Younger employees are an important target for financial education and communication should be planned carefully.
The growth of flexible benefits schemes has been mirrored by a significant increase in the number of employers offering some form of financial education to their employees. More than 17% of employers now do so, according to Workplace financial education, a survey by the Chartered Institute of Personnel and Development, published in August 2012.
Having more choice means employees must be better equipped to make the right decisions about their benefits. The introduction of pensions auto-enrolment increases the need for financial education so staff understand and fully value the pension scheme they are joining.
Many employers have moved on from using financial education just to help employees understand the more complex benefits, such as share plans and pensions, to providing a wider programme that helps staff make the most of their money. Typically, a comprehensive programme will cover budgeting, planning ahead, savings and investments, loans and insurance, as well as what is available in the form of employee benefits.
To get the best out of a financial education campaign, start by segmenting the workforce into different life and career stages. Financial education for staff approaching retirement is a case in point, but younger workers are also an important target group. The Financial Services Authority’s Levels of financial capability in the UK: Results of a baseline survey, published in March 2006, showed that employees in their twenties had the greatest need for financial education.
Separately, the 10th annual MetLife study of employee benefits trends, published in March 2012, found that poor financial management by staff in their twenties leads to 15% of them taking time off work to sort out money issues.
So what are the top tips for designing and rolling out a financial education programme for younger employees? Employers can start by making the most of their employee induction process. Integrating financial education into an induction programme, particularly the part covering employee benefits, is likely to have the biggest impact.
Employers should focus the programme on topics that are most relevant to younger staff. Information on budgeting, loans, mortgages and starting a savings habit, particularly for those saving for a deposit for a house or to pay off a student loan, will be of greatest interest. Information on long-term care, protection and death in service can be covered at a later time.
Auto-enrolment provides a great opportunity for wider financial education. Pensions are not an obvious thing for younger employees to focus on, but auto-enrolment enables employers to explain the benefits of saving for retirement and the real cost of delay. Typically, to obtain a pension worth 50% of their salary, a 20-year-old needs to save 10% of their income and a 40-year-old 27%.
Employers should consider integrating financial education into all benefits communication to show how a benefit affects an employee’s wider financial circumstances. Where flexible benefits are offered, guidance can show which elements of the package are likely to be most valuable at different life stages.
Finally, employers should consider multi-channel communication. Younger staff are likely to be most familiar with digital media, and there are some excellent resources that can be incorporated into an employer’s intranet site, but employers should not assume there is no role for paper or face-to-face communication methods. Although the Money Advice Service no longer provides free workplace seminars, an increasing number of providers now offer presentations in the workplace.
Clear objectives and feedback from staff are key to delivering a successful financial education programme.
Stuart Bailey is managing director, UK and Benelux, at Accurate Equity