HR professionals know better than anyone the challenge of the modern day workforce who are being asked to do more with less and stretch resources further than ever. Paul Clitheroe and Peeyush Gupta look at the relationship between employee productivity and financial security, and provide an overview of how financial planning can benefit organisations
HR professionals know better than anyone the challenge of the modern day workforce who are being asked to do more with less and stretch resources further than ever. Paul Clitheroe and Peeyush Gupta look at the relationship between employee productivity and financial security, and provide an overview of how financial planning can benefit organisations
According to US research, approximately 15 per cent of employees admit that their productivity is impacted by the stress of poor financial behaviour away from work. For some employers, the proportion of workers whose financial stresses negatively affect their work could be as high as 50 per cent. No doubt these findings would be replicated in Australian workplaces.
This 21st century phenomenon is no surprise given the economic realities of today’s world. The property boom and credit card binge has given Australia one of the highest debt-to-income ratios in the developed world. Macquarie Bank estimate that household debt has been increasing at the rate of 23 per cent a year while income growth is moving at only 4 to 5 per cent annually. This disconnect means the nation’s credit card debt is growing faster than it can be paid off.
In this environment, it is not easy to stay afloat financially, let alone get ahead. A Newspoll survey published last year reinforced the point, with 62 per cent of Australians saying they cannot afford their basic necessities. It is stress that cannot be switched off from nine to five.
The downstream affect is just as alarming with 70 per cent of retirees living on less than $16,000 per year. This is a massive decline in living standards and means that while retirement may be long and healthy, most people will have only limited choices at this stage of their life.
Knowledge is power
Building wealth is hard when individuals lack the skills to maximise financial opportunities or at the very least the knowledge to avoid painful financial mistakes.
Another US survey, conducted in the mid-1990s, found the financial illiteracy of workers was considered to be the most critical unaddressed workplace issue by HR professionals. Anecdotal evidence suggests there has been little improvement in this knowledge since then, even despite the increased media attention on personal finance.
In fact, the Federal Government has admitted more needs to be done by establishing a taskforce to look closely at how to improve the financial literacy of the Australian community. Workplace education will be one area the committee considers given the considerable hours Australians spend at work.
Every transition in life has a money impact of some sort or another. Some of these transitions are unexpected, as with redundancies. One in three executives, for example, are likely to experience forced job loss. At the same time, the concept of a job for life is long gone with workers more willing to move from job to job broadening their skills.
Then there is the sad fact that one in two marriages end in divorce, causing financial and personal upheaval. The regular upgrading or changing of homes can also mean that people are still paying off mortgages into their forties or even fifties. On top of that there are personal changes such as having a new baby or as the population ages the growing need for families to support the financial and emotional needs of aging parents.
In each case, people have financial choices to make but without a framework for these decisions it is difficult to make the right move and the results of a wrong choice can be disastrous. Workplace money education and access to specialist expertise can provide the skills and support employees need to make more informed financial choices.
Financial advice as an employee benefit
A 2002 survey conducted by Mercer Human Resource Consulting found that around two in three employees wanted their employers to provide financial planning in their benefits package. However only 13 per cent of employers offered this benefit.
Financial advice and education provides an opportunity for business to provide a low-cost enhancement to their benefits package. It is a benefit in tune with the needs of a 21st century society and one that can be tailored to the different layers of a workforce.
It starts with simply stopping people losing money. The first educational initiative is to provide a clear framework so employees avoid the get-rich-quick schemes and other disastrous strategies that ultimately cost them money.
This knowledge is particularly important where employees are receiving lump sums, such as retirement and redundancy, when they are prone to the emotive sales pitches of the unscrupulous.
A coordinated program of support at times of emotional difficulty can ensure an employee feels their employer has treated them with respect, provided access to an expert and offered a solution that is in the employee’s best interest.
There is also the option of more general money education through mediums such as the internet and face-to-face seminars. The objective here is to equip employees with the skills they need to better manage their financial affairs. Among the modules that can be provided are: cash flow management, budgeting, controlling debt, understanding superannuation and financial statements, better banking, retirement planning and the basics of investing.
For executives, quality advice is about providing access to a specialist team of advisers ranging from senior financial advisers to experienced accountants and private bankers. Together these specialists can develop a comprehensive plan so the executive maximises their financial opportunities.
Rolling out financial planning
Once an organisation has decided to add financial advice to their employee benefits program there is an effective path to put the plan into action. The steps are:
1. Determine a shortlist of advice providers. Use independent surveys, such as last year’s ASIC/Choice survey, on the quality of advice combined with the previous financial planning experiences of people in the business to draw up a short list of potential advice providers.
2. Assess advice providers. Develop criteria to rank the firms on the shortlist. The criteria should include: the quality of advisers and advice; the technical support advisers can access; the firm’s ability to educate the workforce; office locations relative to your business; the range of implementation solutions, and the fees and charges that would apply in different situations.
3. Pilot advice offer. Conduct a pilot program with a group of employees who are representative of the wider workforce. Road test the advice offer including general workplace education and individual solutions to determine the value of the offer for executives and general employees. Modify based on employee feedback.
4. Roll out and communicate. Deliver the program across the business by harnessing the resources of the advice provider and communicate the new benefit.
Evidence from the US suggests that embracing financial advice as an employee benefit can deliver improved staff retention, enhanced morale and increased productivity. Most importantly, not only does the workplace benefit but it also means an employee can use their pay packet for what it is intended – to create a better life.
Paul Clitheroe is a founding director of financial advice firm ipac, host of Channel Nine’s ‘Money’ reports and chief commentator for Money Magazine. Peeyush Gupta is also a founder of ipac and company CEO.
