Financial education could be good for your personal wealth and your employer’s bottom line.
Notice how much control you now have over your retirement savings?
Recent IRS changes have shifted the onus of financial responsibility from employers and government to individuals. While this is generally a welcome development, even experienced investors can lack the knowledge and confidence needed to maximise their hard earned wealth.
In this article, we’ll define and demonstrate the increasingly important role financial education plays in growing your wealth. In particular, we’ll look at the emerging trend of delivering financial education in the workplace, and the potential economic benefits for employees and employers.
Let’s start with a definition
Financial education is a term describing a professional (and often structured) learning environment, such as a seminar, conducted by someone who is licensed or appropriately qualified and who provides information about financial matters.
Degrees of quality exist in the marketplace. For example, the SEC warns consumers to shun investment seminars that are overpriced, make misleading or deceptive claims, push financially dangerous strategies and promote outright scams1. Avoid seminars of the ‘get rich quick’ variety and those promising results for a hefty entrance fee.
So is financial education worthwhile?
Peak Financial Partners has studied the impact of its own education seminars run in workplaces, by better understanding confidence levels of employees who attended. In particular, when we compare confidence before and after a seminar, there is a marked improvement in employees’ confidence to take action over their finances.
In many cases, education has the power to motivate. Nearly three in four (71 per cent) felt they had a better understanding of their plan as a result of attending the education seminar. Just over one in four (28 per cent) reviewed or made a change to their level retirement contributions. One in five (20%) went on to make an appointment with a financial adviser, or reviewed or changed their investment option.
How much difference can financial education make to your wealth?
We identified six ‘types’ to describe different levels of knowledge among respondents. We found that our most sophisticated or Savvy Gurus group said they had attended an education seminar in the past two years2. This group projected their average value at retirement to be $809,000. In comparison, our least sophisticated or Beginner group, were the least likely to have attended a seminar. They expected to have $156,000 in retirement accounts.
Financial education can also be a sound investment for employers. How?
Well, studies have found that US workers with low financial literacy levels were less confident making financial decisions at work. Indeed, only one in four (26 per cent) felt very confident making financial decisions on behalf of their employer. Crucially, we found that confidence increased as financial knowledge increased. For instance, 90 per cent of the Savvy Gurus group felt very or somewhat comfortable making financial decisions for their employer compared to just 19 per cent of Beginners.
Organizations that invest in financial education and introduce retirement planning support into their rewards systems, may expect various benefits. The items below suggest some of the possible economic knock-on benefits of improving financial literacy and numeracy in the workplace.
Benefits of financial education
- Improved ability to manage financial risk and maximise financial reward
- Potentially greater projected super savings at retirement
- Increased comfort making financial decisions for employer
- Potential increases in income and or salary
- Improved quality of work and life
- Increased capacity to cope with workplace change.
- Investing in staff financial wellbeing may lead to improved performance and employee retention
- Numeracy skills may improve the management of product and services output
- Finance and accounting skills may help reduce error rates, including returned orders
- Reduced financial concerns allow employees to focus on their work resulting in reduced time per task and waste in production and service.
Sometimes, the advantages of workplace financial education can be extended when attendees are given an opportunity to take action or control of their own financial situation quickly. For example, a number of employers in the US now offer their senior executives access to on-site and subsidized financial advice, from a licensed or appropriately qualified financial adviser.
Of course, financial education isn’t a panacea but it may be a spring board to building personal wealth and, if you’re an employer, business success.
If you would like to meet with a Peak Financial Partners adviser to develop a financial Employee Assistance Program for your workplace; or a plan for your family, please call us at 1-614-542-7242; or send an email to firstname.lastname@example.org.