Tag Archive for 'Financial Education'

Financial Wellness Eases Presenteeism – Digging Into the Numbers

Published by JLarocque on June 9, 2010 in Financial Education, Financial Tools, Financial Wellness, GuideSpark and Solutions. 0 Comments Tags: , , .

Historically, presenteeism has been a word used to describe sick employees

Financial Wellness ROI

Financial Wellness ROI

who “tough it out” and come to work but operate far below normal productivity. But, there are many types of presenteeism.  There could be any number of reasons why an employee checks out and productivity suffers.  And, while presenteeism is a relatively new term, you likely have some established policies in place for helping employees stay focused at work.  For instance, over half of US companies have blocked access to Facebook, Twitter and MySpace.  Presenteeism, in its entirety, is a huge productivity issue that far exceeds that of absenteeism.

To say that presenteeism is an ambiguous problem is certainly an understatement.  It’s impossible to measure, difficult to address and simply acknowledging that presenteeism is an issue at your organization tends to imply that the company is not well run.

But, you may find that you can take steps to address the core drivers associated with presenteeism.  And by taking steps to proactively address those core employee issues, you can solve a large portion of the problem.  Similar to the issue of employee stress, recent studies show that employee money issues are a major root cause driver of presenteeism.

Think about it for a moment.  If you were in debt trouble, on the verge of losing your home or had your retirement cut in half due to the recession, wouldn’t you spend time at work dealing with these issues? Even the model corporate citizen would have trouble answering “no” to this question.

But just how big is the problem?  Well, the Personal Finance Employee Education Foundation recently did some studies on personal financial distractions in the workplace.  You can estimate the annual cost of financial distractions at your organization with this calculation:

  1. Employees in your organization: ______________
  2. Divide by 4 (1 in 4 employees is in financial distress on average)
  3. Multiple by 16 hours (distressed employees spend 12-20 hours per week at work on money issues)
  4. Multiply by 12 months in a year
  5. Multiply by average hourly wage of your employees:__________

For example, an organization of 1,000 employees has approximately 250 financially distressed employees.  The company loses 16 hours of productivity per month for each of these employees which results in 48,000 hours of total lost productivity per year.  Assuming an average annual salary of $50,000/year, this company incurs $1,200,000 per year in lost productivity from financial distractions.

This is just one of several important issues that drive the need for financial wellness in the workplace.  If you take the time to sit down with the numbers, you will likely find that introducing these types of programs may be one of the higher ROI initiatives you have available to you.

Snoopy Weighs in on Financial Wellness

Published by JLarocque on April 14, 2010 in Benefits, Financial Education, Financial Wellness and for Employers. 0 Comments Tags: , , .

MetLife released its 8th installment of its Annual Study of Benefits Trends on Monday.  In comparison to prior

Financial Wellness

Employee financial issues a central theme in this year's survey

years, the themes of employee financial security and benefits communications played a more prominent role than ever before.  This was a natural emphasis given the backdrop of economic volatility and a renewed employer focus on benefits cost control.

We wanted to highlight and provide my perspective on three key points that came out of this year’s study:

There is a Health-Wealth Connection.  MetLife’s survey work, which is consistent with other studies we’ve seen, revealed a connection between an employee’s physical and financial health.  Put simply, those employees who assessed their medical health as “fair to poor,” were much more likely to report financial concerns.  MetLife therefore concluded that an employee’s health status impacts an employee’s financial situation.  Our conclusion would be a different one.  Given our experience with employee financial stress and the studies that have been done in this area, we believe strongly that it is an employee’s money issues that leads to poor health and NOT the other way around.  Stress has long been referred to as America’s #1 health problem and virtually every study you read points to money issues as the leading cause of stress (and it’s not close).

Benefits Communications Effectiveness on the Decline.  Each year, MetLife surveys employers and employees on their perception of benefits communication effectiveness.  This is one of those areas of true disconnect.  Over the past three years, employers believe they have made slight improvements to their benefits communications.  Employees, on the other hand, rate benefits communications as less effective than the year before.  In fact, this year only a third of employees rated their benefits communications as effective vs. 40% in 2007.  Just in the last three years, there have been such dramatic changes in the way that employees access information and learn.  And yet, too many employers have stuck to dated and ineffective forms of communications that have been in place for decades.

Personal Financial Distractions Drain Productivity.  In the past 12 months, 12% of employees surveyed took unexpected time off to deal with a financial issue and 17% reported that they spend more time at work on personal financial issues than they think they should.  Personal financial distractions are and have been an expensive problem for some time now.  What is encouraging, is that almost two-thirds of employers have now recognized personal financial issues as a drain on productivity and 45% acknowledge financial education as an effective solution.

Key takeaways:

  • The financial health of employees may be one of the largest determinants of their medical health.  Your health wellness strategy should include a financial wellness component.
  • You can improve employee understanding of benefits but you need a modern approach to the way that you communicate them.  This does not need to be an expensive undertaking – improving benefits communications will cost you a tiny fraction of the benefits themselves.
  • Employee money issues cost your company each day.  Providing your employees with programs that help them help themselves will increase productivity and employee loyalty.

April is Financial Literacy Month

Published by JLarocque on March 22, 2010 in Financial Education, Financial Tools, Financial Wellness and for Employers. 0 Comments Tags: , , .

Back in 2000, April was declared “Financial Literacy for Youth Month.”  Now, it’s just “Financial Literacy Month.”  Over the course of the last decade, it seems that us grown ups have shown that we really don’t know much more about money than our kids do – and therefore the Senate decided to drop the “youth” bit and include us adults in their call for better financial education.

And so what exactly are the folks in Washington trying to accomplish by dedicating an entire month to financial literacy?  Well, it’s quite simple actually.  See, the government recognizes that a key to restoring confidence in our financial system and maintaining America’s competitive advantage in the world is to provide financial education in our schools and workplaces.  And, while what we do in our schools is critical over the long-term, the best way to impact America’s reality today involves getting employers, or more specifically HR, to rally around the issue and help employees with their money.

Financial Literacy Month

Make the Most of Financial Literacy Month

In fact, those in Washington view the workplace as so critical to solving the financial literacy problem that recommendations have been made to extend tax incentives to employers that provide financial education (we’ll keep you updated on progress there).

You knew your job was tough, but seriously?  In addition to implementing that new talent management system, you have to restore confidence in America’s financial system?  Sounds like a lot of work.  Well, let’s take this one step at a time.  Here are some ideas for dipping your toe in the water and trying some things out come April:

  • Hold a “Creative Savers” contest.  Have employees submit creative ways they personally employ toconsistently live within their means and save for the future. It will be great for those who are struggling in this area to learn practical, everyday financial ideas that are making a positive difference in their co-workers lives.  And likely, while these ideas and practices can be quite creative, they will also tend to be relatively minor spending and/or saving tweaks that can be replicated in most budgets.  Have the 401(k) committee select the top three ideas, award some cool prizes to the winners and let the rest of the workforce benefit from their money magic.
  • Do a survey.  Financial Literacy month is a good time to take the money pulse of employees in your organization.  A well designed survey can help employees assess their financial situation and allow you to get a glimpse of the financial stress in your organization.  If you’re looking for a credible survey, I highly recommend the Personal Financial Wellness Scale which was built based on the research of Dr. E. ThomasGarman.  Uniquely, this scale allows employees (and HR) to compare results against national norms.
  • Do some seminars. Financial literacy month offers a great reason to reach out to your vendors.  You may want to start by calling your 401(k) administrator for retirement and investing related topics.  But don’t stop there.  There are a number of organizations that provide onsite financial workshops.  Some of these organizations are fee only, while others have programs where fees may be waived altogether.  If you are considering a no cost seminar provider, be sure that you understand the goals and objectives of the vendor.
  • Hold a fair.  Nothing like a little free food and drink to get the attention of your workforce.  These days, so many of your employees get the majority of their financial and health products from you.   Invite your vendors and have them come with thoughtful ideas about how to help employees improve their financial health – this may include topics such as saving for retirement, how to cut health care expenses or keys to a rock solid income protection plan.  In addition, make members of your benefits and compensation staff available for one-on-one discussions.

If you implement one or more of these ideas, you may be surprised at what you learn about your employees.  Employee financial distress is pervasive and you may decide that this April cause deserves a year round effort.

Financial Wellness for 2010 & Beyond – Plastic Revisited

Published by JS Wolff on February 2, 2010 in Economy and Financial Education. 1 Comment Tags: , , , .

Just last week, the Senate approved legislation increasing the federal government’s borrowing limit by $1.9 trillion.  When signed into law the federal government will be able to borrow more money than at any time in our country’s history, making our total national debt a mind numbing $14.3 trillion.  And this will only allow us to pay our bills through 2010!

Using credit for money

Putting this into perspective, according to the Heritage Foundation the federal government will take in an estimated $2.19 trillion of taxes in 2009.  Simple math tells us that owing $14.3T while collecting “only”$2.19T is not a recipe for fiscal health. So last week’s vote was essentially the Senate’s way of literally, passing the buck.  Recent groundbreaking election results indicate that American’s are telling elected officials to stop this madness.

But maybe leading by personal example is the best way to initiate national change. Instead of raising our personal credit card limits and unsecured debt as many Americans have done in the last decade; let’s consider taking a retro approach to plastic. Prior to the introduction of the binge inducing revolving card, the standard plastic issued was known as a “charge card”.  And now this concept is coming back.

What’s the difference? As opposed to revolving credit cards, most charge cards require payment in full at the end of each month.  If you can’t pay, typically a late fee is charged.  So while old habits are hard to break, after a few late fees you start to think long and hard before putting something in the shopping cart.

Charge cards can be less risky for both consumers and card issuers.  For the consumer, it’s obviously more difficult and painful to accumulate debt. Issuers like them because there’s less chance than with a revolving card that someone will be unable to repay them. There’s a much shorter leash.

So go ahead, buy anything you want and put it on the charge card, as long as you can pay for it by the end of the month. And then call your Senator to convey clear grass roots message…”I’m not buying stuff that I can’t pay for in 30 days, repeat after me!”

Rethinking the 401(k) Pitch

Published by JS Wolff on September 14, 2009 in Benefits, Economy, Financial Wellness and Investment. 0 Comments Tags: , , , .

For nearly 30 years, employees have been coached that the best way to save for retirement is to take advantage of tax deferred investing, most prominently through their 401(k) plans. This strategy has always been anchored in the hope that lower tax brackets await us during our retirement years. But current economic realities are causing many in the financial community to question whether tax deferred saving remains a healthy long term strategy for employees.

When 401(k) plans were first rolled out in 1981, the income tax rates and bracket structure were very different than today.    The top federal tax rate was nearly 70% and there were 15 different income tax brackets separated by just a few thousand dollars of income (See Tax History).  Given those conditions 401(k) contributions presented a great opportunity to both avoid high current rates and reduce W-2 income in the contribution year just enough to move into a lower bracket.  So it seemed like a double win, lower taxes in the contribution year and in the future, when the Plan was accessed during retirement.

Since 1981 the sustained effects of “Reaganomics” led to a steady decline of both tax rates (highest federal bracket from 70% to 35%) and the number of brackets (from 15 to 6). During this period, with few exceptions, the US economy experienced robust economic growth.  401(k) Plans got even better as a result. To attract and retain employees, employers with healthy bottom lines began to offer generous matching incentives linked to 401(k) participation.

But the length and depth of the current recession is now changing the outlook for today’s 401(k) savers in two significant ways. First and most importantly, the government funded stimulus packages and propensity to grow overall government spending must be paid for at some point. This future “balance due” can only offset by higher taxes or a devaluing of the dollar (inflation).  The second effect of the current recession is that many companies have cut back or eliminated matching 401(k) contributions.

So the question for the employee now becomes, “if I no longer receive any company matching, and I may have to pay higher taxes on withdrawals in the future, is the 401(k) still the right way to save?”

Enter sound savings principles and the Roth 401(k) to the rescue.  Match or no match, automation and consistency are two key factors in any saving’s strategy.  401(k) plans are still great because the money is automatically deducted from every paycheck before it can get spent.  The recently introduced Roth 401(k) addresses the more daunting issue of higher taxes in the future by allowing after tax contributions now and tax free retirement withdrawals in retirement.

So rather focusing on the now suspect virtues of tax deferral, maybe it’s time to pitch the 401(k) as primarily a great way to save, period.  Wise portfolio allocations and a balanced approach between the Traditional 401(k) and the Roth 401(k) will address the constant winds of change that remain outside of the investor’s control.

Raising Financially Responsible Kids Accidentally

Published by JS Wolff on July 6, 2009 in Financial Education and Financial Wellness. 0 Comments Tags: , .

Recently after conducting a financial education workshop for a high tech company, a young lady in her early 20’s wanted to get together to discuss how she could retire early. She had seen an infomercial that described the beauty of passive income and decided it was her ticket to an early exit.

Unfortunately, just after learning of her financial ambitions, she informed me that she had maxed out several credit cards and financed two cars (one for her boyfriend) to the tune of a significant five digit debt.  Even though she was making a good salary as a Human Resource professional, she was unable to pay her monthly bills and had stopped contributing to her 401(k).

Further, responding to the stress, she had just contracted with a credit repair outfit (another TV ad) to whom she had already paid $1,500 for services she was unclear about.  The only thing she knew was that the $1,500 somehow did not offset any of her debt.  Needless to say, it didn’t seem like passive income was going to happen anytime soon.

I wish I could say that I was a perfect dad when it came to teaching my kids about money, I wasn’t. But it looks like my three 20-something kids are avoiding the financial sabotage described above. In hindsight, I think the best idea we transferred as parents was that you don’t keep it all for yourself.  And though none of this was premeditated, the encouragement to give money away resulted in several hoped for financial behaviors and character qualities.  To name a few…

  • Although we were inconsistent about doling out an allowance, our kids figured out ways to make money and still chose to give some of that away. Seemed like it was more meaningful to give money that they had actually earned.
  • Don’ think the word “budget” was ever mentioned but  they seemed to pick up the idea on their own…they only spent what was left over after giving so they had to think more intently about financial  trade-offs early on.
  • The practice of giving apparently drew their attention to needs outside themselves, two of them have spent time working with non-profits and third world countries.

This blog entry is as close to a “raising financially responsible kids” book as you will ever get from this me.  Anything good that happened was purely by accident. But the best part is that accidents can sometimes have surprisingly decent outcomes.  And, as you probably noticed, I think my kids are cool.

As a final thought in keeping with our recent celebration of Independence Day, Thomas Jefferson spoke to the younger generation of his day regarding the wisdom of maintaining personal financial freedom…

“But I know nothing more important to inculcate into the minds of young people than the wisdom, the honor, and the blessed comfort of living within their income, to calculate in good time how much less pain will cost them the plainest stile of living which keeps them out of debt, than after a few years of splendor above their income, to have their property taken away for debt when they have a family growing up to maintain and provide for.”

Financial Wellness and Unintended Consequences

Published by JS Wolff on June 8, 2009 in Economy and Financial Wellness. 0 Comments Tags: , .

If my brother-in-law was lined up with 10 people and you were asked to pick out the economist, he would be easily identified. In the 35 years I’ve known Mitch, he has never cared a lick about the clothes he wears or the car he drives.  There is no pretense or image thing going on whatsoever.  He’s just a solid, albeit quirky guy who happens to be intellectually brilliant. And doing things his own way,  he retired early, owns a free and clear home in beautiful La Jolla, CA (my sister’s influence) and accumulated a fair amount of wealth, while never wavering from his extreme aversion to risk.

Since I’m in the financial education business, you can imagine that our conversations have touched on current economic events from time to time. He generally replies like the university professor he once was, exploring all the possible outcomes and remaining specifically non-committal. However, I was a little surprised by his very direct response to my most recent question…”What will be the most pronounced effect of the government’s stimulus package?”  “Inflation”, he replied.

While we don’t always agree, I totally concur that the recent government bailout actions will have inflation as their unintended consequence.  And if we think that a 40% market correction is bad, couldn’t a 40% devaluation of the dollar create the same effect?  The principles I learned in Econ 101 taught me that you can’t just print trillions of dollars and inject them into an economy without devaluing the underlying currency.  And it even feels more intuitively uncomfortable that we are using this “monopoly money” to buy assets that nobody else wants.

As Warren Buffet stated last month when commenting about where the bailout resources will come from, “I haven’t had my taxes raised,” said Buffet, “My guess is the ultimate price will be paid by a shrinkage of the value of the dollar.”

There are recent examples of country’s running into problems in this same way. In the early 90′s, the Yugoslavian government ran a budget deficit that was financed by printing money. This led to a rate of inflation of 15 to 25 percent per year.  The numbers actually got worse as they were dealing with other problems like socialism and rampant corruption… that are hopefully not part of our future.

Please hear me clearly, I don’t think the government should have stood idly by while the markets were imploding and institutions were failing at an alarming rate last year.  But for main street folks like you and I, it’s a good time to be thinking about measures to combat the potentially devastating effects of inflation.  Warren, Mitch and I are apparently not the only ones who are on this track. You may want to peruse this Journal article to learn more about some inflation fighting “vitamins” for your personal consumption. 

What’s in Your Financial Constitution?

Published by JS Wolff on May 25, 2009 in Economy, Financial Education and Financial Tools. 0 Comments Tags: , .

Voters in the state of California spoke loudly and angrily last Tuesday. After years of convoluted budget fixes, exotic borrowing schemes and skirting tough issues, Californians just said “no” to another series of band-aid fiscal ballot measures that just seemed like more of the same. Voter frustration has risen to such new levels that now there is even a movement to completely rewrite the State’s constitution to prevent the politicians from operating like credit drunk consumers.

“No Gold In State” was the title of this week’s article about California in The Economist magazine.  The article chronicled, “At one point during his desperate campaign for six ballot measures meant to reduce California’s gaping budget deficit, Arnold Schwarzenegger, the governor, pleaded with voters not to make California ‘the poster child for dysfunction.’ But on May 19th they did exactly that.”

The sludge-like layers of complexity that have become the California budgeting process all seem rooted in the inability of politicians to grasp the flow of money….basically economics 101.  And yet, when was the last time we heard someone running for office talk about their financial education or their qualifications for office because of their responsible economic track record?

Setting better boundaries by rewriting the State’s constitution may be a good start but I’m thinking our future depends upon something a little more homespun.  Let’s get this money thing right in our families. First, raise financially responsible kids and then later as adults we can send them off to run the government.

So parents, consider rewriting your family’s “constitution” to lend the same emphasis to money smarts as you do reading and math smarts. And the sooner, the better.  Scores of college kids get bushwacked by loans and credit card debt before they even graduate. A study conducted by The Project on Student Debt indicated that nearly half of all graduating college seniors enter their careers with 5 digit debt.

Helpful websites are popping up that simulate real life money situations and are targeted at the younger set.  A good example is Savings Quest which looks like it’s directed at the pre-teen – teen crowd.  In a colorful, narrated eLearning format, it walks the viewer through choosing a job, building a budget and saving for both short and long term goals. And importantly, even though it sort of feels game-like, the choices and resulting consequences can create some real life feelings.

Did I think it’s appropriate for pre-teen to teens? Sounds about right for those legislators in Sacramento.

Have Financial Baggage?

Published by JS Wolff on May 18, 2009 in Economy and Financial Wellness. 0 Comments Tags: .

A few weeks ago I referenced the “Miracle on the Hudson” and how Captain “Sulley” Sullenberger’s Flight 1549 heroics can guide us during financial emergencies. You may recall that Sullenberger safely landed a commercial airliner on the Hudson River after hitting a flock of geese and losing both engines. I was intrigued by his success enough to study a few of the attributes that led to this amazing outcome.

All of us have baggage, some good and some not. Sulley packed incredibly good baggage for Flight 1549.  In his bags were years of serious and specific training. While he had no idea of how the events would unfold, the resources he packed proved perfectly suited for the situation. When the engines blew out two minutes into the flight, Sulley drew upon among other things:

  • 42 years of pilot training, he obtained his pilot’s license at age 14
  • an Air Force military jet fighter background
  • glider pilot experience- the US Airways airliner was essentially a glider after its total power loss
  • he was a flight safety expert – Sulley operated a flight safety school and had personally studied emergency cockpit behavior under stress.

In his own words… “One way of looking at this might be that, for 42 years, I’ve been making small regular deposits in this bank of experience: education and training…and on January 15, the balance was sufficient so that I could make a very large withdrawal.”

Financially speaking, 2008 was a wakeup call giving us insight into some of our baggage.  As it happens with almost any sustained market run up, the ascent that occurred from 2004 – 07 seemed readily sustainable.  The tech bubble was in the rear view mirror, a distant memory.

But while pilots like Sullenberger spend 80% of their post-licensing training simulating emergency situations, we tend to learn little from past financial 911′s. Anxious to make up the losses from the last crisis, at the first break in the clouds we open up the throttle and let her rip down the tarmac once again.

Maybe going forward we can learn to leverage some our experience to navigate a soft landing the next financial crisis. The first and most important step is to realize that it will happen again.  Perhaps keeping a percentage of our assets in a tax advantaged, conservative position equal to our age is how we should pack our investment bags going forward.

Historical Worst Case Financial Planning

Published by JS Wolff on May 12, 2009 in Economy and Financial Education. 0 Comments Tags: , , .

I’ve talked to some pretty nervous investors recently…even with this latest uptick they’re not sure if they can ever trust the stock market again. With their fears being totally understandable, I decided to research an historical worst case scenario to help them evaluate the length of time they needed to be in the market to be reasonably assured that they wouldn’t  lose money.

This was accomplished by portraying someone who had decided to invest in the stock market just before the onset of the The Great Depression.  If we could ascertain how long it took this unfortunate soul to get their money back including the worst market years ever experienced, then it may be helpful to of us who are nervous to get back in the game.

First let’s look at some the characteristics of the Depression era market.  Interestingly, in the three years after the initial sell-off, there were five “bear market rallies” where the market rose more than 20%. All of these stock market highs were higher than the previous highs, and the following lows were lower than the previous lows.

So this must have been really frustrating and disorienting. Adding to the disorientation is that an average investor lost 35% of their assets six different times is the same three years.  Tragically, the final damage after all was said and done from 1929-1932 was a loss of over 90%!

Looking at this historical worst case, if someone had the great misfortune of buying into the market just before 1929 crash, it took someone about 10 years to get back to where they started. There have also been some great 10 year windows in the last 100 years. For example, there have been three 10 year periods that have produced annual average rate of returns of +18%.

Contrast this with an investor getting in just before 1929 but had only had a 5 year horizon, their average annual return would have been a loss of 16.4% per year!

So for those of us who want to make market decisions based upon the historical worst case, we might want a window of no less than 10 years as a minimum “time in the market” to feel comfortable we have little chance of getting out less than we initially invested.