anxious Not Engaged Confused
  13. 13. “ Employees with money problems are like sharks swimming around the workplace taking bites out of the bottom line”
  14. 14. Employers Already Know That Smoking is bad for employee health and the company’s bottom line
  15. 15. Do Employers Also Know? The same is true of employees who have money worries
  16. 16. What Does Poor Financial Literacy Cost? <ul><li>Research says, “Every time someone on your work team brings his/her money worries to the job, workplace productivity drops” </li></ul>Pay no attention to the elephant! Can you recognize a financially stressed employee? No!
  17. 17. 60+ Research Studies Prove ALL These Factors are Correlated in the Ways Expected <ul><li>Personal Finances: </li></ul><ul><li>Financial well-being </li></ul><ul><li>Financial satisfaction </li></ul><ul><li>Financial distress </li></ul><ul><li>Financial stressor events </li></ul><ul><li>Financial behaviors </li></ul><ul><li>Credit card debt </li></ul><ul><li>Credit card delinquencies </li></ul><ul><li>Job Outcomes: </li></ul><ul><li>Work satisfaction </li></ul><ul><li>Pay satisfaction </li></ul><ul><li>Absenteeism </li></ul><ul><li>Presenteeism (cutting down on normal activities) </li></ul><ul><li>Personal financial matters interfering with work </li></ul><ul><li>Work time used to handle personal finances </li></ul><ul><li>Health </li></ul>
  18. 18. 60+ Research Studies Prove Quality Financial Programs Lead To <ul><li>For Employees </li></ul><ul><li>Lower financial distress </li></ul><ul><li>Increased financial well-being </li></ul><ul><li>Adequate retirement preparation </li></ul><ul><li>Improved family relationships </li></ul><ul><li>Gains in job performance </li></ul><ul><li>For Employers </li></ul><ul><li>Higher productivity </li></ul><ul><li>Lower absenteeism </li></ul><ul><li>Better presenteeism </li></ul><ul><li>Lower turnover </li></ul><ul><li>Better employee health </li></ul><ul><li>More profits </li></ul>
  19. 19. Estimated Annual Costs of Ignoring Financial Illiteracy © <ul><li>Lost productivity $450 a </li></ul><ul><li>Health care costs (poor health) 300 b </li></ul><ul><li> Subtotal = $750 </li></ul><ul><li>Health care reimbursement (FICA) 92 c </li></ul><ul><li>Dependent care reimburse (FICA) 382 d </li></ul><ul><li>Traditional health plan choice 800 e </li></ul><ul><li>TOTAL $2,000+ </li></ul>© Personal Finance Employee Education Foundation, Inc. 2007. “ Employer cost for no action is $750 to $2,000+ per employee!”
  20. 20. How Can Employers Get These Results? <ul><li>Demand more from your current 401(k) financial education provider </li></ul><ul><li>Insist they provide a quality program that emphasizes the basics of personal finance: </li></ul><ul><ul><li>Spending Plan </li></ul></ul><ul><ul><li>Credit Management </li></ul></ul><ul><ul><li>Saving </li></ul></ul>
  21. 21. National Survey of Non-Finance Counseling Professionals* (Psychological counseling is often provided as an employee benefit) <ul><li>70% indicated that financial issues frequently arose in counseling sessions. </li></ul><ul><li>82% said budgeting and cash flow management are the most common financial issue related to marital conflict or divorce. </li></ul><ul><li>* Wiggins, “Are You Listening?” The Standard (Association for Financial Counseling and Planning Education), July 2007, 9. </li></ul>Employees with financial problems should not seek financial advice from these professionals
  22. 22. Hire Credit Counseling as a Financial Program Offered as a Employee Benefit <ul><li>Which financial program purposefully decreases employee financial distress and increases financial well-being? </li></ul><ul><ul><li>Marriage counseling? </li></ul></ul><ul><ul><li>Employee Assistance Programs? </li></ul></ul><ul><ul><li>Retirement Education Programs? </li></ul></ul><ul><ul><li>Credit Counseling! </li></ul></ul>Put an “Employer’s Only” link on your website!
  23. 23. Educational Desires of Financially Distressed Employees* (Credit Counseling Clients) <ul><li>Desired Financial Education Topics Percent </li></ul><ul><li>Budgeting/Money Management 48 </li></ul><ul><li>Saving for Future Needs 48 </li></ul><ul><li>Saving for Retirement 37 </li></ul><ul><li>Lowering Monthly Credit Payments 31 </li></ul><ul><li>Understanding IRA and 401(k) Plans 24 </li></ul><ul><li>Reducing Income Taxes 21 </li></ul><ul><li>Avoiding Costly Financial Mistakes 20 </li></ul><ul><li>Understanding Credit Scores 19 </li></ul><ul><li>*Bailey, Sorhaindo, Garman, “Educational Desires of Credit Counseling Clients,” Financial Counseling and Planning (14:1), 2003, 51-56. </li></ul>
  24. 24. Active Versus Inactive Credit Counseling Clients* (18 months later) <ul><li>Both groups showed improvements in </li></ul><ul><ul><li>good financial management behaviors </li></ul></ul><ul><ul><li>fewer financially stressful events </li></ul></ul><ul><li>Active clients exhibited greater change than the inactive group </li></ul>*Kim & Garman, “Effects of Credit Counseling and Debt Management on Financial Stressors and Financial Management Behaviors,” Journal of Family and Consumer Sciences, 2006.
  25. 25. Length of Time Spent in a Debt Management Program* “During the past 6 months how often have you experienced the following?” (9 financial stressor events were listed) <ul><li>Those reporting a reduction in the frequency occurrences of </li></ul><ul><ul><li>- negative bill-paying events </li></ul></ul><ul><ul><li>exhaustion of liquid assets </li></ul></ul><ul><li>had higher PFW scores </li></ul><ul><li>Those with longer participation in a DMP had higher PFW scores (lower financial distress/ higher financial well-being) </li></ul>*Prawitz, O’Neill, Sorhaindo, Kim, & Garman, “Financial Distress/Financial Well-Being: Do Length of Time Spent in a Debt Management Program and Reduction in Financial Distress Events Make a Difference?” Consumer Interest Annual, 2007.
  26. 26. Subsequent Borrower Behavior of Former Credit Counseling Clients* <ul><li>Substantial reductions in debt and account usage </li></ul><ul><li>Positive changes in credit profile and credit worthiness performance </li></ul><ul><li>Greatest benefits obtained by those borrowers who had the least ability to handle credit prior to counseling </li></ul>*Ellihausen, Lunquest, & Statten, “The Impact of Credit Counseling on Subsequent Borrow Behavior,” The Journal of Consumer Affairs , 2007.
  27. 27. Financial Behaviors of Credit Counseling Clients* <ul><li>Those who have significantly more “positive financial behaviors” than other clients report: </li></ul><ul><ul><ul><li>More secure retirement </li></ul></ul></ul><ul><ul><ul><li>Better family relationships </li></ul></ul></ul><ul><ul><ul><li>Higher score on self-evaluation of financial behaviors </li></ul></ul></ul>*Xiao, Sorhaindo, Garman, “Financial Behaviours of Consumers in Credit Counseling,” International Journal of Consumer Studies (29), 2005, 24-38.
  28. 28. Results for Employees From Quality Financial Program (Based on published peer-reviewed research) <ul><li>Lower financial distress </li></ul><ul><li>Increased financial well-being </li></ul><ul><li>Better health </li></ul><ul><li>Adequate retirement preparation </li></ul><ul><li>Improved family relationships </li></ul><ul><li>Gains in job performance </li></ul>
  29. 29. Financially Literate Employees Are Engaged With Money Issues <ul><li>Comparison shop </li></ul><ul><li>Achieve short, medium and long term savings goals </li></ul><ul><li>Match product selections with savings goals </li></ul><ul><li>Enjoy average to </li></ul><ul><li>above average </li></ul><ul><li> financial well-being </li></ul>Aware Active Confident Motivated
  30. 30. Big Point “ Employers do not realize they can improve profits – and prove it– by providing employees easy access to quality financial education programs to improve personal financial behaviors”
  31. 31. Both Gain …When Employers Provide Employees With Quality Financial Programs
  32. 32. Benefits of financial programs become evident when the employer benchmarks the levels of employee financial well-being. Employee Employer
  33. 33. Personal Finance Employee Education Foundation “ PFEEF Advocates Best Practices” <ul><li>Provides employers no-cost-to-use tools and expertise to detail the bottom-line benefits of quality financial programs </li></ul><ul><li>Promotes providers whose workplace programs genuinely improve employees’ personal financial behaviors and increase employer profits </li></ul>
  34. 34. Use PFW to Assess Employee Personal Financial Well-Being <ul><li>Survey employees using the Personal Financial Well-Being (PFW) scale. </li></ul><ul><li>PFW is 8-item questionnaire that measures financial distress and financial well-being. </li></ul><ul><li>PFW is a peer-reviewed valid and reliable measure (over 20 years in development). </li></ul><ul><li>Use of PFW is free with permission. </li></ul>
  35. 35. Benchmark Employee Financial Well-Being <ul><li>Survey Personal Financial Well-Being (PFW) of employees, and array scores into 5 groups (20% in each) . </li></ul><ul><li>Compare the mean scores of highest 20% group with lowest 20% on last year’s job outcomes. What are the differences? </li></ul>Human Resources can decide to do nothing. Or, do something!
  36. 36. Calculate Employer’s Projected ROI “Estimate What the Employer Can Gain By Demanding More From Financial Provider?” <ul><li>HR assigns cost values to each job outcome. </li></ul><ul><li>Estimates projected impacts of financial program on job outcomes. </li></ul><ul><li>Adds up projected savings . </li></ul><ul><li>Adds up projected financial program costs . </li></ul><ul><li>Calculates projected ROI . </li></ul>PFEEF can help prove this at no cost
  37. 37. Prove Financial Program Works (One Year Later) <ul><li>Number of employees with improved personal financial behaviors who report </li></ul>PFEEF can help prove this at no cost <ul><li>Lower financial distress </li></ul><ul><li>Increased financial well-being </li></ul>Aware Active Confident Motivated
  38. 38. Prove Value to Employers (One Year Later) <ul><li>Number of employees with improved job outcomes </li></ul><ul><li>Calculate employer’s return on investment (ROI) </li></ul><ul><ul><ul><ul><li>Review changes in job outcomes </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Add up the savings </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Add up financial program costs </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Calculate real ROI </li></ul></ul></ul></ul>PFEEF can help prove this at no cost
  39. 39. Employer Who Recognizes Problem, But Does Nothing “ You can lead a horse to water, but you can’t make it drink.”
  40. 40. Key Messages <ul><li>30% of USA employees are dissatisfied with their personal financial situations (scores of 1-4 that are less than middle [5-6]) </li></ul><ul><li>(What’s the percentage at your workplace?) </li></ul><ul><li>Employer uses PFW to survey employee financial well-being to establish baseline information </li></ul><ul><li>Checks company data to project return on investment for improving employee financial well-being </li></ul><ul><li>Hires the best provider to improve employees’ financial decision making </li></ul><ul><li>Researches one year later to prove the real bottom-line results </li></ul>
  41. 41. Conclusions on Financial Literacy and Workplace Productivity <ul><li>1. Financially illiterate adults do not manage their personal finances very well and they do not save and invest enough for a financially successful retirement </li></ul><ul><li>2. It is in the employer’s best interest—more profits—to provide employees easy access to quality financial programs </li></ul>
  42. 42. Why Offer Employees Quality Financial Programs? Ernst &Young’s William Arnone Says*: <ul><li>Legal – “insurance” against litigation (ERISA and SOX liability and CFO nightmare) </li></ul><ul><li>Bottom-line benefits – better productivity and retention </li></ul><ul><li>Human resources – attract, retain, reward, motivate the right employees </li></ul><ul><li>Benefits – facilitates benefit plan changes and behavioral changes </li></ul><ul><li>Culture – links the program to the values the company wants to instill in employees </li></ul><ul><li>Social/Moral – it is right thing to do as stewards of employee well-being </li></ul>*Delivering Financial Literacy Instruction to Adults , 2008 (Garman and Gappinger, Heartland Institute of Financial Education [ 303-597-0197] )
  43. 43. In Closing <ul><li>I leave you with the immortal words of the great baseball player, Yogi Berra, of the New York Yankees, who often fractured the English language with his truisms like: </li></ul><ul><li>“ If you don’t know where you are going, you will end up somewhere else” </li></ul>
  44. 44. Thanks!
  45. 45. Information/Footnotes <ul><li>Dr. E. Thomas Garman </li></ul><ul><ul><li>President, Personal Finance Employee Education Foundation </li></ul></ul><ul><ul><li>Professor Emeritus and Fellow, Virginia Tech University </li></ul></ul><ul><ul><li>9402 SE 174 th Loop, Summerfield, FL 34491 USA </li></ul></ul><ul><ul><li>Tele/Fax: 352-347-1345 </li></ul></ul><ul><ul><li>E-mail: </li></ul></ul><ul><ul><li>Web: </li></ul></ul><ul><li>To examine the PFW scale and read research articles about its use, see </li></ul><ul><li>New Book: Delivering Financial Literacy Instruction to Adults , Garman & Gappinger, Heartland Institute for Financial Education (303-597-0197) </li></ul><ul><li>For permission to use the PFW scale, contact Dr. Garman </li></ul><ul><li>Footnotes: </li></ul><ul><ul><li>a Based on reduced absenteeism and less work time dealing with personal financial concerns. See research and press releases at </li></ul></ul><ul><ul><li>b Conservative estimate; research underway </li></ul></ul><ul><ul><li>c $1,200 contribution to health reimbursement plan ($1,200 X 0.0765) </li></ul></ul><ul><ul><li>d $5,000 contribution to dependent care reimbursement plan ($5,000 X 0.0765) </li></ul></ul><ul><ul><li>e Employee stays in high-cost health plan instead of choosing less expensive CDHC policy (consumer driven health care) </li></ul></ul>
  46. 46. ABC Company Projected 1-Year Changes <ul><li>1. Projected 1-year changes in work outcomes: </li></ul><ul><ul><li>12% will improve job performance rating </li></ul></ul><ul><ul><li>16% fewer garnishments </li></ul></ul><ul><ul><li>16% will have reduced absenteeism </li></ul></ul><ul><ul><li>5% less turnover compared to average </li></ul></ul><ul><ul><li>10% will spend less work-time spent on personal finances </li></ul></ul><ul><ul><li>8% less short-term disability </li></ul></ul><ul><ul><li>9% lower health care costs </li></ul></ul><ul><ul><li>21% will contribute to 125-plans </li></ul></ul><ul><ul><li>5% fewer accidents/workplace violence </li></ul></ul><ul><ul><li>5% fewer thefts </li></ul></ul><ul><ul><li>10% fewer workers’ compensation claims </li></ul></ul><ul><ul><li>14% increase in contributors to 401(k) plan </li></ul></ul><ul><li>2. Next assign costs to each factor and estimate increases in work outcomes. </li></ul>
  47. 47. Summary of Projected 2.8 ROI for ABC Company* <ul><li>Program offered to 28,000 employees </li></ul><ul><li>Program impacts 30% of employees, 8,400, in varying degrees of effectiveness resulting in improved financial behaviors and job outcomes for some </li></ul><ul><li>Total value of projected improved job outcomes $4,499,000 </li></ul><ul><li>Projected cost of financial program = $1,600,000 </li></ul><ul><li>Projected ROI 2.8/1 ($4,499,000/$1,600,000) </li></ul><ul><li>* 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. </li></ul>
  48. 48. Appendix: Detail on Projected 2.8 ROI for ABC Company* <ul><li>Program offered to 28,000 employees </li></ul><ul><li>Program impacts 30% of employees, 8,400, in varying degrees of effectiveness resulting in improved financial behaviors and job outcomes: </li></ul><ul><ul><li>Garnishments (2,484 X 0.30 = 745 X $600) $ 447,000 </li></ul></ul><ul><ul><li>Absenteeism (56,000 X 0.30 X 0.10 = 1,680 X $100) 168,000 </li></ul></ul><ul><ul><li>Short-term disability (1,259 X 0.30 X $100) 37,000 </li></ul></ul><ul><ul><li>Turnover (28,000 X 0.0025% = 140 X $6,000) 840,000 </li></ul></ul><ul><ul><li>Health care costs (28,000 X 0.30 X 0.10 = 840 X $400) 336,000 </li></ul></ul><ul><ul><li>Workers’ compensation claims ($32M X 0.005) 1,600,000 </li></ul></ul><ul><ul><li>Health care spending plan (1,353 X 1 X $1,000 X 0.0765) 10,000 (cash) </li></ul></ul><ul><ul><li>Dependent care spending plan (259 X 1 X 1,000 X 0.0765) 19,000 (cash) </li></ul></ul><ul><ul><li>Job performance rating (28,000 X 0.30 X 0.05 = 420 X $2,100) 882,000 </li></ul></ul><ul><ul><li>Work-time on finances (28,000 X 0.30 X 0.05 = 420 X $167) 70,000 </li></ul></ul><ul><li>Total value of projected improved job outcomes $4,409,000 </li></ul><ul><li>Cost of financial program = $1,600,000 </li></ul><ul><li>ROI 2.8/1 ($4,409,000/$1,600,000) </li></ul><ul><li>* 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. </li></ul>