Can Financial Literacy Be the Key to Employee Retention?
by Nayya Marketing December 13, 2022
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The Bureau of Labor Statistics reports that a staggering 4.5 million Americans quit their jobs in November—a sign that the Great Resignation is far from over.
Considering the labor shortages evident in virtually all sectors, organizations must devise ways to better engage, inspire, and retain existing employees. One often overlooked strategy is teaching and reinforcing the importance of financial literacy in the workplace.
In a recent PwC Financial Wellness survey, 54% of employees cited finances as their largest source of stress. Implementing a financial literacy education program can benefit the company in many ways, including reducing stress, increasing productivity, and fostering retention.
In this guide, we'll examine how implementing a financial literacy program can help improve employee retention. But first, let's get down to the basics.
What is Employee Financial Literacy?
Financial literacy is the ability to comprehend and apply financial skills to make sound decisions. Employee financial literacy is concerned with providing workers with financial knowledge to help them make better financial decisions and plan for their financial future.
A financially literate employee can apply financial skills such as budgeting, saving, and investing to make the most of their finances, particularly during economic downturns.
Personal finance and basic financial/investing knowledge become even more essential during crises like the 2007 – 2008 financial crisis and the COVID-19 pandemic. By developing financial literacy skills, employees have a higher chance of finding success and financial stability in times of economic disruption.
Why Financial Literacy Is Critical for Employee Retention
Unfortunately, the United States does not rank high in financial stability — meaning, a gap exists where financial education should be.
In fact, in a 2019 Tennessean report, America was ranked 14th in the financially literate adults category despite being the world's largest economy.
The report further reveals that 37% of Americans could not answer questions about inflation, diversification, and compound interest. Being financially illiterate can cause money problems down the line, which in turn, can result in financial stress.
For employees, financial stress can lead to health problems such as anxiety and depression, which can significantly affect their productivity. Since financial stress makes employees unable to bring their best selves to work, they become less productive and eventually begin looking for new jobs with higher compensation. This negatively impacts employee retention.
Implementing financial literacy programs at the workplace can help foster employee retention and engagement.
1. It Reduces Employee Stress
As mentioned, too many employees are stressed out over their finances.
It's all too common for employees to worry about inflation, groceries, gas, mortgage, and other expenses that are skyrocketing due to inflation. This kind of stress results in symptoms like depression and high blood pressure.
Helping your staff feel more secure about their finances through financial literacy programs is key to lowering stress. It gives them practical knowledge of how money works and how to spend it wisely and responsibly.
For example, through financial literacy, employees can learn how to create budgets, manage debts, save for long-term goals like buying a home, and invest in an income-generating project.
Employee Benefits News conducted a survey on financial literacy among employees. They found that after completing a financial literacy program, the number of employees who felt "highly stressed" about their finances dropped from 52% to 19.2%.
Investing in such incentives relieves employees' stress and enables them to trust the company more, which eventually leads to employee loyalty and retention.
2. It Improves Employees' Productivity
According to the 2018 Financial Education for Today's Workforce survey, two in five respondents said that personal financial issues impacted their job performance.
Further, the survey indicated that 64% of employees could not focus on their work, resulting in absenteeism and tardiness at their workplace.
Introducing financial education programs can help employees focus more on the tasks at hand and deliver higher-quality work. The less your staff are worried about issues outside of the office, the more productive they will become.
More productive employees are healthier and happier. In times of economic distress and inflation, financial literacy programs can mean the difference between employees staying at your organization, or leaving to find a role that pays a higher salary.
3. It improves Their Financial and Business Acumen
According to Harvard Business Review, financial literacy can help employees achieve the following in business:
- Make sound business decisions
- Better understand how expenses impact a company's P&L and balance sheet
- Design budgets that won't hit the company's bottom line hard
- Understand the impact of their actions in a broader sense to better improve an organization's financial health
Financial literacy education imparts these skills to employees, allowing them to better understand the business landscape.
In addition to paying employees a competitive rate, providing them with financial literacy education helps them achieve financial and professional growth, which is critical to employee retention.
When offering employees benefits, companies should consider implementing financial literacy programs. These programs can help relieve employees' stress, boost productivity, and improve their business acumen.
If done right, these programs help employees achieve financial and professional growth, which are critical to boosting employee engagement and retention.
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