Teaching Employees The Financial Facts Of Life

Bart Helton’s household finances were confused by a bunch of factors, including student debts, sparse savings and a budgeting style that was vastly different from his wife’s. So, when Helton’s employer, True Homes USA, offered him $250 to take a company-paid financial-planning course online and complete it within a year, he jumped at the opportunity. And it paid off in ways he hadn’t imagined.

“We finally started putting aside some money for a honeymoon after almost 27 years of marriage,” says the 56-year-old help desk technician for the Monroe, North Carolina-based home builder. “And we were able to go to Hawaii for eight days and seven nights last year.”

Les Gleaves, the company’s executive partner, says the company’s program has had a “life-saving impact” for some employees. “People who didn’t have their finances under control now have a handle on them and understand them,” says Gleaves. “We’ve had people paying off car loans and setting up rainy-day funds; it’s created great discipline.”

Such anecdotes help explain why an increasing number of U.S. companies are extending “financial literacy” benefits to their employees to help them more wisely manage, spend, save and invest the money they’re already earning.

More than 4,000 client companies with a total of  more  than two million employees, including Costco, have engaged Dave Ramsey’s SmartDollar program over the last several years, for example. And 200-plus companies have contracted SunTrust Financial to teach its Momentum onUp program, up from only a dozen just three years ago. One of the newest providers is BrightPlan, a lender that has veered into the financial literacy space.

“One of our goals is to be a No. 1 place to work,”  says Kevin Greiner, CEO of Gas South, a mid-market utility based in Atlanta. “So we’re looking at needs and financial stresses that we see even as an employer. We felt there was a need for a service around building financial confidence.”

PROGRAM PAYOFFS

“Fin lit” can be a helpful way for employers to engage the financial insecurities that many rank-and-file Americans feel despite a robust economy and record employment. Programs can help companies hold on to their workforces. They’re said to boost productivity and cut healthcare costs because employees are less stressed personally.

BlackRock CEO Larry Fink called out the problem of Americans’ financial insecurity and illiteracy in his widely read annual letter to shareholders last year, which said that workers’ “lack of preparedness for retirement is fueling enormous anxiety and fear, under- mining productivity in the workplace and amplifying populism in the political sphere.”

His recommendation? “Companies must embrace a greater responsibility to help workers navigate retirement, lending their expertise and capacity for innovation to solve this immense global challenge,” Fink wrote.

Even a financial services outfit has found value in helping its employees with financial literacy. “We’re a bank, so we thought our employees would be much more advanced than not in thinking of setting up an emergency fund,” says Joseph Rizzuto, administrative vice president of retirement programs for M&T, a bank holding company headquartered in Buffalo. “Then folks from [investment firm] T. Rowe Price told us they have a program, and that was a two-by-four to the head for us.”

Financial literacy curricula are online and provide modules that cover topics such as budget making and keeping, establishing an emergency fund, reducing debt, saving for current expenses and retirement, and affording big life phases such as buying a home and paying for kids’ college educations and weddings. Check out The Children’s ISA for more information on how to start children’s savings and financing. Content includes quizzes, expert lectures and the stories of successful students. The programs track progress and may integrate an individual’s entire financial portfolio. They typically cost companies roughly $10 to $30 a month per employee, plus any signing or completion bonuses employers offer.

Both providers and clients describe big paybacks for employees. M&T, for example, so far has tallied a “financial turnaround” amounting to $5.1 million, which represents the sum of resulting debt reduction and savings increases by employees. Using a similar formula, Nashville-based Ramsey says that the average Smart-Dollar participant experiences a turn- around of $16,200 in the first year. San Jose, California-based BrightPlan says there’s a three-dollar return in hard savings by employees for each dollar invested by one of its client companies.

The need—and CEOs’ responses–came  up in the rearview mirror because the U.S. economy has been humming lately and at least growing minimally for a decade now. “But during the last recession, people woke up to the need to be financially literate, things were so bad,” says Brian Ford, who created the financial literacy program used by Atlanta-based SunTrust and is now the financial wellness executive for the banking giant. “There was a psychological aspect to their desire to be better and not make the same mistakes again.”

THE COMING STORM

Indeed, a number of frightening statistics attest to the financial burdens Americans still carry and to the insecurities they still feel. Consumer debt is at a record inflation-adjusted $4 trillion, not including mortgages. Auto debt is up nearly 40 percent in the past decade. The cost of living keeps rising, of course. Meanwhile, about half of Americans don’t have any money for an emergency. Many are filching from their 401(k)s. And millions confront the scourge of student debt (see sidebar below).

Yet, despite decades of concern, there remains little financial literacy education for young people. Just 19 states require a personal-finance class for high-school kids to graduate, and that’s only after a recent spurt of new legislation. More than half the students at Georgia Tech University lack fundamental knowledge of savings, investing and compound interest rates, says business professor Jonathan Clarke, who teaches Personal Finance 101 at the school.

Millennials are the focus of the problem, as the most populous generation and the backbone of today’s American workforce. They also tend to be the shakiest when it comes to money, beyond the mere tendency for humans to get more financially responsible as they age. For one thing, their boomer parents aren’t credited with doing a great job of teaching them to become financially literate.

“For millennials, there’s an added issue similar to what happened to the Great Depression generation: They lived through a period of time when they saw their parents maybe lose half of their 401(k) or lose their house or have to delay retirement,” says Brad Klontz, co-founder of the Financial Psychology Institute. “So they have a deep distrust of financial institutions and traditional investment vehicles. They’re saving even less and putting less toward 401(k)s and the stock market.”

Yet, the problem “cuts across all employee demographics, whether you earn $50,000 or $300,000,” says BrightPlan CEO Marthin De Beer. About 46 percent of employees participating in a survey cited by BrightPlan said personal finance is their No. 1 source of stress and that they spend three to four hours a week dealing with those issues while at work.

So, in this regard, it’s logical for employers to provide help. “Work is where their pay and benefits come from—why not, from that same source, learn how to manage their pay and benefits?,” says Ford. At the same time, M&T has even found that employees are willing to impinge on personal time to take advantage of a fin-lit benefit.

The company got Ramsey to design a customized webinar that M&T presents in live webcast at 6 in the evening, “so employees can go home and watch it on their iPads and be able to discuss it with their spouse or partner or children,” Rizzuto says.

THE NEW LUNCHTIME YOGA

Now, financial wellness is emerging as a hot benefits perk on the back of the physical wellness movement by companies over the past 25 years. “For someone to be at peak performance is a matter of health, wellness and a positive work environment,” says Ken Huesby, CEO of Hillhouse Construction, mid-market general contractors headquartered in San Jose, California. “But what we can’t always control is the home. So, how could we improve the work performance and environment while reaching into the home in a positive, non-intrusive way, and in that way reduce distractions because the person is feeling financially secure? Let [employees] understand they’re getting some kind of benefit here and let us help architect their financial future.”

Indeed, workers tend to step up to the opportunity. More than 150 of Gas South’s 225 employees have at least started Momentum onUp, and more than 60 have earned the $200 completion bonus. About 100 of True Homes’s 250 employees signed up right away, with the promise of a $250 “emergency fund” bonus to those who complete the course. Nearly a quarter of M&T’s 17,000 workers have enrolled in SmartDollar, even without a monetary bonus, although for 2020 the company plans to add financial incentives such as contributions to an employee emergency fund or a health savings account.

Participation rates are typically about 20 to 30 percent for employees at large companies, maybe 50 percent for employees of mid-size companies and up to 70 or 80 percent for small companies. Ford credits Momentum onUp for nearly doubling the number of employees at the average company who do home budgeting, to about 80 percent, and the number who set up emergency spending funds, to about 90 percent. Participants end up boosting contributions to their retirement accounts by about 35 percent on average.

Hodges-Mace used Momentum onUp, made initial meetings mandatory and saw the average participant add $2,500 to their emergency fund and reduce debt by $516 in the first month. “People kind of had their heads in the sand about credit card debt and interest,” says Peter Mace, co-CEO of the employee-benefits consultancy that employs about 280 people in Atlanta. “It’s a big number for folks. These are real-world problems people face.”

Is Their Debt Your Problem?

THE $1.56 TRILLION AMERICANS are carrying in education-related debt is major ballast in our national indebted- ness, a huge drag on the economy and depressing grist for politicians. Most important, for millions of workers, it’s an individual albatross that fuels financial insecurity and skews everything from what kind of job they take to whether and when they get married.

Helping employees with student debt is becoming a component of talent management. Survey data suggests 90 percent of young workers would commit to a company for five years if it gave them some loan relief, and that workers with student debt stay at their jobs 36 percent longer if employers help pay off loans. According to American Student Assistance, 23 percent of employers are considering such programs. “It’s a combination of competition and making sure companies are doing the right thing for their employees,” says Lydia Jilek, director of voluntary benefits for Willis Towers Watson.

Fidelity Investments, for instance, now offers $2,000 a year, up to $10,000 lifetime, for most full-time employees in payments directly to the loan provider, and about 6,000 of the eligible 24,000 employees are taking advantage of it. Mid-size employers also are stepping up: Hodges-Mace, for example, contributes $1,000 a year to employees for student-loan repayment.

Abbott Laboratories introduced a plan in mid-2018 to contribute 5 percent of pay to a tax-deferred 401(k) plan for each full- or part-time worker who directed at least 2 percent of pay toward reducing student-loan debt. The Internal Revenue Service approved.

“When employees have invested in their education so they’ll get hired, we don’t think they should be penalized,” says Mary Moreland, divisional vice president of compensation and benefits for the Abbott Park, Illinois-based drug maker. “So we wanted to come up with an innovative way to address student-loan issues and help them save for retirement. It shows we deeply care about them.”

Here are tips for considering help for employees with student debt:

Make sure it’s a need: “Don’t do this just because it’s the next hot thing,” Jilek says. “Assess first if it’s critical to your employees and prospects. It may feel to companies that everyone else is doing this and they need to do it right away, but so far that isn’t the case.”

Only 7 percent of workers rated student debt as their No. 1 personal concern, but about 70 percent identified “comprehensive financial wellness” as their biggest need, in a study of 7,500 people by BrightPlan.

Consider a narrow focus: Because these programs aren’t regulated by the federal government, companies are free to create customized student-debt programs that target only particular types of workers they face difficulty recruiting, such as engineers or nurse-anesthetists—or only workers in certain parts of the country.

Beware tax implications: Employers like PwC, Fidelity Investments and Aetna are giving employees cash to help reduce loan debts. But one downside of that approach can be that it raises workers’ income taxes.

Don’t ignore older workers: Student-loan struggles aren’t restricted to young people: Many of their parents and grandparents are wrestling with the debt because of defaults by their offspring, who are graduates and drop- outs. Plus, older employees have other financial burdens that millennials won’t experience for decades.

And some boomer and GenX employees are wrestling with their own student debt for a graduate degree or for taking on the cost of retraining in the wake of the Great Recession. Abbott was surprised to find that 10 percent of the enrollees in its debt-relief program are 45 or older, showing that “student debt lingers,” Moreland says.

Raise awareness: Employers can educate workers and their families about how to avoid student debt in the first place, by, for instance, advising them of loan costs and promoting alternatives to college. About half of 2,400 student borrowers surveyed by LendKey said they didn’t know while they were in school what their monthly payments would be when they got out. “They need to go in with their eyes wide open,” says Michael Stallmeyer, COO of the New York City-based lender.

Watch for new rules: The U.S. Treasury was expected to rule as early as this year on whether all employers legally can contribute a match into a 401(k) for every student-loan payment an employee makes. Also, student-debt programs could be made tax-free for employees through legislation introduced by Senator Mark Warner (D-Va.) that has bipartisan support. Companies already can contribute up to $5,250 per employee in tax-free tuition assistance each year.

Starting the Conversation

Here are some tips for CEOs considering the establishment of a financial literacy program:

Talk about it: Mix the generations in a workplace discussion of the idea before launching. “It’s great to have a millennial say, ‘I’m not putting any money’” into a 401(k), Brad Klontz says. “Then someone from the older generation will talk and help them realize they have a very narrow frame of reference.”

Create an arm’s length: Third-party vendors are the way to go, not an internal program, CEOs say. “I question how open an employee might be if they’re sitting there talking with someone close to the organization,” says Hillhouse CEO Ken Huesby,

Decide on bonuses: More than half of Momentum onUp clients offer an incentive for enrolling or completing the program, which can range from gift cards to home safes for documents. Says Gas South CEO Kevin Greiner: “It gets everyone on board.”

About one-third of companies provide cash incentives, which average $250. SunTrust has paid out a total of $18 million in $1,000 bonuses to its own employees who have completed Momentum onUp. SmartDollar rewards with points for completing activities that enrollees can convert into iPads, vacations and other prizes.

Start with a big bang… : This can include hullaballoo about a company-wide rollout with mandatory attendance. “That helped us get good buy-in initially, though some sat on the sidelines,” says Huesby. “There was sincere appreciation for our introducing it.”

…But take baby steps: Millions of people have heeded the advice in Lampo Group Founder Dave Ramsey’s book about personal debt reduction through small but continual steps, and such diligence is a central precept of SmartDollar as well.

“Employees want to be told what to do, and in the world of certified financial planning, the answer always is, ‘It depends,’” says Brian Hamilton, vice president of Ramsey Solutions. “But we have built tools into our program that help people build habits into their lives.”

Engage newcomers: Follow up the big splash with ways to engage subsequent recruits. “We try to build in refresher courses that will allow us to introduce newer team members to the program,” Greiner says. “That’s our biggest challenge: making sure we keep it top of mind and keep our new team members in the mix.”

Rely on visualization: To generate enthusiasm for enrolling in the program, consider sessions using art supplies and a vision board. “It’s one thing to say, ‘Save for the future,’ but it’s not motivating to our brain,” explains Klontz. “Weave in some experience that is personalized so people can get in touch with the passion for saving in the first place.”

Close some gaps: In addition to education programs, consider making 401(k) programs for new employees “opt- out” instead of “opt-in,” so their savings are stickier from the start, rather than having to induce their participation. Making at least some financial literacy training part of the new-employee orientation process also could help.

Open the books: Some CEOs boost employees’ financial savviness with “open-book management” that makes the company’s own accounting transparent. “If we want everyone to think and act like owners, they need to understand how that works,” explains Karim El-Gamal, co-founder and chief financial officer of a group of restaurants including Rail Trail Flatbread, in Boston, which shares profits with employees.

“Now everyone in our business knows what our costs are, and when we talk about stuff like food waste, they understand immediately what the impact is. Plus it helps them understand credit cards and other aspects of their own finances.”

Start younger: Some employers sponsor “family financial literacy nights” at local schools and work-study programs for kids, through the Council for Economic Education. Fidelity and other companies are funding professional development of more personal-finance teachers.

“We need to introduce them to the grammar and logic of money when they’re young,” says Nan Morrison, president of the Council for Economic Education. “If they understand the power of compound interest, how to make good choices about savings versus spending and how to keep a budget, it becomes less of a head- ache for their future employers.”