Improved staff retention and productivity are among the reasons for providing financial education, says Liz Morrell
Most employers offer a range of benefits to help staff make the most of their money, but few do enough to ensure employees get the best value from what is on offer, assuming they will do the groundwork themselves. But in the current climate, staff are more likely to be focused on how to stretch their pay packet from one month to the next, never mind worrying about how much they should be investing in their pension fund or share plan.
And it is often not just employees who are procrastinating. Cost is a major excuse for employers not offering financial education to staff, but the advantages of doing so can include increased productivity, better staff retention, and greater and more informed take-up of benefits. John Puddephatt, senior consultant at Mercer, says: “It is perceived to be a good thing and employers realise it should be done, but the question is who is going to do it, what the business case is going to be and how [employers] are going to measure it.”
Angus Jones, managing director of independent financial adviser Clarity, says financial education has moved on from being nice to have to being a necessity if employers offer staff benefits. “It is like giving someone a new car and not teaching them how to drive,” he adds. Charles Cotton, performance and rewards adviser at the Chartered Institute of Personnel and Development (CIPD), says employers must understand the need for education. “They need to test [employees’] knowledge and understanding through methods such as staff engagement surveys or focus groups.”
Duty of care to staff
In some cases, employers may feel they have a duty of care to offer staff financial education and that more should be done in this area. “HR departments need to move to another level,” says Clarity’s Jones. “For the individual to truly understand what the benefits package means to them, they have to be able to put it in the context of their own employee situation.”
But that can be easier said than done. “Employers cannot pretend benefits are not complicated,” says Jones. “For example, if they do not tell an employee how to manage their money in a defined contribution (DC) pension scheme, they will make mistakes. Employers may think staff will not blame them, but they will.”
More education can also help reduce the risk of employees putting all their eggs in one basket, for instance relying on a company share scheme that later collapses. Jonathan Watts-Lay, director of Wealth at Work, says: “Increasingly, companies are looking to ensure they are not exposing staff to undue risk.”
The fluidity of career paths and the increasing complexity of employees’ financial affairs also make financial education a must, says Jones. “Gone are the days when [employees] did 40 years at one firm and got a big pension at the end of it, so did not need financial education. Now everyone moves jobs around eight times on average and has to become [their own] investment manager.”
Mix of advantages
HR and reward professionals trying to justify the business case for financial education can point to a mix of advantages. The most obvious, and most easily measurable, is in the analysis of benefits take-up pre- and post-education. Puddephatt says measurement is the key. “It is about how do organisations work out if it is delivering value,” he says. “They could look at benefits take-up and if they operate a DC plan, if there is a default arrangement, how many staff are using it and how many are using [the DC plan] actively and making a choice.”
The same is true with a flexible benefits scheme, says Jones. “If [staff] have been through financial education, then the next time they make their choices, they will pick the right course for the right race and flex choices become positive.”
But the less obvious benefits of financial education can be just as valuable as the more obvious ones. Organisations that are suffering high staff turnover could improve retention by helping staff better understand the true worth of their pay and benefits packages.
Reduce absenteeism
Financial education could also reduce absenteeism. Stress is the biggest cause of staff absence in the UK, and a major factor can be money worries. The CIPD’s Cotton says: “Financial education and awareness helps people with decision-making and allows them to shop around, save money and spread their salary a bit further.”
Financial education can also help drive more value from benefits packages by, for example, promoting a better understanding of the tax system to obtain greater value from benefits. This requires little, if any, extra investment from employer or employee, but offers huge rewards.
Being seen to care enough about staff to want to help them make the most of their money can win a lot of goodwill, which can aid staff retention. “It can improve employee engagement because staff feel the organisation is concerned about their wellbeing,” says Cotton.
Less tempted to steal
Less talked about, but also of benefit to employers, is that if staff feel more financially secure, they will be less tempted to steal from their employer. “Having financial education and awareness helps stop staff being tempted to put their hand in the till because they have avoided financial problems by being more financially savvy,” says Cotton.
Employers that are struggling to justify investing in financial education do not necessarily have to consider a comprehensive offering, but could use financial modelling, supported by additional education if required.
They could also reallocate how benefits budgets are spent, says Cotton. “It may be that, rather than spending money on whizzy communication aids to promote the latest benefits, [employers] spend it on getting some education for staff. If people do not understand the package [employers] are providing, it does not matter how much they are spending on the latest technology delivery platforms for their packages.”
In the current economic climate, financial education may have more value for many staff than a bonus or benefit they know their employer cannot provide. “When things pick up, the employee will remember the support they were given,” says Puddephatt.
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Benefits of offering financial education
– Better staff retention as employees realise the value of their package
– Improved take-up of benefits
– Less worried employees
– Goodwill factor as employees feel they are being helped and their money is going further
– Better productivity from staff
– Less potential for fraud
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Case study: Marks and Spencer sets store by education
Marks and Spencer (M&S) offers financial education to all staff. It targets its 60,000-plus store staff through seminars and leaflets in association with the Financial Services Authority’s ‘Money matters’ programme, and its management staff through a partnership with Wealth at Work. The retailer’s head of employment relations and reward, Deborah Warman, says: “Financial education is important to all employees.”
M&S started its financial education programme two years ago with targeted seminars for staff. “We wanted to get people to better understand their benefits package and what they could do with it,” says Warman.
Initially, about 100 management staff in long-term incentive plans were targeted through the Wealth at Work programme, followed by 300 more the following year. “We had such positive feedback, we then started to look at how we ran that more extensively,” says Warman.
A further 26 sessions will take place in the next six months. They have already included programmes targeting high earners.
Warman says the seminars have had a big impact on staff and are generally oversubscribed. “It has a wider impact than just them understanding their reward programme. It helps them to understand whether to save for the short term or long term. The biggest thing was that this was a personal offer that helped staff and their families, it was not just focused on business training.
“It is hard to quantify factually, but the softer side would suggest it has definitely hit the mark.”
The programme has also helped retention, says Warman. “If you look at what it costs to recruit and get someone through the door, if you can retain someone simply by explaining their pay and benefits package, then it pays back.”
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How to measure the value of financial education
– Look at benefits take-up. For example, in defined contribution pension schemes: how many employees are using the default option and how many are actively choosing their own investment strategy?
– In a flexible benefits scheme, how many people are taking more than just the default option?
– If employers have an employee assistance programme in place, how many calls are coming in on financial issues and how can they manage that number down?