Your employees' personal finances can change your bottom line.
An employee in financial trouble may become distracted. They may even lose out on security clearances and background checks necessary for high-level work. And, with defined benefit pension plans quickly becoming relics, employees are looking for new ways to help secure their futures.
For instance, the number of Millennial workers in the US who consider "not being able to retire when I want to" as a top financial concern is rising, according to an annual PwC survey. Workers in all age ranges have other concerns, such as savings for emergency expenses, the inability to pay monthly bills on time, and falling further into debt.
"I don't know how anybody could be truly focused on their job if they're worried about foreclosure or repossession of their home or car," said Ernie Almonte, CPA, CGMA, a partner at US firm RSM and former chairman of the American Institute of CPAs. "As an employer, it's in your best interest to help your people get their finances in order — not only does your willingness to help make you a more appealing employer to prospective new hires, it also removes a weighty mental distraction, allowing your staff to concentrate on the work you need them to do. Help your employees refocus on improving your bottom line by removing the worry of their own bottom line."
Make yourself a resource
Almonte previously worked as the auditor general for the US state of Rhode Island. Over 16 years, he built up a rapport with state employees, sharing his financial expertise at regular, informal lunch meetings.
The topics ranged from personal budgeting to credit card debt and home loans. It was a personal effort that drew on Almonte's skills and interest — but he also worked to make it part of the organisation's culture.
He aimed to break the taboo that keeps people from talking about money and ingrains bad habits. And the advice, he said, doesn't need to be complicated: Save early. Compare prices. Set budgets.
Data from the UK's Office for National Statistics show that 45% of workers contributed less than 1% of eligible earnings to a workplace pension. And while in the UK minimum pension requirements will rise in April 2019 for workers who are auto-enrolled in workplace pension schemes, some workers have opted out because they feel that the current minimum is already too much to contribute to a far-off goal such as retirement.
Experts believe that companies should play a larger role in making sure employees understand why contributing early and often can help increase the likelihood of an on-time retirement.
Research the world over shows workers are negatively affected by financial stress. A Canadian survey shows that employees worried about money are less able to focus on career goals, are less able to communicate effectively, and request more time off to take care of personal, legal, and medical matters. A US survey showed that 40% of workers are concerned about making ends meet. The percentage of workers who are confident in having sufficient resources to retire is in decline, a global survey by Willis Towers Watson shows.
Calibrate for persuasion
The key word in "personal finance" is personal. It's ultimately the employee's choice. Even so, company leaders can nudge staff towards better financial health. One crucial opportunity comes during the enrolment process for employee savings or pension plans.
Enrolment documents sometimes suggest a "default" rate — 3% in many cases, according to academic research published with backing from Voya Financial. They tend to choose lower rates out of fear that workers will be "intimidated" by higher rates, according to Shlomo Benartzi, Ph.D., a University of California, Los Angeles (UCLA) Anderson School of Management professor who contributed to the research.
In fact, the research indicates that employers can and should suggest higher rates. Employees tend to listen when the defaults are set at higher levels. A simple suggestion could result in $57,000 in additional long-term savings for an employee making $70,000, the study found.
American Express is among the companies embracing that strategy. The company recently increased its matching contribution rate for US employees from 5% to 6% of eligible compensation to encourage increased savings, and it automatically increased deferrals up to 10% of eligible pay for employers who were enrolled in its retirement plan. American Express also drives enrolment by checking in yearly with employees who have chosen not to enrol or take advantage of the full match offer.
"We've had great success, with approximately 20% subsequently enrolling or increasing their contribution rate," said Barbara Kontje, director, Retirement Americas and Smart Saving at American Express.
Go beyond retirement
In recent years, American Express has formalised its financial wellbeing support under a corporate brand called Smart Saving, driven largely by human resources.
"When we introduced Smart Saving, we initially focused on helping our employees in the US plan for retirement," Kontje said. "Today, our programme has evolved into a global initiative with financial management resources not just focused on retirement, but also everyday finances."
The programme provides independent financial coaches who can help with everything from basic spending to estate planning. American Express also offers education and resources related to student loan debt, insurance, and more.
The company tailors the programme's message for various employee groups, including Millennials, veterans, women, and minorities. These groups can request information on particular financial questions and even collaborate to host wellbeing events.
A pre-retirement programme for employees aged 50 and older combines webinars, virtual meetings, and one-on-one sessions into a five-week plan.
A company can do more than offer retirement planning advice to encourage financial wellbeing, said Laura Felice, CPA, CGMA, senior vice-president and controller of BJ's Wholesale Club Inc., a US retailer with more than 25,000 employees.
BJ's gives employees incentive debit cards as a reward for getting certain annual medical services, she said. In planning its 2018 budget, the company elected to keep medical costs flat for employees.
That's in addition to regular webcasts, email campaigns, and other reminders about financial wellness. For instance, the company sends email reminders that serve to keep employees thinking about saving. An email might ask "How are you doing?" on saving, or "Is it time to increase your contribution rate?" BJ's also offers a tuition reimbursement programme for employees looking to further their education, and it has an employee assistance programme, administered by a third party, that offers help with financial planning, career development, and stress management. (See "3 Ingredients for Greater Financial Wellness," below, for Felice's tips for companies that want to create a financial wellness initiative.)
"Financial health and wellness takes off some of the stress, we think, which ultimately helps our team members be better employees," Felice said.
Wait for change
Employees may be most open to financial guidance during times of personal change. Almonte, for example, made sure to engage with new employees.
"We hired a lot of people for whom this was their first full-time job. I used to tell them, "'Look, you just went from basically zero income to a $50,000 job,'" Almonte said. "It's probably one of the biggest salary jumps you're ever going to have. You're already used to getting by on a lot less money, so why not act like you're only making $45,000 and save the rest? You're still making $45,000 more than you were last week."
In a way, he was following a well-proven marketing strategy: People rarely change their spending habits, except during times of personal growth and change, according to UCLA research cited in The New York Times. By making his suggestion when employees had significant new income to spend, he amplified his advice.
Yet for all the power of suggestion, the choice must remain with the employee. "You should never get into financial trouble because of ignorance," Almonte said. "There's a lot of information and resources out there to help you. Do your homework and ask for help."
And when he finished his time as auditor, he found that many of his employees had made the right choice. They had money in the bank, and they thanked their boss for it.
A little bit of knowledge often piques workers' curiosity, and they begin to take charge of their finances.
"We see evidence of this time and time again," said Nathan Long, a senior pension analyst at investment services firm Hargreaves Lansdown in the UK. "If you can provide [employees] help, they latch on. They crave the confidence to make sensible decisions about their future."
3 ingredients for greater financial wellness
Paying a competitive salary and benefits is one way to attract and retain workers. Education about financial matters such as retirement savings or managing debts is another way to keep workers engaged.
Laura Felice, CPA, CGMA, senior vice-president and controller at BJ’s Wholesale Club in Westborough, Massachusetts, offers three tips for companies that want to get started on financial wellness initiatives:
- There must be executive support for financial wellness programmes and a willingness to explain terms. “The executive or executive team must understand the importance, or it doesn’t work,” Felice said. Members of the C-suite are far more likely to be well-versed on financial matters, so they shouldn’t take for granted that all terms that they understand would be understood by the entire workforce. “Not everyone understands the value of ‘employer match’, for example,” Felice said, referring to the contribution by an employer to a defined contribution plan, or the tax implications of withdrawing retirement money early.
- A leader’s words can go only so far; allocating money and other resources for financial education is necessary to ensure such programmes maintain momentum. Prioritising financial wellness as a strategy can build a more productive, happier workforce.
- Third is education. Once financial wellness initiatives begin to become ingrained in a company’s culture, the better off a workforce will be. “The more employers can encourage employees to use the services on an ongoing basis, the more positive the outcome, as studies continue to show that those who engage in financial planning on a continuous basis are far better off than those who do not,” according to PwC’s 2018 Employee Financial Wellness Survey.
“Why Employers Should Help Workers Improve Their Financial Health,” FM magazine, 20 January 2017
Andrew Kenney is a freelance writer based in the US. To comment on this article or to suggest an idea for another article, contactNeil Amato, an FM magazine senior editor, at Neil.Amato@aicpa-cima.com.