Monday, March 2, 2009

Why should employers care about employee financial literacy?

Excerpts from PFEEF
While it is nice to have a bigger income that alone is not the solution for better financial well-being. What does increase one's level of living is improving financial literacy and putting into practice the newly learned good financial behaviors.

Employers have a large stake in employee financial literacy. Why? Because increasing employee financial literacy improves employer profits. A collection of scholars conducted breakthrough research on the negative costs to employers for the poor financial well-being of employees. One study found that the Department of Defense loses $1 billion annually in direct costs and reduced productivity due to employee stress about money matters. Examples of direct costs are absenteeism, short-term disability, turnover, wage garnishments, and accidents.

A national award-winning research study by Dr. So-Hyun Joo concluded that employers increase profits by $450 annually for each employee who slightly improves his or her financial behaviors. The return comes from reduced absenteeism and less work time used dealing with personal financial matters.

It is also extremely important for employers to realize that a number of studies show that a large proportion of those who are financially distressed, 40% to 50%, report that their health is directly impacted-negatively-by their financial worries and problems. Health problems caused by financial distress cost employers big money.
So, we can conclude that employee financial illiteracy does impact employers. In short, financially illiterate employees do not make the best decisions for themselves or their employers.
These findings should motivate employers to offer employees access to resources, education, counseling, and advice to decrease their stress about money matters and improve their financial lives. It is vital to empower employees to be financially literate.
Ranjan Varma
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