EE Financial Education Increases Productivity and Plan Participation

By Matt Gnabasik, Managing Director, of Blue Prairie Group, LLC. Matt is one of the nation's most respected retirement plan consultants, having worked with hundreds of corporate, not-for-profit and government clients throughout the country. He is the founder of Blue Prairie Group, a Human Resource and Investment Consulting firm based in Chicago and the author of the 2002 award-winning book for plan sponsors, Smart Choices: Selecting and Administering a Safe 401k Plan. You may contact Matt at 312.645.1899 or matt@blueprairiegroup.com.

If you're an employer, you already know that most Americans are woefully unprepared for retirement. That's nothing new. What's really frightening is the extent to which many Americans are lacking an understanding of the most basic financial concepts, and the toll that lack of understanding takes on a company's productivity.

How does your employees' financial health affect your company? One word: stress. Take credit card debt, add the larger macroeconomic trends of a riskier workplace, throw in the overall decline in the number of Americans covered by pensions and health insurance plans, then top it off with the increase in the average length of unemployment.

What you have, is a recipe for stress and stress related illness -- absenteeism and a decline in employee productivity. This phenomenon has been documented by a number of academics across the country. Further research article on the topic can be found at www.EThomasGarman.net.

Although participating in a company-sponsored retirement plan is an obvious part of a person's path towards financial security, it's not enough. Yes, people need to join their company's retirement plan, but they also have to reduce their debt and live within their means. Further, financially distressed employees are more likely to not be contributing to their retirement plan or not contributing enough to assure a financially successful retirement.

According to Myvesta.org, a nonprofit consumer education organization website, the average amount of credit-card debt carried by individuals has risen 14.5 percent in the past year to $2,627. And credit-card use continues to grow. According to Cardweb.com Inc., the average household had 6.3 bank credit cards, 2.2 debit cards and 6.3 store credit cards in 2004. Just 15 years ago, the averages were 3.4 bank credit cards, 0.1 debit cards and 4.1 store credit cards per household.

And it's going to get worse before it gets better. As part of the just-signed Bankruptcy Legislation, most banks and credit-card issuers will increase the required minimum monthly payments over the next 12 months or so. In the future, the payments must cover all fees and interest and pay down at least some of the outstanding borrowing.

Role of Financial Education

This is where work-site employee financial education comes in. And I'm not talking about 401k education! All too often you hear people complain that they can't afford to save and although for some people that's true, for many people it's a matter of priorities. This is where good solid employee education comes in. By looking at a person's entire financial life - debt, savings, taxes, etc. and not just the 401k, you can put people on the right path. And employees are hungry for objective information and guidance.

Employee financial education is more than just doing the right thing. Not only is it a low cost, highly appreciated employee benefit, but it also leads to higher productivity. This fact has been well documented by several academic researchers. For every dollar spend on employee education.

Good education focuses on specific goals and leads to measurable outcomes such as:

Putting in place a systematic plan for reducing credit card debt.
Learning to use automatic savings plans and electronic bill pay e-bill pay to reduce late fees, manage the bill paying process and automate the savings process.
Participating in a company-sponsored retirement plan.
Protecting oneself from catastrophic events through the appropriate kind and amount of insurances.
Making sure that people have a will.

When employees are in control of their personal finances, they are far more productive. It may seem odd that we have to worry about the personal financial lives of our employees, but that's the world we live in today. Smart employers will address the need by offering this low-cost, highly visible benefit and it will pay for itself in higher productivity.

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