An Employer’s Guide to Enhancing Financial Literacy for Employees

Between market volatility, high inflation, and recessionary fears, the last few years have been financially challenging for many employees. And with 78% of Americans living paycheck to paycheck, even the slightest economic fluctuations can leave employees anxious about their finances and futures. 

To help, businesses can offer one highly sought after benefit: financial literacy training. Educating employees on topics like budgeting, saving, and investing can help them not only make informed and responsible financial decisions but also help be more stress-free and motivated at work.

Wondering how to invest in financial literacy for employees? Here’s a closer look at why your organization should invest in employee financial well-being and how to create a successful financial literacy training program for your team.

Understanding financial literacy for employees

It's important to recognize that each person is at a unique stage in their financial journey and has varying levels of financial literacy. Some employees may possess an advanced understanding of their finances and options, while others may be only beginning to learn about the world of money. 

In fact, the 2023 P-Fin Index, an annual 28-question financial literacy survey, revealed that, on average, U.S. adults answered only 48% of the questions correctly. And one in four individuals was unable to answer more than 25% of the questions accurately. Clearly, a concerning knowledge gap exists. 

Key financial concepts and skills to teach employees

Wondering what to include in your internal programs? Here are a few common financial literacy ideas and concepts you’ll want to teach employees to help them on their financial journeys: 

1. Budgeting

Designed to help individuals spend money more wisely, budgeting outlines how an individual should allocate their money over a given period. It aims to ensure employees not only have enough money to pay for their immediate needs (rent/mortgage, food, car payments, etc.), but also wants and future goals.

2. Saving

Saving is the practice of putting money aside with the intention of using it at a later date. While it can be as simple as setting aside some cash in a piggy bank or transferring money from a checking to savings account, your employees can also use high yield savings accounts to earn interest on their money and ultimately build an emergency fund, providing financial security for unexpected expenses such as car trouble or medical care.

3. Borrowing

Borrowing money allows individuals to acquire money to fund big purchases like buying a house, going to college, or covering unexpected expenses. Knowing how to navigate borrowing options can help your employees better choose the type of loan that fits their needs, avoid excessive debt, and manage repayment responsibly, which can significantly impact their financial future. 

4. Taking on debt

While the word “debt” can be anxiety-inducing for many individuals, there is a difference between bad debt and good debt. Bad debt is when an individual’s monthly spending exceeds their income, leading them to borrow money or rely on credit cards to cover expenses. The associated high-interest fees can create a challenging and costly cycle of repayment.

Good debt, on the other hand, is when an individual borrows money for a purchase they expect will have a return on investment. For example, many people take on a mortgage hoping that one day their house will appreciate in value. By understanding interest rates and the strategic use of debt, individuals can make more informed decisions about when to borrow money and how to pay back their loans.

5. Investing

Investing is the process of allocating funds with the hope of generating a return, enabling individuals to grow their wealth over time. Be sure to introduce employees to different investment opportunities (stocks, bonds, money market funds, ETFs, etc.), risk management strategies, and long-term financial planning so they can create balanced investment portfolios designed to achieve their short- and long-term financial goals. 

Common financial challenges faced by employees

Curious about the areas where employees need the most help? Here’s a closer look at the most common financial challenges to help you identify where to focus your programs: 

1. Trouble budgeting

Three-quarters of Americans have a monthly budget, and yet, 84% admit they’ve exceeded it at some point – which can result in the need to use credit cards to account for the extra spending. 

How can your business help? Encourage your employees to regularly revisit their spending. Monitoring spending and tracking purchases can help eliminate unnecessary expenses and bad financial habits, giving employees more flexibility in their budgets to account for higher spending months. 

This can also help them be prepared for unexpected expenses which could otherwise put them in a difficult financial situation. Teaching employees how to budget and save can help them prioritize and build emergency savings, so they’re prepared should they run into any unforeseen expenses.

2. Not investing in retirement

When money is tight, retirement savings are often one of the areas employees pull back on. Unfortunately, this can mean leaving money on the table for many individuals. If your company matches employee retirement contributions, be sure to explain how the match works to employees, so they understand how to get the most out of your company’s policy. Your employer match can motivate your employees to prioritize retirement savings and achieve their financial goals.

3. Debt

Debt stands as one of the most pervasive financial challenges for employees, with the average consumer debt balance being $104,215 in 2023.  Many individuals find themselves burdened by accumulating debt, often outpacing their ability to build a financial safety net like emergency savings or retirement. Businesses should prioritize debt management strategies to help employees climb out from under their debt and save on interest. 

Benefits of financial literacy for employers

Employees aren’t the only ones who can profit from financial literacy. Organizations can foster a more focused, engaged, and productive workforce that benefits from: 

• Reduced financial stress: 73% of Americans rank their finances as the top stressor in their lives, and that stress can bleed into their work and impact their focus, drive, and productivity. Educating employees on how to take charge of their finances can help reduce this stress and its side effects.
• Improved absenteeism rates: If your employees feel properly compensated, supported by your business, and less stressed about their finances, they can be more likely to show up to work.
• Better engagement: Financially stressed employees are less engaged at work. By offering resources to assist employees with their finances, your business can contribute to reduced stress levels and increased job satisfaction among your workforce.
• Improved employee productivity: Among employees worried about their finances, 56% of employees worried about their finances admit to spending three hours or more per week at work dealing with or thinking about issues related to their personal finances. Financially literate employees can have better focus and productivity than their peers.
• Enhanced employee loyalty and retention: Financially stressed employees are twice as likely to be looking for a new job than non-financially stressed employees. If your company offers competitive compensation, cutting-edge benefits, and ongoing financial education, your employees may be more likely to stick around longer.

Strategies for teaching financial literacy

While there are many ways to teach financial literacy for employees, we recommend your business take this three-pronged approach to financial education: 

Benefits literacy

Many companies offer robust and competitive benefits packages, but few employees understand the extent of their offerings or how to use them, essentially leaving valuable perks on the table. From tuition and student loan reimbursements to employee stock purchase programs to fertility benefits, there are so many benefits employees can take advantage of—if they just know they exist. 

To help educate employees and encourage benefits adoption, host year-round webinars and events explaining what services you offer, their benefits, and how employees can take advantage of them. 

Retirement literacy

Only about half of workplace savers feel they are on track to retire with the lifestyle they want. The best time to beef up those savings? The present. 

Be sure to educate your employees on your organization’s employer-sponsored retirement plans, like:

• 401(k)/403(b)/457 plans
• Health savings accounts
• Mega backdoor Roth

This can help your employees take advantage of tax savings, collect any employer matching, and better save for retirement. 

Financial literacy

Lastly, you’ll want to touch on more general financial literacy for employees. This training should address topics such as budgeting, saving, investing, debt management, and retirement planning. You can also provide a variety of ways for employees to consume this information, like providing access to on-demand financial education resources, offering group workshops or seminars, and offering one-on-one financial coaching or counseling.

Monitoring and measuring success

Here are a few ways to check if your programs and investments are paying off and helping employees: 

• Establish and track key metrics: Clearly define and monitor key metrics, like training and benefit participation rates or engagement levels, to evaluate the impact of your financial literacy program.
• Track changes in employee behavior: If there’s a way to gather this information in a way that respects employee privacy and comfort levels, try to track shifts in employee behavior because of the financial literacy program. Look for positive indicators such as increased savings rates, reduced debt levels, and a greater understanding of financial concepts.
• Gather employee feedback: Send a post-training program survey to learn what participants thought of the content, format, and overall impact. This feedback can help your business understand what’s working and what could be improved next time.

Using these strategies, your HR team can effectively measure the impact of financial literacy programs in your workplace, ensuring that you see tangible benefits for both your employees and your organization.