Increase the Bottom Line by Helping DistressedEmployees During Challenging Financial Times

Presented by E. Thomas Garman to SHRM • Webcast • August 6, 2008

Employee Personal Finances and the Bottom-line

Financially Illiterate adults do not manage their personal finances very well…

And they do not save and invest enough for a financially successful retirement.

THIS contributes to lower productivity as well as higher health care costs.

Employers Often Recognize These Issues…

But Do Nothing.Employers Often Recognize These Issues…

But Do Nothing.

“You can lead a horse to water, but you can’t make it drink.”

Employee Personal Finances Employer Bottom Line

Let’s Talk About…

The metaphor is a 3-legged stool:

1. Social Security

2. Employer provided pensions

3. Personal savings

Employee Personal FinancesUSA System of Retirement Income Security

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

Aged adults with limited income and resources may be eligible for SSA-administered Supplemental Security Income pension • Average today: $466 per 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% • Average corporate pension today $641 per month)

Defined-Benefit Retirement Pensions(DB Plan =Monthly checks for life)

Only 51 million of today’s 108 million full-time workers save for retirement in any DC plan

Only 14% of eligible workers contribute to IRA accounts

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

A “median” balance means half have saved less!

Defined-Contribution Retirement Savings Plans (DC Plan = Lump Sum at Retirement to Manage)

Average balance: $58,000Median balance: $19,000

Financing retirement in the USA today is the sole responsibility of the employee

Observation

Participation in and deferral rates to retirement savings plans are inadequate

Most are not saving enough for retirement

Workplace education and advice programs have been underutilized

Millions of employees say they cannot afford to save for retirement, and 1 in 4 say credit card debt is a reason

Employees do not know how to help themselves

Employers do not understand the value of providing their employees easy access to the best mix of quality financial programs

Employee Personal FinancesRetirement Saving Realities

“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

30 million American workers–1 in 4 –report they are seriously financially

distressed and dissatisfied with their personal finances

Financially Unhealthy Employees

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 2 3 4 5 6 7 8 9 1 0

5.46.9

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

10 .0

12 .0

14 .0

16 .0

Percentage

(1-4: 30%)High distress (5-6: 28%)

(7-10: 42%)Low distress

National Norms for Financial Wellness on PFW Scale©

30% Are Failing Financially! (Scores of 1-4)

30% Are Failing Financially! (Scores of 1-4)

Recent Gallup survey(May 08)

Over 80% are worried about their personal finances and think the financial times will get worse

More news (April 08)

401(k)s are being tapped to save homes $4 gas is a reality; $5 may be next

Employee Personal Finances

Credit Card Delinquencies — Highest in 16 years (American Bankers Association)

Credit Card Losses — $100 billion in 2008 (10% of all cards) (Goldman Sachs)

Housing Foreclosures – 11% in crisis! • 2.4 million borrowers foreclosed, in foreclosure or will be in 2008• 6.35% now 30-days behind in mortgage payments• Home prices declined 25% since 2006

• 30% of the nation’s 51 million homeowners have negative equity (US News & World Report, 4-21-8)

Employee Personal Finances(June 2008 data and reputable predictions)

• Credit card payments ($2-6K) $100-$200 month

• Vehicle payments ($15K) $400-$500 month

• College loan payments ($30K) $400-$600 monthChild-care ($5-$21K) $400-$1200 monthMortgage loan payments $Property taxes $Homeowner’s insurance $

AND . . . ½ of all adults DO NOT budget!

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

“Financially unwell employees do not

make the best decisions for themselves…

or their employers”

BIG POINT

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

“Employees with money problems are like sharks swimming around the workplace

taking bites out of the bottom line”

Research says, “Every time someone on your work team brings his/her money worries

to the job, workplace productivity drops”

Research says, “Every time someone on your work team brings his/her money worries

to the job, workplace productivity drops”

Employers ignore the elephantEmployers ignore the elephant

Employer Bottom Line

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

Research Proves ALL These Factorsare Correlated in the Ways Expected

Employees with financial distress report poor health.f

Financially distressed employees have worse health than other workers.g

40 to 50% of financially distressed workers report that financial problems caused their health woes.h

Positive changes in financial behaviors are related to improved health.i

Research Shows that Health and Personal Finances are Correlated

1. Lost productivity $450a

2. Health care costs (poor health) 300 Subtotal = $750

3. Health care reimbursement (FICA) 92c

4. Dependent care reimburse (FICA) 382d

5. Traditional health plan choice (CDHC) 800e

6. TOTAL $2,000+

© 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©

Quality Workplace Financial Programs Rescue Employees and Employers

Quality Workplace Financial Programs Rescue Employees and Employers

Bottom Line

“Employers do not realize they can improve profits

–and prove it–

by helping employees improve personal financial behaviors”

BIG POINT

Salary increases? No

Bonuses? No

Most retirement education workshops? No

Marriage counseling? No

Employee Assistance Programs? No

What does not reduce employee financial distress and increase financial wellness?

Employers Who Provide Employees Easy Access To Quality: Basic financial education Credit counseling Benefits information/education Credit union Retirement education Financial advice Financial coaching that changes behaviors

Bring together the basic financial resources to truly help employees.

What DOES reduce financial distress and increase financial well-being?

• Comparison shop

• Achieve savings goals

• Enjoy average to above average financial well-being

• Comparison shop

• Achieve savings goals

• Enjoy average to above average financial well-being

Financially Literate Employees are Engaged with Money Issues

1. Demand more from your current financial program providers

2. Insist one provides leadership to deliver a coordinated quality program that emphasizes the basics of personal finance:• Spending Plan• Credit Management• Saving

It’s not a matter of money spent on financial education — it’s a matter of effectiveness!

How Can Employers Save $750 - $2,000+?

Lower financial distress Increased financial well-being Better health Adequate retirement preparation Improved family relationships Gains in job performance

Results from Quality Financial Programs

Provide employers no-cost-to-use tools and expertise to detail the bottom-line benefits of quality financial programs

Identify companies whose workplace programs genuinely improve employees’ personal financial behaviors and increase employer profits

Personal Finance Employee Education Foundation“PFEEF Advocates Best Practices”

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.

The ROI for Quality Workplace Financial Programs

Example: If an employer/employee invests $250 for financial programs, the ROI would be $750!

1. Assign cost values to key job outcomes

2. Estimate projected impacts of financial program on job outcomes

3. Add projected savings

4. Add projected financial program costs

5. Calculate employer’s projected ROI

PFEEF can help with this effort.

Developing the Employer’s ROI“How many dollars can employer gain by demanding more from financial providers?”

Survey employees using the Personal Financial Wellness (PFW) scale

PFW is an 8-item online questionnaire that in 3-4 minutes measures financial heath

PFW is a peer-reviewed, published, valid and reliable measure (over 20 years in development) with national norms

Use of PFW is free with permission

PFEEF can help with this effort at no cost.

Use PFW to Benchmark Employee Financial Health

1. 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

2. Create an employer-specific projected ROI using company supplied cost figures

3. Prove the genuine ROI one year later using employer provided data

PFEEF can:

PFEEF Researches Employers Return on Investment (ROI)

PFEEF can help employers with this effort.

1. 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?)

2. Ask employees to complete online "Financial Health Checkup” (8 questions in 4 minutes)

3. Employer insists that providers improve employees’ financial decision making

4. PFEEF projects ROI for quality financial program with one data collection (no cost to employers)

KEY MESSAGES

It is in the employer’s best interest—more profits—to provide employees easy access to quality financial programs

Conclusion About Employee Financial Literacy and Employer Profits

It also is the right thing to do as stewards of employee well-being!

It also is the right thing to do as stewards of employee well-being!

Thanks!

InformationDr. E. Thomas Garman

President, Personal Finance Employee Education FoundationProfessor Emeritus and Fellow, Virginia Tech University9402 SE 174th Loop, Summerfield, FL 34491 USATele/Fax: 352-347-1345E-mail: info@pfeef or ethomasgarman@yahoo.comWeb: www.PersonalFinanceFoundation.org

To examine the PFW scale and 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

New Book: Delivering Financial Literacy Instruction to Adults, Garman & Gappinger, Heartland Institute of Financial Education (303-597-0197)For free permission to use the PFW scale, fill out online form

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)

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.

g Kim, Sorhaindo, & Garman, 2003; Prawitz et al, 2007; O’Neill et al, 2005 (2 articles); Sorhaindo & Garman, 2002.

h Garman et al, 1999; Kim, Garman, & Sorhaindo, 2003 (AFCPE and ACCI); Kim, Sorhaindo, & Garman, 2004; O’Neill et al, 2006; Weisman, 2002.

i Kim, Garman, & Sorhaindo, 2003 (AFCPE and ACCI); O’Neill et al, 2006; O’Neill et al, 2005 (2 articles).

Footnotes

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

http://www.personalfinancefoundation.org/resources/TOC%20Delivering%20Financial%20Literacy%20Instruction%20to%20Adults.doc

ISBN#978-9-9792115-0-8 $60 plus shipping. To order call 303-597-0197 (Heartland) or order through Heartland’s website http://heartlandfinancialeducation.org.

AppendixPFEEF Approach to ROI Calculations

Summary of 1-Year Projected2.8 ROI for ABC Company*

1. Program offered to 28,000 employees

2. Program impacts 30% of employees, 8,400, in varying degrees of effectiveness resulting in a range of improved financial behaviors and job outcomes

3. Total value of projected improved job outcomes = $4,225,788

4. Projected cost of financial program = $1,500,000

5. Projected ROI 2.8/1 ($4,225,788/$1,500,000)

*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.

Projected 1-Year Changes in Work Outcomes for ABC Company

1. Fewer garnishments2. Less absenteeism3. Less short-term disability4. Reduced turnover5. Lower health care costs6. Fewer workers’ compensation claims7. Employer FICA savings for more employees in health care spending plan8. Employer FICA savings for more employees in dependent care spending plan9. Improvements in job performance10. Less work-time spent on personal finances11. 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.

Projected 2.8 ROI for ABC Company*(Details)

1. Program offered to 28,000 employees2. Program impacts 30% of employees, 8,400, in varying degrees of

effectiveness resulting in improved financial behaviors and job outcomes:a. Garnishments $378,000b. Absenteeism 168,000c. Short-term disability 31,500d. Turnover 840,000e. Health care costs 252,000f. Workers’ compensation claims 160,000g. Health care spending plan 385,560

(cash money)h. Dependent care spending plan 514,080

(cash money) i. Job performance 1,370,628j. Work-time spent on personal finances 126,000

3. Total value of projected improved job outcomes $4,225,7884. Cost of financial program = $1,500,0005. ROI 2.8/1 ($4,225,788/$1,500,000)*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 could be included.