How to Improve Employee Financial Literacy

Financial literacy refers to the ability to understand and effectively use various financial skills and concepts. It encompasses personal financial management, budgeting, investing, and comprehending principles like the time value of money, compound interest, managing debt, and financial planning.

The TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) is an ongoing project that annually assesses financial literacy among the U.S. adult population. Their most recent survey found that many Americans function with a poor level of financial literacy—a consistent finding over the first six years of the P-Fin Index. On average, U.S. adults correctly answered only 50% of the index questions in 2022. Eighteen percent correctly answered over 75% of the index questions, while 23% correctly answered 25% or fewer of the questions. The questions cover a wide range of financial situations encountered in the normal course of life, including earning, budgeting, spending, investing, borrowing, managing debt, comprehending risk and recognizing appropriate informational sources and advice.

What’s the cost of not being financially literate? Americans estimated their own financial illiteracy cost them an average of $1,506 per person in 2023, according to a recent survey conducted by the National Financial Educators Council. In addition, 22.1% of survey respondents said they lost more than $2,500 due to financial illiteracy.

Improving the financial literacy of your employees can provide the following key benefits:

Better Productivity and Performance. Financially literate employees experience less stress, leading to improved focus and productivity at work.

Informed Financial Decisions. Literacy helps employees manage debt, create budgets, and make better financial choices, reducing the need for employer assistance.

Full Understanding of Employee Benefit Options and Trade-offs. Many employees don’t fully grasp the benefits offered by their companies. Financial literacy ensures efficient use of available benefits.

Reducing Inequality Gaps. By promoting financial literacy, employers can help bridge wealth disparities among employees.

If you’re looking to improve financial literacy among your employees, here are some strategies to consider:

Education and Communication. Provide educational materials, workshops, seminars, and online resources on topics such as budgeting, saving, investing, debt management, and retirement planning. Make sure these materials are accessible and easy to understand for employees of all backgrounds and levels of financial knowledge.

One-on-One Counseling. Offer personalized financial counseling or coaching sessions where employees can discuss their financial goals, concerns, and questions with a qualified financial professional. These sessions can provide tailored guidance and recommendations based on individual circumstances.

Employee Benefits Communications. Integrate financial education into communications about employee benefits, including retirement plans, health insurance, Health Savings Accounts (HSAs) and other benefits. Help employees understand the value of these benefits and how they can make the most of them to achieve their financial goals.

Automatic Features: Utilize automatic enrollment, automatic escalation, and other features in retirement plans to encourage participation and savings behavior among employees. These features can help employees overcome inertia and make it easier for them to save for retirement.

Match Contributions: Communicate the importance of taking full advantage of your employer match and the long-term benefits of saving consistently for retirement.

Regular Check-Ins. Schedule regular check-ins or follow-ups to assess employees' progress, answer questions, and provide additional support as needed. Encourage open communication and create a supportive environment where employees feel comfortable discussing their financial concerns.

Peer Support Networks. Facilitate peer support networks or employee resource groups focused on financial wellness, where employees can share tips, experiences, and resources to help each other improve their financial literacy and behavior.

Feedback and Evaluation. Gather feedback from employees about the effectiveness of financial education initiatives and continuously evaluate and refine programs based on their input and outcomes. Monitor metrics such as participation rates, savings rates, and employee satisfaction to measure success and identify areas for improvement.

By implementing these strategies, plan sponsors can empower their employees to make informed financial decisions, improve their overall financial well-being, and ultimately achieve greater retirement security.