Better Money Management Rewards Employers with $450 in Increased Productivity

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Better Money Management Rewards Employers with $450 in Increased Productivity, January 19, 2004. E. Thomas Garman

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"Don't give employees a raise," Dr. Tom Garman tells employers, "instead, give them access to quality financial information, education and advice because it increases profitability." Garman, professor emeritus at Virginia Tech University, says employers can expect $450 in positive job outcomes from each employee who slightly increases his or her financial behaviors and financial well-being.

Financially troubled employees are absent more than others and they waste more time at work dealing with personal financial problems. Two-thirds of employees deal with financial matters at work.

To an employer with 1,000 employees, this means a first-year cost reduction of $160,000. The return to employers comes from reduced employee absenteeism and less work time wasted dealing with personal financial problems.

Garman, the keynote speaker at a World Research Group (www.worldrg.com) "Enhancing Retirement Education Programs" conference (January 25-27) in Scottsdale, Arizona, will include these comments in his presentation on "Financial Education is Good for an Employer's Bottom Line."

Examples of using work time for personal financial matters are:

Talking with co-workers about money problems.
Making calls to creditors about past-due payments.
Talking to lenders about consolidating debts.
Faxing personal documents to credit counseling and debt management companies.
Worrying about personal finances instead of working.

The research study described below found that increases in positive financial behaviors and overall financial well-being correspond with low absenteeism, little work time used for personal financial matters, and better job performance ratings. This is true for those with serious money problems as well as others who have room for improvement in their personal financial behaviors.

Examples of positive financial behaviors are:

Making a plan to reach financial goals.
Setting money aside for savings.
Following a weekly or monthly budget or spending plan.
Paying monthly credit card bills in full.
Contributing to employer's pre-tax health-care plan.
Contributing to employer's retirement plan.

"It's smart business," says Garman "to provide employees access to targeted financial information, education and advice programs that enable them to improve their financial behaviors and well-being because financially well employees are the employer's very best employees."

What is a slight improvement? For an average-income employee ($33,330 annually) who moves up only 6 points on 48-point financial-behaviors index, this translates into $63 in reduced absenteeism costs and $167 in reduced work time wasted. This is accurate for all workers who improve their financial behaviors, including those with money problems as well as others. Increases in overall financial well-being corresponds with a decrease in work time used for financial matters. A 2-point increase on a 10-point index of financial well-being translates into $230 of reduced work time. The improvements in absenteeism and reduced time wasted are worth $450 ($63 + $167 + $230 = $460 rounded down to $450) for each impacted employee.

What about the $160,000 mathematics? Consider an employer of 1,000 workers where 85% of employees have normal financial well-being and only 15% of employees exhibit poor financial behaviors (e.g., do not budget, do not save for retirement, do not pay credit card bills in full). The 15% are people who are overly indebted and financially distressed. Figure that two-thirds of the most financially distressed employees (1,000 X .15 = 150 X .666 = 100) and 30% of the other employees (850 X .30 = 255) make slight improvements in their personal financial behaviors and overall financial well-being. The employer's cost reduction is $160,000 ($450 X 355 [100 + 255] = $159,740 rounded to $160,000).

The $450 figure is inflation-adjusted to January 2004. It is based on a mathematical model using 1998 data from an award-winning research study that used a mail survey (N=474) of white-collar clerical workers of a large employer located in a mid-eastern state. The return rate was 74%, which is considered very high for this type of research. Moreover, smart employers can be rewarded with $450 in increased productivity by providing employees access to useful financial tools.

Sources of assistance for employers. There are many sources of assistance for employers interested in improving the financial well-being of employees. Illustrative providers of workplace financial education are American Express, Ernst & Young, and Fidelity. Access to credit unions may be obtained from the National Credit Union Administration's website (http://www.ncua.gov/indexdata.html). Non-profit credit counseling organizations offer budget and credit advice for those who are overly indebted and financially distressed, and referrals may be obtained from either of the two national trade associations for credit counseling: Association for Independent Consumer Credit Counseling Agencies (800-405-1794) and National Foundation for Credit Counseling (800-313-2227).

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