Read more (PowerPoint)...
Upcoming SlideShare
Loading in...5
×
 

Like this? Share it with your network

Share

Read more (PowerPoint)...

on

  • 390 views

 

Statistics

Views

Total Views
390
Views on SlideShare
390
Embed Views
0

Actions

Likes
0
Downloads
7
Comments
0

0 Embeds 0

No embeds

Accessibility

Upload Details

Uploaded via as Microsoft PowerPoint

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

Read more (PowerPoint)... Presentation Transcript

  • 1. “ Financial Literacy and Workplace Productivity”
    • Georgia Consortium for Financial Literacy
    • Federal Reserve Bank of Atlanta
    • Atlanta, Georgia - April 26, 2007
    • Presented by
    • E. Thomas Garman
    • Professor Emeritus and Fellow, Virginia Tech University
    • © Personal Finance Employee Education Foundation, Inc., 2007.
  • 2. USA System of Retirement Income Security
    • The metaphor is a 3-legged stool:
    • Social Security
    • Employer provided pensions
    • Personal savings
  • 3. USA Retirement Finances Defined-Benefit Retirement Pensions (DB Plan = Monthly checks for life)
    • Most USA workers earn Social Security Administration credits during their working years, and retirees are eligible for a SSA defined-benefit pension.
        • Example: $1,000/month
    • Aged adults who never worked and those with limited income and resources are eligible for SSA-administered Supplemental Security Income defined-benefit pension.
        • Example: $300 to $600/month
    • 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%
        • Example: $800/month
  • 4. USA Retirement Finances Defined-Contribution 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 half of workers are employed by companies that offer a defined-contribution plan.
      • Only 2 in 3 eligible employees join.
      • Of those who do participate, 7 in 10 are not saving enough for a financially successful retirement (median balance is $58,000).
  • 5. Observation
    • Financing retirement in the USA is fast becoming the sole responsibility of the employee.
  • 6. Realities of Saving for Retirement
    • Participation and deferral rates in USA retirement savings plans are inadequate.
    • 7 in 10 are not prepared for retirement.
    • Workplace education and advice programs have been less than successful.
    • Millions of employees say they cannot afford to save for retirement.
    • Employees do not know what they don’t know.
    • Employers and employees do not understand the value of paying for good help — effective workplace financial programs.
  • 7. A Major Reason for the Problem
    • 30 million American workers— 1 in 4—report they are seriously financially distressed and dissatisfied with their personal finances.
  • 8. 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%)
  • 9. National Norms: 30% Are Failing Financially With Scores of 1-4
  • 10. Big Point
    • “ Financially unwell employees do not make the best decisions for themselves…
    • or their employers.”
    Passive Anxious Not Engaged Confused
  • 11. “ Employees with money problems are like sharks swimming around the workplace taking bites out of the bottom line.”
  • 12. 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!
  • 13. Employer Who Recognizes Problem, But Does Nothing
  • 14. 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
  • 15. 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”
  • 16. Quality Workplace Financial Programs Rescue Employees and Employers
  • 17. One Who is Financially Literate…is Engaged in Money Issues
    • Comparison shops
    • Achieves short, medium and long term savings goals
    • Matches product selections with savings goals
    • Enjoys average to
    • above average
    • financial well-being
    Aware Active Confident Motivated
  • 18. Better Financial Behaviors Result in Desirable Work Outcomes
    • Less work time dealing with money matters
    • Fewer wage garnishments
    • Less absenteeism and short-term disability
    • Reduced turnover
    • Fewer workers’ compensation claims
    • Increased engagement with job
    • Better job performance/productivity ratings
    • Reduced health care demand
    • Reduced Social Security taxes on 125 plans
    • Fewer accidents
    • Reduced legal liability on 401(k) plan
  • 19. Estimated Annual Costs of Ignoring Financial Illiteracy ©
    • Lost productivity $450 a
    • Health care costs (poor health) 300 b
    • Subtotal = $750
    • Health care reimbursement (FICA) 92 c
    • Dependent care reimburse (FICA) 382 d
    • Traditional health plan choice 800 e
    • TOTAL $2,000+
    © Personal Finance Employee Education Foundation, Inc. 2007. “ Employer cost for no action is $750 to $2,000+ per employee!”
  • 20. Personal Finance Employee Education Foundation
    • “ Helps top management
    • — one at a time—
    • use company data to understand the bottom- line wisdom of workplace financial programs.”
  • 21. Both Gain …When Employers Provide Employees With Quality Financial Programs
  • 22. So, Prove It
    • Prove the financial program works.
    • Prove the employer’s return on investment (ROI).
  • 23. Benefits of financial programs become evident when the employer benchmarks the levels of employee financial well-being before and after implementing a financial program. Employee Employer
  • 24. Benchmark Employee Personal Financial Well-Being
    • Survey employees using the Personal Financial Well-Being (PFW) scale.
    • PFW is 8-item questionnaire that measures financial distress and financial well-being.
    • PFW is a valid and reliable measure.
    • Usage of PFW is free with permission.
  • 25. How to Benchmark and Project the Employer’s ROI
    • Survey Personal Financial Well-Being (PFW) of employees, and array scores into 5 groups (20% in each) .
    • Compare group mean scores of highest 20% with lowest 20% on last year’s job outcomes. What are the differences?
    • Assign cost values to each job outcome.
    • Conservatively estimate projected impacts of financial program on job outcomes.
    • Add up projected savings .
    • Add up projected financial program costs .
    • Calculate projected ROI .
  • 26. ABC Company Projected 1-Year Changes
    • 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. Next assign costs to each factor and estimate increases in work outcomes.
  • 27. Summary of Projected 2.8 ROI for ABC Company*
    • 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 for some
    • Total value of projected improved job outcomes $4,499,000
    • Projected cost of financial program = $1,600,000
    • 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.
  • 28. Mount Quality Financial Program
    • Deliver to all employees and focus on impacting those with low financial well-being.
    • Emphasize the basics of personal finance:
    • Money Management
    • Credit Management
    • Spending and Saving
  • 29. How to Calculate the Real ROI (One Year Later)
    • Review changes in job outcomes.
    • Add up the savings.
    • Add up financial program costs.
    • Calculate real ROI.
  • 30. Key Messages
    • 30% of USA 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?)
    • Employer uses PFW to survey employee financial well-being to establish baseline information.
    • Checks company data to project return on investment for improving employee financial well-being.
    • Hires the best provider to improve employees’ financial decision making.
    • Surveys PFW one year later to prove the real bottom-line results.
  • 31. Conclusions on Retirement and Poor Personal Finances
    • 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.
    • 2. It is in the employer’s best interest—more profits—to provide employees easy access to quality financial programs.
  • 32. In Closing
    • 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:
    • “ If you don’t know where you are going, you will end up somewhere else.”
  • 33. Thanks!
  • 34. Information/Footnotes
    • Dr. E. Thomas Garman
      • Professor Emeritus and Fellow, Virginia Tech University
      • President, Personal Finance Employee Education Foundation
      • 9402 SE 174 th Loop, Summerfield, FL 34491 USA
      • Tele/Fax: 352-347-1345
      • E-mail: ethomasgarman@yahoo.com
      • Web: www.personalfinancefoundation.org
    • To examine the PFW scale and read research articles about its use, see http://www.afcpe.org/pages/journal_abstract.cfm?journal_id=290&top_id=21 http://www.afcpe.org/pages/journal_abstract.cfm?journal_id=303&top_id=21
    • For permission to use the PFW scale, contact Dr. Garman
    • 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)
  • 35. Appendix: Detail on Projected 2.8 ROI for ABC Company*
    • 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:
      • Garnishments (2,484 X 0.30 = 745 X $600) $ 447,000
      • Absenteeism (56,000 X 0.30 X 0.10 = 1,680 X $100) 168,000
      • Short-term disability (1,259 X 0.30 X $100) 37,000
      • Turnover (28,000 X 0.0025% = 140 X $6,000) 840,000
      • Health care costs (28,000 X 0.30 X 0.10 = 840 X $400) 336,000
      • Workers’ compensation claims ($32M X 0.005) 1,600,000
      • Health care spending plan (1,353 X 1 X $1,000 X 0.0765) 10,000 (cash)
      • Dependent care spending plan (259 X 1 X 1,000 X 0.0765) 19,000 (cash)
      • Job performance rating (28,000 X 0.30 X 0.05 = 420 X $2,100) 882,000
      • 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.