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Today’s Date

Your NameYour Company Name

©Personal Finance Employee Education Foundation, Inc., 2009.

Revised January 8, 2009

Increase the Bottom Line by Helping DistressedEmployees During Challenging Financial Times

Presented by

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 Security2. Employer provided pensions3. 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: $1153 per month

Aged adults with limited income and resources may be eligible for SSA-administered Supplemental Security Income pension • Average today: $481 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 14% of eligible workers contribute to IRA accounts

Only 42% of all workers save for retirement in any DC plan and only 56% of full-time and full-year salaried earners save in any DC plan

Overall only 53% participate in a retirement plan

Only 60% of full-time earners (or 58 million) 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

“Median” means half above and half below

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

Average balance: $68,000Median balance: $28,000

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

Per

cen

tag

e

(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)

Surveys80% - worried about their personal finances and think the financial times will get worse60% - trouble making ends meet37% - no emergency fund $392 – average savings15 million – calls from collectors16 million – unpaid utility bills6.5% - delinquent in bills3.8 million – IRS garnishments

More news 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 — 10% of all cards Housing Foreclosures – 11% in crisis

• 5 million regular homes now for sale• 3 million additional foreclosed homes for sale• 10% are 30+ days behind in mortgage payments

or in foreclosure• Home prices declined 20% in 2 years• Home values to drop 14% in 2009-2010• 30% of the nation’s 51 million homeowners have

negative equity

Employee Personal Finances

• Credit card payments ($8K) $200-$300 month• Vehicle payments ($15K) $400-$500

month• College loan payments ($30K) $400-$600

month• Savings $33 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 (cash)

4. Dependent care reimburse (FICA) 382d (cash)

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

Salary increases? NoBonuses? NoMost retirement education workshops? NoMarriage counseling? NoEmployee 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

Promote the “Best Providers” whose quality workplace financial programs genuinely improve employees’ personal financial behaviors and increase employer profits

“PFEEF Advocates Best Practices”

“Employers do not realize they can improve profits

–and prove it–

by helping employees improve personal financial behaviors”

BIG POINT

The ROI (Benefit-Cost Analysis)

Return on Investment (ROI):The Personal Finance Employee Education Foundation expects employers typically will receive a ROI of 3:1 (or more) annually for quality financial programs

Example: Cost: $250 invested in financial programs by employer/employee

Benefit: $750ROI = 3:1

PFEEF Approach toProjecting Employer’s ROI

“How Many Dollars Can an Employer Gain By Demanding the Best From Financial Providers?”1. Estimate projected impacts of financial

program on job outcomes/other employer variables

2. Assign values to each key job outcome3. Calculate projected benefits of financial

program4. Identify projected financial program costs5. Determine employer’s projected return on

investment ratio: PFEEF’s Projected ROI

Begin by Using PFW to BenchmarkEmployee Financial Health

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 valid, reliable, peer-reviewed, and published measure (over 25 years in development) with national norms

Use of PFW is free with permission

PFEEF Researches Employer’sReturn on Investment (ROI)

1. Create an employer-specific projected ROI using company supplied costs for advancing a quality financial program with a single online collection of Personal Financial Wellness (PFW) scores

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

PFEEF can:

Projected 1-Year Changes in 9 Variables

1. Less work-time spent on personal finances2. Less absenteeism3. Reduced turnover4. Improvements in job performance5. Lower health care costs6. Employer’s FICA savings for more employees in

health care spending plan7. Employer’s FICA savings for more employees in

dependent care spending plan8. Fewer workers’ compensation claims9. Fewer garnishments

12 Additional VariablesCould Increase Employer’s ROI

Factors that could be included in the PFEEF ROI calculation that may contribute to increasing the benefits over the costs are:

1. fewer accidents2. less workplace violence3. less substance abuse4. fewer thefts5. increased participation in 401(k) plan6. fewer payroll advances7. fewer loans from 401(k) plans8. reduced health care premiums because employees

select alternative high-deductible plan9. increase in job engagement10. improved morale11. reduced human resource department costs12. reduced 401(k) plan fiduciary liability

Assumptions Behind Employer Costsand Projected Improvements

1. Assumptions for employer costs are grounded in data available from industry sources as well as from individual employers

2. Improvements projected in employees’ personal financial behaviors are based on research

3. Impacts projected in job outcomes and other employer variables are reasonable and conservative

4. All impacts projected are based on one year following participation in the financial program

Assumptions of Projections

1. Program offered to all employees

2. Program does not impact 70% of

employees in meaningful and measurable

ways or result in improvements in their

personal financial behaviors and financial

health

3. Program does impact 30% of employees

with varying degrees of effectiveness

resulting in a range of improved financial

behaviors and job outcomes/other

employer variables

Projected ROI Ratio of 3.04:1for ABC Company*

(Summary)

A. Quality financial program offered to 5,000 employeesB. Program impacts 30% of employees, 1,500, in varying degrees of

effectiveness resulting in improved financial behaviors and job outcomes:

1. Work-time wasted dealing with personal finances $ 412,3352. Absenteeism 115,5053. Turnover 720,0004. Job performance 1,263,0005. Health care costs 148,5006. Health care spending plan 68,850 (cash

money)7. Dependent care spending plan 91,800 (cash money)8. Workers’ compensation claims 75,0009. Garnishments $33,750

C. Cost of financial education program = $725,000 ($145 per employee)

D. Benefit of improved job outcomes/employer variables = $2,928,735E. Projected ROI = 304% return or a 3.04:1 ROI ratio as PFEEF projects

there will be $3.04 return in net benefits for every dollar invested in the financial education program

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!

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 underwayc $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

InformationDr. E. Thomas Garman, President, Personal Finance Employee Education Foundation, Professor Emeritus and Fellow, Virginia Tech University

9402 SE 174th Loop, Summerfield, FL 34491 USATele/Fax: 352-347-1345; E-mail: info@pfeef or ethomasgarman@yahoo.comWeb: www.PersonalFinanceFoundation.org

For free permission to use the PFW scale, fill out online form

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 available: Delivering Financial Literacy Instruction to Adults (2008), Garman & Gappinger, Heartland Institute of Financial Education (303-597-0197)