When It Comes to Money, Your Company Should Help You Learn Where You Earn

Written by: Carrie Schwab-Pomerantz | Charles Schwab

It’s a fact of life. We live in a complicated world full of competing challenges and contradictory opinions. No one-size-fits-all solutions. No magic wands. And yet, every once in a while, a special idea comes along that makes sense on every level — whether that’s ethical, economic, social, or just plain practical.

Here’s one such idea that can have a deep and lasting impact on the future of our country: Workplace financial education and support.

Why is this important?

I want to be clear from the get-go about why this is such a crucial issue. Most Americans — old, young, men, women — and even those who earn a substantial paycheck — struggle when it comes to managing their money. Whether this need is as basic as making ends meet on a daily basis, or saving and investing for the future, most of us simply don’t have the knowledge or the confidence to make smart and informed financial decisions.

Certainly this lack of financial literacy has been a serious issue for decades. But its urgency is growing. As I look to the future with life spans increasing, pension plans disappearing, savings rates substantially below where they need to be, government safety nets stressed, and scam artists proliferating, it’s an issue we must address — and now.

Why should employers get involved?

So why look to the workplace? For several compelling reasons.

First, financial stress and instability don’t just impact us and our families — they also erode our ability to be smart, efficient, and productive employees.

Study after study backs this up. According to the Consumer Financial Protection Bureau report “Financial Wellness at Work,” seven out of 10 American workers say that financial stress is their most common cause of stress. Another study in 2012 revealed that roughly one in five employees admitted to skipping work in the past year to deal with a financial problem. Eldar Shafir, a former colleague of mine on President Obama’s Advisory Council on Financial Capability, wrote a book a few years ago called Scarcity, in which he provided evidence that financial scarcity “reduces a person’s cognitive capacity more than going a full night without sleep.”

So it makes sense for employers from a business perspective, but there’s more. The workplace is the ideal venue for financial education because it just makes sense to ‘learn where you earn.’ We spend more hours connected to our employers than just about anyone else; they have our eyes, ears, and minds. They are the primary source of our financial stability, and hopefully we have a relationship built on trust and mutual gain.

Third, employers have leverage. We may ‘know’ that we should be relying on credit cards less, saving more or buying more insurance, but many of us don’t tend to do it without a big nudge. And whether that nudge takes the form of an incentive (matching contribution to your 401(k)), encouragement (automatic enrollment in your 401(k)), or a mandate (required training), employers have the power to make us act.

Fourth, employers have the goods. When you pay someone to perform a task, you have the freedom to structure their compensation in a way that meets multiple goals. This gives employers the unique ability to add broad-based financial education, savings incentives, appropriate insurance coverage, and access to favorable accounts to the mix of benefits. That way, they not only address their employees’ immediate financial needs with a fair paycheck, but they also build a financially stable workforce for years to come.

And finally, employees want the help. A recent Gallup poll found that only 6% of employees believe that their organization does things to help them manage their finances more effectively. However, 81% of employees who say financial problems are affecting their productivity would welcome employer financial help and support.

What will it take?

That’s the rationale — but what exactly does "learn where you earn” mean in real terms? Three things.

It starts with comprehensive financial education. The key word here is ‘comprehensive.’ Many companies have programs to help employees with retirement planning, which is critical — but I see this as putting the cart before the horse. The fact of the matter is that too many workers are being crushed by credit card debt and student loans. Or they don’t have an emergency fund or adequate insurance to see them through an injury or serious illness. Or worse still, they are victimized by predatory lenders or other scam artists. This is where we have to start — by providing a basic education in budgeting, saving, debt management, and insurance protection. With that under control, we’re a position to take on retirement preparedness in a serious and focused way.

We need to expand access to savings plans, whether that’s for retirement or other needs. Currently, only 53% of American workers have access to a tax-advantaged retirement savings plan. For small businesses the number is even lower. Yes, anyone with earned income can contribute to an IRA – but participation rates are even lower for these accounts. The not-too-surprising result? Approximately half of Americans have NO retirement savings, and the vast majority of others haven’t saved adequately. I’m hopeful that the newmyRA account, which was launched this month by the U.S. Treasury Department, will help close the gap. But clearly there’s much more to be done.

Access is one thing, participation another. The evidence from behavioral science is indisputable: left to their own devices, humans don’t always make decisions that promote their own best interests. Whether those decisions are health- or diet-related, emotional, or financial, we often screw up. But the good news is that we screw up in predictable ways, and with the help of some creative programming, we can be steered in the right direction. Retirement savings matching programs are probably the best-known example. Automatic 401(k) enrollment is a newer but effective device, especially with Google and other forward-thinking companies raising default contributions to as much as 10% to 15% of employees’ salaries — levels that are much closer to what is really needed. These programs are on the right track, and provide a model that would be easy for others to duplicate.

Is it doable?

Always the pragmatist, I’ve thought a lot about whether ‘learn where you earn’ is over-reaching, too pie-in-the-sky. And you know what? I’m optimistic, for lots of reasons.

First, as I’ve already stressed, everyone wins. It’s not only the right thing to do from a societal perspective, but it’s also the right thing for both employers who want a stronger workforce and employees who want to secure their futures.

Second, and I think this point is essential for everyone to appreciate, a “learn where you earn” program doesn’t have to be expensive. As reported by the Consumer Financial Protection Bureau, there are many low-cost proven methods for improving employee financial wellness, many of which are easy to implement on a modest budget or simply as an extension of an existing program. Even the smallest of businesses can participate in a way that will benefit their bottom-line.

Finally, I’m optimistic because I’m starting to see a few pioneering companies roll out exciting plans. As one example, Charles Schwab Foundation is currently developing a comprehensive program in collaboration with Boys & Girls Clubs of America. Designed to serve the 55,000-strong Boys & Girls Clubs national workforce, and eventually employees of other nonprofits, the program will be piloted in early 2016 and will hopefully serve as a model for workplace programs across the country.

Of course creating a national movement of workplace financial education won’t be easy. There will be questions and doubters. But I strongly believe that this is the wave of the future. It’s an idea whose time has come.