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  1. 1. Increase the Bottom Line by Helping Distressed Employees During Challenging Financial Times Presented by E. Thomas Garman to SHRM • Webcast • August 6, 2008
  2. 2. Employee Personal Finances and the Bottom-line <ul><li>Financially Illiterate adults do not manage their personal finances very well… </li></ul><ul><li>And they do not save and invest enough for a financially successful retirement. </li></ul><ul><li>THIS contributes to lower productivity as well as higher health care costs. </li></ul>
  3. 3. Employers Often Recognize These Issues… But Do Nothing. “ You can lead a horse to water, but you can’t make it drink.”
  4. 4. <ul><li>Employee Personal Finances </li></ul><ul><li>Employer Bottom Line </li></ul>Let’s Talk About…
  5. 5. <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>Employee Personal Finances USA System of Retirement Income Security
  6. 6. <ul><li>Most USA workers earn Social Security Administration credits during their working years and retirees are eligible for a SSA pension • Average today: $963 per month </li></ul><ul><li>Aged adults with limited income and resources may be eligible for SSA-administered Supplemental Security Income pension • Average today: $466 per month </li></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% • Average corporate pension today $641 per month) </li></ul>Defined-Benefit Retirement Pensions (DB Plan =Monthly checks for life)
  7. 7. <ul><li>Only 51 million of today’s 108 million full-time workers save for retirement in any DC plan </li></ul><ul><li>Only 14% of eligible workers contribute to IRA accounts </li></ul><ul><li>Of the 58 million who have access to employer-sponsored voluntary retirement plans: • Only 2 in 3 eligible employees join DC plans • Many are not saving enough for a financially successful retirement </li></ul>A “median” balance means half have saved less! Defined-Contribution Retirement Savings Plans (DC Plan = Lump Sum at Retirement to Manage) Average balance: $58,000 Median balance: $19,000
  8. 8. <ul><li>Financing retirement in the USA today is the sole responsibility of the employee </li></ul>Observation
  9. 9. <ul><li>Participation in and deferral rates to 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 underutilized </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 how to help themselves </li></ul><ul><li>Employers do not understand the value of providing their employees easy access to the best mix of quality financial programs </li></ul>Employee Personal Finances Retirement Saving Realities
  10. 10. “ Financial Literacy” is knowledge about • Spending Plans • Credit Management • Savings AND The lack of financial literacy is the major reason why employees do not save for retirement BIG POINT
  11. 11. <ul><li>30 million American workers–1 in 4 – report they are seriously financially distressed and dissatisfied with their personal finances </li></ul>Financially Unhealthy Employees
  12. 12. 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, 2004-2008. All rights reserved. (Mean=5.7; SD=2.4) (1-4: 30%) High distress (5-6: 28%) (7-10: 42%) Low distress National Norms for Financial Wellness on PFW Scale © 1 2 3 4 5 6 7 8 9 1 0 5.4 6.9 8.2 9.2 14.5 14.2 13.8 12.2 11.4 4.2 0 . 0 2 . 0 4 . 0 6 . 0 8 . 0 1 0 . 0 1 2 . 0 1 4 . 0 1 6 . 0 Percentage
  13. 13. 30% Are Failing Financially! (Scores of 1-4)
  14. 14. <ul><li>Recent Gallup survey (May 08) </li></ul><ul><ul><li>Over 80% are worried about their personal finances and think the financial times will get worse </li></ul></ul><ul><li>More news (April 08) </li></ul><ul><ul><li>401(k)s are being tapped to save homes </li></ul></ul><ul><ul><li>$4 gas is a reality; $5 may be next </li></ul></ul>Employee Personal Finances
  15. 15. <ul><li>Credit Card Delinquencies — Highest in 16 years (American Bankers Association) </li></ul><ul><li>Credit Card Losses — $100 billion in 2008 (10% of all cards) (Goldman Sachs) </li></ul><ul><li>Housing Foreclosures – 11% in crisis! </li></ul><ul><ul><ul><li>2.4 million borrowers foreclosed, in foreclosure or will be in 2008 </li></ul></ul></ul><ul><ul><ul><li>6.35% now 30-days behind in mortgage payments </li></ul></ul></ul><ul><ul><ul><li>Home prices declined 25% since 2006 </li></ul></ul></ul><ul><ul><ul><li>30% of the nation’s 51 million homeowners have negative equity (US News & World Report, 4-21-8) </li></ul></ul></ul>Employee Personal Finances (June 2008 data and reputable predictions)
  16. 16. <ul><li>Credit card payments ($2-6K) $100-$200 month </li></ul><ul><li>Vehicle payments ($15K) $400-$500 month </li></ul><ul><li>College loan payments ($30K) $400-$600 month </li></ul><ul><li>Child-care ($5-$21K) $400-$1200 month </li></ul><ul><li>Mortgage loan payments $ </li></ul><ul><li>Property taxes $ </li></ul><ul><li>Homeowner’s insurance $ </li></ul><ul><li>AND . . . ½ of all adults DO NOT budget! </li></ul>Don’t give employees a raise! Offer help with money management challenges. Employee Personal Finances “60% Live Paycheck-to-Paycheck” and Do Not Save Enough for Retirement
  17. 17. <ul><li>“ Financially unwell employees do not make the best decisions for themselves… or their employers” </li></ul>BIG POINT
  18. 18. Research shows: 30-80% of ALL workers waste time at work on money issues How much time? 12 – 20 hours per month Employee Personal Finances
  19. 19. “ Employees with money problems are like sharks swimming around the workplace taking bites out of the bottom line”
  20. 20. <ul><li>Research says, “Every time someone on your work team brings his/her money worries to the job, workplace productivity drops” </li></ul>Employers ignore the elephant Employer Bottom Line
  21. 21. <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>Research Proves ALL These Factors are Correlated in the Ways Expected
  22. 22. <ul><li>Employees with financial distress report poor health. f </li></ul><ul><li>Financially distressed employees have worse health than other workers. g </li></ul><ul><li>40 to 50% of financially distressed workers report that financial problems caused their health woes. h </li></ul><ul><li>Positive changes in financial behaviors are related to improved health. i </li></ul>Research Shows that Health and Personal Finances are Correlated
  23. 23. <ul><li>Lost productivity $450 a </li></ul><ul><li>Health care costs (poor health) 300 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 (CDHC) 800 e </li></ul><ul><li>TOTAL $2,000+ </li></ul>© Personal Finance Employee Education Foundation, 2008. “ Employer cost for no action is $750 to $2,000+ per employee!” Estimated Annual Costs of Ignoring Financial Illiteracy ©
  24. 24. Quality Workplace Financial Programs Rescue Employees and Employers Bottom Line
  25. 25. “ Employers do not realize they can improve profits – and prove it– by helping employees improve personal financial behaviors” BIG POINT
  26. 26. <ul><li>Salary increases? No </li></ul><ul><li>Bonuses? No </li></ul><ul><li>Most retirement education workshops? No </li></ul><ul><li>Marriage counseling? No </li></ul><ul><li>Employee Assistance Programs? No </li></ul>What does not reduce employee financial distress and increase financial wellness?
  27. 27. <ul><li>Employers Who Provide Employees Easy Access To Quality: </li></ul><ul><ul><li>Basic financial education </li></ul></ul><ul><ul><li>Credit counseling </li></ul></ul><ul><ul><li>Benefits information/education </li></ul></ul><ul><ul><li>Credit union </li></ul></ul><ul><ul><li>Retirement education </li></ul></ul><ul><ul><li>Financial advice </li></ul></ul><ul><ul><li>Financial coaching that changes behaviors </li></ul></ul>Bring together the basic financial resources to truly help employees. What DOES reduce financial distress and increase financial well-being?
  28. 28. <ul><li>Comparison shop </li></ul><ul><li>Achieve savings goals </li></ul><ul><li>Enjoy average to above average financial well-being </li></ul>Financially Literate Employees are Engaged with Money Issues
  29. 29. <ul><li>Demand more from your current financial program providers </li></ul><ul><li>Insist one provides leadership to deliver a coordinated quality program that emphasizes the basics of personal finance: • Spending Plan • Credit Management • Saving </li></ul>It’s not a matter of money spent on financial education — it’s a matter of effectiveness! How Can Employers Save $750 - $2,000+?
  30. 30. <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>Results from Quality Financial Programs
  31. 31. <ul><li>Provide employers no-cost-to-use tools and expertise to detail the bottom-line benefits of quality financial programs </li></ul><ul><li>Identify companies whose workplace programs genuinely improve employees’ personal financial behaviors and increase employer profits </li></ul>Personal Finance Employee Education Foundation “PFEEF Advocates Best Practices”
  32. 32. <ul><li>Return on Investment (ROI): The Personal Finance Employee Education Foundation expects employers typically will receive a ROI of 3:1 annually for quality financial programs. </li></ul>The ROI for Quality Workplace Financial Programs Example: If an employer/employee invests $250 for financial programs, the ROI would be $750!
  33. 33. <ul><li>Assign cost values to key job outcomes </li></ul><ul><li>Estimate projected impacts of financial program on job outcomes </li></ul><ul><li>Add projected savings </li></ul><ul><li>Add projected financial program costs </li></ul><ul><li>Calculate employer’s projected ROI </li></ul>PFEEF can help with this effort. Developing the Employer’s ROI “How many dollars can employer gain by demanding more from financial providers?”
  34. 34. <ul><li>Survey employees using the Personal Financial Wellness (PFW) scale </li></ul><ul><li>PFW is an 8-item online questionnaire that in 3-4 minutes measures financial heath </li></ul><ul><li>PFW is a peer-reviewed, published, valid and reliable measure (over 20 years in development) with national norms </li></ul><ul><li>Use of PFW is free with permission </li></ul>PFEEF can help with this effort at no cost. Use PFW to Benchmark Employee Financial Health
  35. 35. <ul><li>Create for employers an ROI projection for an employer advancing a quality financial program with a single online collection of Personal Financial Wellness (PFW) scores </li></ul><ul><li>Create an employer-specific projected ROI using company supplied cost figures </li></ul><ul><li>Prove the genuine ROI one year later using employer provided data </li></ul>PFEEF can: PFEEF Researches Employers Return on Investment (ROI) PFEEF can help employers with this effort.
  36. 36. <ul><li>30% of employees report poor personal finances (scores of 1-4 that are less than middle [5-6]) (What’s the percentage at your workplace?) </li></ul><ul><li>Ask employees to complete online &quot; Financial Health Checkup ” (8 questions in 4 minutes) </li></ul><ul><li>Employer insists that providers improve employees’ financial decision making </li></ul><ul><li>PFEEF projects ROI for quality financial program with one data collection (no cost to employers) </li></ul>KEY MESSAGES
  37. 37. <ul><li>It is in the employer’s best interest— more profits —to provide employees easy access to quality financial programs </li></ul>Conclusion About Employee Financial Literacy and Employer Profits It also is the right thing to do as stewards of employee well-being!
  38. 38. Thanks!
  39. 39. Information <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: info@pfeef or </li></ul></ul><ul><ul><li>Web: </li></ul></ul><ul><li>To examine the PFW scale and research articles about its use, see </li></ul><ul><li>New Book: Delivering Financial Literacy Instruction to Adults , Garman & Gappinger, Heartland Institute of Financial Education (303-597-0197) </li></ul><ul><li>For free permission to use the PFW scale, fill out online form </li></ul>
  40. 40. <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><ul><ul><li>f Bagwell & Kim, 2008; Drentea, 2000; Drentea & Lavrakas, 2000; Garman et al, 2004; Genco et al., 1999; Garman et al., 2007;l Jacobson et al., 1996; Lyons & Yilmazer, 2005; Kim, Sorhaindo, & Garman, 2004; Prawitz et al., 2007; Shatwell et al, 2007. </li></ul></ul><ul><ul><li>g Kim, Sorhaindo, & Garman, 2003; Prawitz et al, 2007; O’Neill et al, 2005 (2 articles); Sorhaindo & Garman, 2002. </li></ul></ul><ul><ul><li>h Garman et al, 1999; Kim, Garman, & Sorhaindo, 2003 (AFCPE and ACCI); Kim, Sorhaindo, & Garman, 2004; O’Neill et al, 2006; Weisman, 2002. </li></ul></ul><ul><ul><li>i Kim, Garman, & Sorhaindo, 2003 (AFCPE and ACCI); O’Neill et al, 2006; O’Neill et al, 2005 (2 articles). </li></ul></ul>Footnotes
  41. 41. Details are provided in the 2008 book Delivering Financial Literacy Instruction to Adults , Heartland Institute of Financial Education by E. Thomas Garman and Alan J. Gappinger. See table of contents at ISBN#978-9-9792115-0-8 $60 plus shipping. To order call 303-597-0197 (Heartland) or order through Heartland’s website Appendix PFEEF Approach to ROI Calculations
  42. 42. Summary of 1-Year 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 a range of improved financial behaviors and job outcomes </li></ul><ul><li>Total value of projected improved job outcomes = $4,225,788 </li></ul><ul><li>Projected cost of financial program = $1,500,000 </li></ul><ul><li>Projected ROI 2.8/1 ($4,225,788/$1,500,000) </li></ul><ul><li>*These projected ROI calculations are based on research and experience. The numbers are reasonable and are based on conservative assumptions. Projected ROI calculations are not guarantees. </li></ul>
  43. 43. Projected 1-Year Changes in Work Outcomes for ABC Company <ul><ul><li>Fewer garnishments </li></ul></ul><ul><ul><li>Less absenteeism </li></ul></ul><ul><ul><li>Less short-term disability </li></ul></ul><ul><ul><li>Reduced turnover </li></ul></ul><ul><ul><li>Lower health care costs </li></ul></ul><ul><ul><li>Fewer workers’ compensation claims </li></ul></ul><ul><ul><li>Employer FICA savings for more employees in health care spending plan </li></ul></ul><ul><ul><li>Employer FICA savings for more employees in dependent care spending plan </li></ul></ul><ul><ul><li>Improvements in job performance </li></ul></ul><ul><ul><li>Less work-time spent on personal finances </li></ul></ul><ul><ul><li>Factors that could be in the PFEEF ROI calculation that would increase the benefits over the costs but are not included are: fewer accidents, less workplace violence, less substance abuse, fewer thefts, increased participation in 401(k) plan, fewer payroll advances, fewer loans from 401(k) plans, reduced health care premiums because employees select alternative high deductible plan, increase in job engagement, improved morale, reduced human resource department costs, and reduced 401(k) plan fiduciary liability. </li></ul></ul>
  44. 44. Projected 2.8 ROI for ABC Company* (Details) <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 $378,000 </li></ul></ul><ul><ul><li>Absenteeism 168,000 </li></ul></ul><ul><ul><li>Short-term disability 31,500 </li></ul></ul><ul><ul><li>Turnover 840,000 </li></ul></ul><ul><ul><li>Health care costs 252,000 </li></ul></ul><ul><ul><li>Workers’ compensation claims 160,000 </li></ul></ul><ul><ul><li>Health care spending plan 385,560 (cash money) </li></ul></ul><ul><ul><li>Dependent care spending plan 514,080 (cash money) </li></ul></ul><ul><ul><li>Job performance 1,370,628 </li></ul></ul><ul><ul><li>Work-time spent on personal finances 126,000 </li></ul></ul><ul><li>Total value of projected improved job outcomes $4,225,788 </li></ul><ul><li>Cost of financial program = $1,500,000 </li></ul><ul><li>ROI 2.8/1 ($4,225,788/$1,500,000) </li></ul>* 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 could be included.