FINANCIAL EDUCATION
How to guide to financial education
Financial education is a relatively new practice and while some employers may still query its relevance, recent guidance from Employee Benefits magazine says that the advantages are clear.
In addition to outlining the many positives of financial education, the guide goes further by explaining the various reasons employers might want to introduce it, how schemes are operated and methods of promoting such programmes effectively to employees.
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Employee Benefits says: “Financial education aims to provide generic information to employees about a broad range of personal finance issues. It can help employees to begin to understand and make choices and decisions about their own personal circumstances and the benefits available from their employers. It may not be advice, but it should not be passive either and, for the most part, must help staff find the right direction.”
Benefits of financial education
The guidance says that while there is no legal obligation to provide it, employers are beginning to realise the benefits of providing financial education to staff. Even now it is relatively widespread with research carried out by Employee Benefits in 2006 showing 62% of employers provide access to financial education in one form or another and a further 15% were planning to do so.
In short, the main benefits of financial education are:
Reasons for introducing financial education
Jonathan Watts-Lay, a director at JP Morgan Invest, sponsors of the guide, mirrors this view suggesting that employers are motivated in different ways when offering financial education. Some, he says, believe they should ensure that employees understand and appreciate the benefits on offer so that the standing of the organisation is enhanced among staff. As a result, employee engagement will be increased, and staff turnover and recruitment costs reduced.
Other employers, he says, consider that they have a moral obligation to let people know about their benefits packages, while there are also those employers that offer financial education as part of a risk management exercise in case of potential negligence claims in the future
New government initiative
Illustrating the importance of the subject, Employee Benefits also reports that the government is so concerned about the nation’s lack of financial knowledge that it has launched the National Strategy for Financial Capability.
Spearheaded by the Financial Services Authority (FSA), this involves a number of initiatives in schools, colleges and the workplace to improve financial capability. Employers have been given booklets for their staff and the opportunity to host seminars, while the Treasury has also appointed Otto Thoresen, the chief executive of Aegon UK, to carry out a review examining the feasibility of delivering a national approach to generic financial advice.
Schemes should be ongoing
One of the key messages coming from Employee Benefits is the need to have an ongoing programme of education rather than, as is commonly the case, as and when the need arises.
Graham Cooke, senior consultant at Jardine Lloyd Thompson, agrees and recommends that programmes should be run on an annual basis with sessions on different topics such as mortgages, debt management and, of course, pensions.
Promotion and communication
The guidance says that financial education can be delivered through a range of formats, from newsletters, brochures and booklets, to intranet information, web presentations and DVDs, seminars, workshops and even individual clinics.
In addition, as well as factual information about the benefits and services on offer in the workplace, it can cover issues such as pre-retirement planning, mortgages and debt management.
Some of the contributors to the guidance said that communications do not have to be expensive as service providers can help while others recommend segmenting the audience according to factors such as age. Middle-aged employees, for example, are likely to have different priorities to graduates with student debts.
More generally, the guidance says that no matter how good the employee benefits on offer are, their value can be undermined unless employers communicate them properly to staff.
A survey carried out by YouGov on behalf of Oval Financial Services in 2005, for example, found that only 24% of UK employees fully understood how their benefits work and just 18% how much their benefits cost their employer. As a result, many companies are now turning to third parties to help them get the message across via worksite marketing, specialist financial education providers, employee benefits consultants or independent financial advisers (IFA).
A method to deal with special events
Whether firms are strongly drawn to the idea of financial education or not the guidance says that there are a wide variety of events that will require some form of advice for staff.
For example, when benefits offerings are changed such as the introduction of flexible benefits, the closure of a defined benefit pension scheme or its substitution with a defined contribution scheme, staff will need to be informed.
Legal changes can also act as important triggers with the recent pensions simplification meaning that many firms had to adjust their schemes and also ensure that employees, especially senior ones, were equipped with the relevant knowledge to be able to make key decisions to protect their financial position.
Other events might include:
A final word
One final compelling reason for companies to provide financial education is provided by research conducted by Dr E Thomas Garman, president of the Personal Finance Employee Education Foundation. Employee Benefits reported that this research revealed that: “A lack of financial education could impact on employees’ performance at work with the finding that 80% of financially distressed workers spent time at work either dealing with or worrying about money problems. They were also found more likely to be absent from work and suffer ill health.”
Want to know more?
You can access the free back-to-basics guide, sponsored by JP Morgan INVEST, at the Employee Benefits web site at www.employeebenefits.co.uk/item/3197.
Employee Benefits magazine was launched in February 1997 as the first UK magazine to help companies align their benefits strategy with their corporate objectives. It’s the only publication to examine the full spectrum of benefits - from pensions and health insurance to company cars and crèches. To find out more visit www.employeebenefits.co.uk.