Employees face a multitude of personal financial decisions, not only about saving for retirement, but also investing in education or an advanced degree, managing day-to-day expenses, buying a home and handling debt. Today, this decision-making unfolds within financial markets that are far more complex than in the past, including with low and even negative interest rates.
How well-equipped are employees to handle these decisions? Unfortunately, the statistics on financial literacy are sobering. The majority of employees, not just in the UK but around the world, fail to grasp the fundamental financial concepts necessary to make smart choices.
Employees who lack financial literacy are less likely to plan and save for the future, to be financially resilient and to be savvy about debt. Even more, while financial literacy is low within the general population, it is especially low among groups that are already vulnerable, such as women, the young, low-wage earners and people with low education attainment.
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Employers can play an important role in reversing this, and there are powerful reasons why they should. Not only is a large part of the adult population at work, but employers can gain in far-reaching ways when they help boost employees’ financial wellbeing. Among other things, employees who are not stressed about money can be higher performing and more productive.
Workplace financial education programmes need not be cumbersome or expensive. An experiment by Heinberg et al, published in the Oxford Review of Economic Policy in 2014, found that people in a financial education programme known as ‘Five Steps’ not only increased their knowledge, but they retained it. ‘Five Steps’ used simple three-minute videos to address five basic financial planning concepts that relate to retirement.
Programmes that cover the range of decision-making that employees face, not just retirement savings, are the best approach for fostering financially fit employees. The best time to start implementing those programmes is now.
Annamaria Lusardi is academic director at the Global Financial Literacy Excellence Center, Washington, DC