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Controlling financial stress

Darcel Depweg

The 2005 National Survey on Financial Stress and Individual Plan Health reveals “a dramatic increase from 2004 in the number of workers indicating some need of assistance in deciding how to allocate their 401K and retirement plan assets.” More than 65 percent of “workers looking for help, versus just more than half of all workers in 2004 and 2002.” The most cited sources of stress in the survey were saving enough for retirement (39 percent), debt (37 percent), affording a big-ticket item (32 percent) and paying monthly bills (30 percent).

In an environment of growing concern over costs of employee benefits versus employee productivity, the effect of personal financial stress on employee productivity is a topic of growing concern. Thomas Garman,

Virginia Tech Professor and COTA Fellow, says:

* 34 percent of workers rate their financial stress as high to extreme.

* 54 percent of workers say they worry about how much they owe.

* 75 percent of workers report that they have made better financial decisions as a result of financial education.

* 53 percent of workers report dissatisfaction with their personal financial situation.

* One-third of workers report that money worries sometimes hamper job performance.

* 56 percent of workers have reported their financial situation had improved because of workplace financial education.

In summary Garman notes, “There are substantial costs to employers caused by the stresses associated with the poor personal financial behavior of employees. This is the most glossed over and ignored worker issue today.” Further, Garman estimates that employers can expect as high as a nine-to-one dollar return on

investment in employer-sponsored workplace financial education.

Employees, when given the opportunity, would like to broaden their knowledge beyond just retirement education when offered a comprehensive financial education plan.

Workplace education benefits both the employer and employee. For the employee, more knowledge will result in better financial decisions and overall financial well-being. Employees who are taking maximum advantage of the benefits available to them will more likely have greater job satisfaction, with may result in less turnover.

For the employer, research studies have shown that employees who are financially healthy are more productive. They are absent less often, spend less time at the workplace dealing with financial crises, and earn higher job performance ratings.

The benefit to providing workplace financial education to employees also reduces their fiduciary liability. Often this education is limited to a Web site or annual visits from the plan provider and addresses only the retirement education. As studies show, this kind of education falls woefully short of addressing the kind of health and productivity costs employers face with the mounting financial stresses of employees. On the other side of the equation is the fear that employers may incur exposure to liability by providing financial education. JinHee Kim PhD notes, “Although concerns about fiduciary liability stops many plan sponsors from giving workers financial advice, the Pension Protection Act 2006 clarifies that employers are not responsible for the individual advice given by professional advisers to individual participants: this liability is assumed by the adviser.”

While each company has a 401K or pension administrator who usually assists participants with investment choices in their retirement plans, it is also beneficial to both employer and employee to offer a more comprehensive financial education plan. The study: Financially Distressed Consumers: Their Financial Practices, Financial Well-being and Health, notes: “Sociological research data indicate that four factors strongly predict happiness and overall well-being in most cultures: health, economic status, employment, and family relationships. People are happier when they are healthy, employed, married or in a committed relationship, and financially secure.” It may sound simplistic, but happy employees do make healthier and more productive workers. As the report states, “Workplace financial education programs have been found to increase the participants’ confidence in their investment decisions, change their attitudes in positive directions, and improve their personal financial management behaviors, such as saving more money. Employees who attended workplace financial education … report less financial stress and higher financial well-being than those who did not.”

Darcel Depweg is a Certified Financial Educator affiliated with the Heartland Institute. Contact her at darcel.depweg@hife-usa.org or 827-1133.