The need for financial education in the workplace has been highlighted by the credit crunch, but how far should employers go, asks Laverne Hadaway
Even before the credit crunch began to take its toll, the concept of providing financial education for staff was rising in prominence. The publication of the Thoresen review of generic financial advice: final report last March, for example, set out a framework for a new approach to financial information in the UK that identified a key role for employers.
The current economic downturn means more employees may now be dealing with more pressing financial issues, particularly concerning debt, mortgage repayments, and the need to better manage their finances.
This will inevitably have an impact on the type of lessons they require. Managing debt, for example, is more of a priority, as interest rates are less favourable than they used to be. Angus Jones, managing director of Clarity Global, says that whereas employees might previously have used their savings to buy shares or pay into their pensions, they now need the money to pay off their debts.
Some employers are offering alternative savings options to help meet staff needs. For example, a graduate may be offered a 5% pension contribution with an option to put 2% of this towards paying off unsecured personal loans that incur high interest rates.
The services required from independent financial advisers (IFAs) also appear to be changing. JP Morgan Invest, for example, now runs credit crunch sessions for employees covering topics that include managing and consolidating debt, and where to go to find better mortgage deals.
Many advisers also say they are increasingly being called upon to speak to staff who are being made redundant, says Jones. “This is one of our fastest [growing] services. Good employers give staff financial counselling on exit. It is important for employers to be seen to be doing the right thing,” he adds.
But some employers may question why they should provide such services. With the economic downturn, staff are likely to face more financial problems, increasing their stress levels and impacting workplace productivity. Financial education also helps employers to communicate the full value of their benefits package to staff.
Darren Laverty, a partner at Secondsight, adds that the economic situation gives employees another excuse not to save, as this cuts into their disposable income. He argues that the primary aim of financial education is to get employees to want the things they need. “Why are employees interested in debt but not savings? They want to get out of the pain of debt but don’t play the movie long enough to visualise the pain of a future without savings,” he says.
Therefore, employers have a role to play in using financial education to stimulate employees’ curiosity about issues and motivating them to take action, particularly when it comes to engaging them with the benefits they receive. “Rather than push staff, employers should help them to jump. Until [staff] want [benefits], employers do not get a full return on [them],” says Laverty.
He gives the example of PMI and says that although the perk should not be emphasised as much when employees feel young and indestructible, the financial educational programme can mention facts such as the 700,000 people on National Health Service (NHS) waiting lists in order to boost staff appreciation of the benefit.
When it comes to offering financial education, there is much debate about how far employers should go. Many simply provide access to the free service offered by the Financial Services Authority (FSA), which comprises facets such as booklets and group presentations. However, questions have been raised about whether this is sufficient. Jonathan Watts-Lay, a director of JP Morgan Invest, which is on the FSA’s panel for delivering the service and runs sessions for employers on a voluntary basis, as well as a paid-for service tailored to employers’ needs, says: “The FSA’s service is generic. What we do is different. We give more detail and tailor this to the benefits on offer. The FSA’s service provides more of an overview.”
He suggests that where an organisation has a predominantly low-paid workforce which it wants to do something for but is unwilling to spend any money, the FSA is likely to be invited in.
Jones also describes the FSA’s seminars as limited. “At first we thought [it] might put us out of business, but all [the FSA] has done is open the eyes of employers [to the fact] that the issues are broader and larger. The FSA provides a basic grounding but it is not individual and it is not advice.”
He adds that the feedback after FSA sessions is usually that employees want more information on specific issues.
Flexibility
FSA spokesman David Whitely says the organisation’s workplace initiative is just one part of its national financial capability strategy, launched back in 2006. He agrees it is generic but says attempts are made to adapt materials to suit specific workforces. “We ask what they want us to talk about and we can tailor the content and delivery. People find it useful and it is not too generic for most of them. For some employees, it is the first they have heard of some of [these subjects],” he says.
Whitely adds an additional attraction of calling in the FSA is that its representatives are not allowed to try and sell any products or advice to staff. This may be an attraction to those employers that are fearful of recommending financial advisers which might sell products to employees that then turn out to be problematic later on.
Although advisers, rather than employers, are liable if regulated advice is given and something goes wrong, employers may be worried about endorsing an adviser and then being sued somewhere down the line.
If the FSA’s service provides a foundation for financial education that can stimulate employees’ appetite for more information, it raises the question of how much more employers should provide.
Jones says: “This depends on how complicated employees’ financial worlds are. If they are directors, with shareholding requirements and have contributed the maximum amount to their pensions, they [will] need detailed information leading to individual advice. But someone who earns £15,000 a year and is single is unlikely to need so much.”
The more choice and flexibility there is around benefits for employees, the more education is needed. “What is the point of giving employees choice and then not providing education on how to use it?” asks Jones.
Boost engagement
Methods of delivering financial education range from online tools through to group presentations and one-to-one sessions. Employers can also opt for a combination of these. For example, following a group seminar, an employer may be willing to pay for one-to-one clinics to address questions from staff.
Watts-Lay says that advisers holding clinics can make it clear no recommendations will be made, specific advice given, or specific products or services mentioned. “It may be we say staff should get advice [which], could then be part of an arrangement with their employer, or they may have to pay for it themselves.”
The way staff are informed about the financial education sessions is also important. Laverty says it is all too easy for employers to resort to electronic communication. Instead, a letter from a senior figure could be sent to each employee at home, inviting them to the presentation or seminar.
Overall, financial education should make employees feel cared for and informed, as well as helping them to deal with any money worries, thus boosting their engagement levels.
Let’s talk money†
- The economic slowdown has heightened interest in some aspects of the provision of financial education in the workplace.
- The Financial Service Authority’s s free scheme can stimulate employees’ appetite for more detailed and specific information.
- Financial education can motivate and stimulate staff to appreciate and make better use of the benefits employers offer, ultimately promoting employee engagement.
- The wider an employee’s benefits choice and the more complicated their world, the more financial education is likely to be required.
- The format of financial education ranges from using online educational tools through to group presentations highlighting an individual employer’s benefits, to one-to-one clinics.
Case Study: IT firm rationalises pension arrangements
Following its merger with Certegy, financial technology firm, Fidelity National Information Services had three pension schemes: a stakeholder plan, a contracted-in money purchase plan and a group personal pension (GPP).
To harmonise this perk, it consolidated the schemes into a new GPP. Julie Chell, Fidelity’s HR director for Europe, the Middle East and Africa, says: “We wanted to align our compensation and benefits packages and provide a competitive pensions offering to all Fidelity’s employees.” Between August and September 2007, the firm set up focus groups to discuss what it wanted to do. It also held group presentations about the new GPP, followed by one-to-one meetings with an adviser for its 300 staff.
In these sessions, staff could receive individual advice about the new scheme, their old pension and any scheme they might have been part of with a previous employer. The new scheme went live in January.
“The objective was to help employees understand whether they were saving enough for retirement,” says Chell.
Staff who were not on track were offered the opportunity to commit to increasing their contributions in the next two to five years.