No matter how philanthropic we believe our business to be, no employer is going to sustain a financial education program indefinitely unless it is clear that it is reaping some return on its investment.
There has been considerable research on the benefits of having a financially literate workforce and clear links have been established between an individual’s solvency and their productivity. Put simply, we work better when we aren’t worrying about money.
There is also evidence that employees that get into good financial habits using workforce savings and other employee benefits are more likely to sustain high levels of productivity, both as a result of financial well-being and through the expectation of being able to pack work in with the prospect of affluence.
Finally, there is a realisation that unless staff are engaged, educated and empowered , the employee benefit plans – that are considerably more expensive than financial education programs, will be under-valued.
If you want to construct a business case for establishing (or maintaining a Financial Education program for your organisation, I recommend the CIPD’s Seminal 2012 paper, Workplace Financial Education (on its website). It’s three years old now but is standing the test of time.
The traditional reasons for investing in staff’s financial well-being have not gone away, in fact they’ve been reinforced by the risk transfer from DB to DC. So why are employers so reluctant to invest in their staff’s financial education and what can be done to address what is clearly a blind spot for many corporate executives?
We think the answer stems from various misunderstandings between consultants promoting financial education and employers buying it. Put simply, a number of myths have built up
Myth one – there is a magic measurement tool which can score the success of a financial education program
Myth two – the benefit of such a program can and should be immediate and obvious
Myth three – once primed, a workforce can become educationally self-sufficient.
All three myths are closely related and stem from weak consulting which stresses the value of short-term wins from financial education while downplaying the long-term nature of most successful programs.
Beware of consultants bearing infographics designed to delude you into thinking Financial Education is a quantitive science. Bogus, spurious and delusional are adjectives I apply to this approach.
It is not surprising that this happens, after all both the employer and consultant are rewarded through short-term KPIs. Nevertheless, programs that promise short-term wins and fail to deliver are quickly abandoned. Greater realism over the commitment an employer needs to have to a financial education program.
Pension Trustees, who are used to considering longer-term consequences are rarely in the loop as increasingly the budget for such programs rests with HR and finance. There is no obvious reason why pension trustees should influence HR strategy but without their vision, there is no obvious corporate champion for the strategic approach to financial education that can make such programs stick.
Clearly there needs to be a new driver to create the commercial imperative to deliver education in the workplace.
It’s simple – it’s Productivity
Like any other firm that relies on people,First Actuarial have been struggling to increase their productivity. Our experience suggests that the solution is more likely to come from the bottom up than the top down.
The drivers for change are personal, people do want greater control of their finances and see the workplace as somewhere to get help. Work is boring, finance is boring and the long-term financing of things like retirement is most boring of all. There is a natural synergy there- work is where we do most of our financial planning.
But whereas employment may be the best environment for people to engage, learn and plan – the employer is no longer the natural source f.or trusted information.
Those sources are typically on the web and include sites such as Money Saving Expert, twitter feeds such as @paulewismoney and the noise of less formal channels which make the internet the cloud based version of the “bloke in the pub”.
Since access to this information is cheap, fun and above all easy, it is difficult for employers to compete for ear and eye space. In order for employers to sieze back the initiative, we’ve been exploring ways for staff to create their own social networks.
We’ve been encouraging our junior staff to send round surveys on a variety of subjects and to share the results not just with each other but with senior management. We are not alone, RBS has recently established a Facebook community for its staff, a brave move at a time when “conduct risk” is high on the corporate risk register.
We’re very keen to encourage “self-learning” and we’re finding our role is changing from financial educators to educational facilitators. But of course you cannot empower your staff to manage their finances sensibly using new technology without first engaging with them and educating them about choices. This is where there is still a role for consultants, especially those with the interpersonal skills to engage and carry a message across.
While it is possible for anyone to use a handheld application (like MoneyHub), the numbers who actively engage with the new technology and are able to take advice from machines remains very low. The panacea that robo-advice is seen as by many in authority will prove a chimera unless the tools are properly explained and understood.
Once again, the temptation will be to invest in empowerment without engaging and educating the audience. Again, the workplace is the place to do this. And now, for the first time, almost all in the workplace have access to the devices on which these applications sit. The old arguments about computer literacy are largely redundant and many employers can now assume that not only do their workforces have the skills to download the software, but they have their own devices with which to do this.
The great advantage of the hand held approach, is that it takes the skills learned in the workplace back home. These applications can be shared with other in the family. They can help spouses, children- even parents to better understand the financial management techniques that help us make the most of our money.
And these applications can constantly roll out new stuff, updating the old programs as times and legislation change.
There’s no doubt, the cost of consultants consistently training an entire workforce on financial matters is too much for employers. But with the help of phones, tablets and laptop, people can participate in distance learning simply, cheaply and happily. The bloke in the pub is now the bloke on the phone. But instead of dispensing the wisdom of the bar-room, he can be powered by proper financial experts. For consultants, the new technology is a way to reach beyond the normal confines of influence and provide guidance to a wider and more diverse audience.
Reaching ordinary people, engaging and educating them about difficult matters such as pensions and insurance remains the critical challenge. In our work with technology partners, we have been learning how people search and find information and how we can present the guidance they need in the best ways. The efficiency of delivering ongoing help to those who have the engagement and education is remarkable.
So back to the question with which we started. How can we achieve a return on investment for the financial education programs we (as employers and consultants) deliver.
The answers are radically straight forward.
Firstly, we must accept that financial education programs do not work overnight. They are not tactical solutions but are part of the long term strategy employed by an HR and pensions function.
Secondly, we cannot forget the need to engage and educate personally. People buy people and we cannot land on technology solutions without firstly getting face to face with our audience
Thirdly we need to create a culture where we learn collaboratively using the likes of Facebook groups as a means to share information.
Fourthly we need to empower people to make the best of the new technologies that help people to take day to day decisions and to plan for the future.
There is a fifth stage in this strategy – we need new and better products that harness the communal power of the workforce. Whether it be credit unions to sort out short term saving and acute debt or collective pensions to optimise the way we spend our savings, we need products for those who need not just guidance but sensible solutions into which they can default their effort.
For no matter how hard we try to engage, educate and empower, we have to recognise we cannot all be our own pension risk and investment managers!
Ultimately the return on investment of a financial education program can be judged by the gross domestic product of the workforce and improvements in individual productivity. To maximise the ROI of a financial education program we need to empower those who can and ensure that those who can’t have a means to get by!