From HR to Hero – How Employers Can Use Wealth Literacy to Boost Worker ROI

Remember when most Americans had pensions? Or when Social Security checks covered retirees’ entire monthly expenses, as long as they slipped in to eat during the Early Bird Special?

Those days are gone for most, and not coming back.

In the 20th century model for retirement, employees could expect their employer and Uncle Sam to worry about the details of paying for their retirements. And why not pay your employees’ living expenses, if they live to see 65? In 1930, the average life expectancy was only 59.7 years!

But by 2014, average life expectancy had grown to a less-affordable 78.9 years. For all its vaunted complexity, the math behind retirement planning in this case was simple: employers could no longer afford to pay for pensions the way they were once structured.

Enter: the 401(k) and its siblings.

Times Have Changed, But Have Employees?

Defined contribution retirement plans like 401(k)s, 403(b)s, and their brethren come with a slew of advantages for employees, and one enormous disadvantage: they require employee participation and planning.

Not convinced that’s a problem? Consider that one in three American adults has nothing – $0 – saved for retirement. Another 23% have less than $10,000 saved for retirement.

Nor do most Americans have any idea of how much they’ll need. In one study out last week, a full 61% of respondents selected “I don’t know,” when asked to select how much they personally believe they’ll need for retirement. Another 8% selected “I never plan to retire.”

These numbers should be interpreted as a plea with urgency, and an opportunity to help. Nearly two-thirds of Americans can’t pass even a basic financial literacy test. If an adult can’t tell you that a $1,000 loan at 20% annual interest will cost $200 for a year’s interest, how can we expect them to plan their own retirement? (Yes, that was one of the questions on the financial literacy test.)

American workers need help. And who better to offer it than their employer, who has considerable time and capital invested in each worker, and who wants to keep earning on that investment as long as possible?

More Financially-Secure Employees = Better Employees

According to one study, for each employee under financial stress, employers lose 12.4 days’ worth of productivity a year.

If you think the answer is simply to fire all employees who show signs of financial stress, you may find yourself without a workforce. A full 85% of employees say they sometimes use working hours to handle personal finance issues, and a troubling 41% say this happens multiple times every week.

That’s a serious productivity problem.

In the same poll, when asked what kind of financial help from their employer would be most beneficial, the number one answer was retirement planning.

Employers can not only alleviate their employees’ stress, but in doing so they can enmesh themselves as an integral part of each employee’s financial plans. Employees who view their employer as not only a paycheck, but a partner and financial planner, will literally build their future around that employer.

Higher productivity. Lower turnover. And the cost? Offering basic information, tools, and direction on retirement planning and financial literacy. And, hey, maybe even an employee awards program for participating!

Retirement Planning & Forecasts

How many human resource departments send employees weekly financial and retirement planning tips? How about forecasts for how long they’ll need to work before retiring, or how much more they’ll need?

For that matter, how many employers bother to send monthly or quarterly tips and information?

Very few.

Imagine if HR departments sent employees just one link each week to a basic personal finance article. (They could even schedule it to go out on weekends, so employees could read it over their Saturday breakfast rather than at work.) How much better could their employees’ financial decisions be?

Better yet, what if below that article link, they sent a link to a retirement calculator, to engage employees directly in planning their retirement?

There are plenty of retirement calculators floating around the Internet. Some of them are easy to use. Even the worst calculators will still set employees to thinking about their retirement with a sense of ownership.

Granted, most retirement calculators come with some imposing limitations. They tend to be rigid and make far too many assumptions about line items like inflation, life expectancy, safe withdrawal rates, and so on.

However, the Choosing Wealth™ Calculator was built to provide both employers and employees with flexible, customized retirement planning data. You can choose your own assumptions, or better yet, offer or provide the calculator your employees so they can play with their retirement figures themselves.

Once employees start taking ownership of their finances, you get lower-stress, higher-productivity employees.

Beyond Retirement Planning: Wealth Literacy

If you don’t want your employees living hand-to-mouth, constantly slipping into financial stress, it falls to you to offer guidance. Start with simple financial literacy: how to determine a target retirement savings figure. How 401(k) plans work, and the tax benefits. How your company’s plan will help them accelerate their retirement savings.

But basic financial literacy, like basic literacy, is only the beginning. Most first-graders know how to read and are technically literate. But that doesn’t mean they’re capable of reading a novel, or a more accurate analogy for retirement planning: writing their own.

Beyond the basics of budgeting, how do you automate your savings and investments? What tools are available to help?

We believe basic financial literacy is a starting point, but anyone who wants to build true financial security needs wealth literacy. People should be able to pass the basic financial literacy test above. They should know that 20% annual interest on $1,000 means $200/year in interest. They should be able to recognize that it’s a high interest rate and know how to find cheaper funding sources.

People should understand the basics of saving for retirement or their children’s college tuition, with all the tax-advantaged options available to them.

How much diversification should investors strive for? Does rebalancing really matter? If so, how often should you do it, and can it be automated?

Financial literacy is a good start. But we’d love to see your employees move beyond the basics, and benefit from wealth literacy education.

The Retirement Gap

Most employees love 401(k) and similar retirement plans. A full 90% of employees say their company’s defined benefit plan helps them “think about the long term, not just my current needs.” The same study found that 80% of employees said, “tax treatment of my retirement plan is a big incentive to contribute.”

Participation rates are lower, but still high: 72% of employees with defined benefit plans take advantage of them.

But for all those warm and fuzzy feelings, and reasonable (if not stellar) participation rates, employees just aren’t saving enough for retirement. Earlier we pointed out that 56% of adults have less than $10,000 saved for retirement, and nearly 7 in 10 have no idea how much they’ll need to retire (or ignore the issue, assuming they’ll be able to work forever).

As an employer or HR professional, you’re in a position to become your employees’ wealth literacy partner. Provide basic financial literacy tips, then increasingly more advanced wealth literacy tips. Give them access to financial tools like our “not just for retirement” Choosing Wealth™ Calculator.

Let them lean on you. The closer they entwine their financial future with your company, the more engaged and committed they will become with your organization. When you assert yourself as their long-term wealth planning partner, you also encourage them to build a lifetime career around your company.

Pensions may be an endangered 20th century trend you’re happy to see go, but lifetime career employees? There’s a 20th century trend you may want to capitalize on and profit from.


Brian Davis is a personal finance and real estate writer, real estate investor, and co-founder of mom-and-pop landlord resource SparkRental. He’s “healthily obsessed” with financial independence and early retirement, and helping others achieve it.