Financial services companies are taking many steps to educate their employees in personal finance topics.

By Gene Stone,
FLMI, ACS, CLU
Senior Associate, LOMA

Can you balance a checkbook? Decode a credit report? Understand all of the employee benefits available at your company? Distinguish a secured bond from a debenture? Properly allocate your personal investments? Are you, in short, financially literate?

• Many people—too many—are not. Consider:
• Only 21 percent of U.S. workers say they are very confident they’ll have enough money to live on in retirement.¹
• U.S. high school seniors, on average, correctly answered only half of the questions on a basic personal finance and economics test.²
• The average credit card debt per U.S. household rose from $2,985 in 1990 to $8,562 in 2002.³
• Consumer bankruptcies for the 12-month period ending September 2003 hit a record 1.63 million, up almost 8 percent from a year earlier. ⁴
• During the third quarter of 2003, the rate of foreclosures for Federal Housing Administration (FHA) loans was the highest ever recorded.⁵
• Personal savings as a percentage of personal income decreased from 7.5 percent in the early 1980s to 2.3 percent in the first nine months of 2003. ⁶

And so on and so forth.

Financial illiteracy is such a concern that, to create awareness, the U.S. Senate declared April 2004 "Financial Literacy Month."

One problem with improving financial literacy is defining the term. One formal definition of personal financial literacy is the ability to read, analyze, manage, and communicate about the personal financial conditions that affect material well-being. Financial literacy includes the ability to discern financial choices, discuss money and financial issues without (or despite) discomfort, plan for the future, and respond competently to life events that affect everyday financial decisions, including events in the general economy.⁷

Observing the dismal statistics and trends, many financial services companies have trumpeted new programs—some free, some fee-based— to improve the financial literacy of their customers. But how much are they doing for their own employees, who also contribute to the consumer statistics?

A good deal, in many cases. Increasingly, financial companies are making available diverse programs (virtually all for free) whose goals are to improve employees’ understanding of personal finance topics and help them take the best advantage of the company’s specific employee benefits.

"The feeling is, you as an employee of Nationwide are responsible for your financial future," said Jack Towarnicky, Associate Vice President of Benefits Planning at Nationwide. "It’s our job to equip you with the tools you need, but it’s up to you to act. It’s one of those times that you really need to be a self-starter."

The pressing need for improved financial literacy comes from three areas. ⁸ First is the previously discussed deterioration of personal finances. Second is the proliferation of new, and often complex, financial products that demand more financial expertise of consumers. Third is the replacement of defined benefit pension plans with defined contribution plans that shift responsibility to consumers to fund their own retirement. Turbulent market conditions, changing tax laws, and homeland insecurity compound the need for sound financial literacy. ⁹

Financial illiteracy has numerous consequences for individuals and employers. Lack of financial knowledge can affect an individual’s or family’s ability to save for long-term goals and make them vulnerable to severe financial crisis. People who are financially illiterate are reluctant to buy (or enroll in) financial products they need but do not understand. ¹⁰

For employers, poor financial literacy among employees has numerous tangible and intangible costs.

"We believe there is a significant correlation between financial stress and workplace performance," said Paula Edwards, CLU, CEO of Nationwide Federal Credit Union. "Our role is to help reduce the financial stress of our employees and thereby improve workplace performance."

The workplace can be a powerful setting for financial education. A 2000 Fannie Mae study concluded that "Workplace financial education is the venue for reaching most people." Workplace financial literacy programs have positively demonstrated that financial education can be "profitable," as evidenced by more productive staff and the attraction and retention of employees. ¹¹

One inherent advantage of financial services firms is an abundance of financial planning and benefits expertise on staff. The same financial practitioners who provide guidance for customers can also facilitate personal finance workshops, seminars, and courses for company employees. KeyCorp, for instance, uses fund managers from its mutual fund group, Victory Capital Management, to lead mutual fund seminars for Key’s other employees.

Typical financial literacy topics for employees include basic financial principles (budgeting and cash management), debt planning, retirement planning, investing, college funding, insurance planning, and estate planning. The education is delivered in various settings, including classes, seminars, workshops, and self-study courses (print and online). 

Retirement planning seminars are the backbone of many employee financial literacy initiatives. This news is a relief to anyone concerned about being able to build a sufficient retirement nest egg and spend it down wisely.

The need for retirement planning education is critical. According to the 2003 Retirement Confidence Survey, which is administered annually by the Employee Benefit Research Institute, American Savings Education Council (ASEC) and Mathew Greenwald & Associates, one-quarter of respondents age 45 and up plan to postpone retirement because of insufficient savings. The survey also showed that workers continue to save blindly, and they routinely underestimate how much income they will need during retirement. ¹²

A few of the many companies that offer comprehensive retirement planning education programs for employees include Northwestern Mutual Life, Fidelity Investments, Nationwide, New York Life Insurance Company, SunTrust, The Hartford Financial Services Group, and Jefferson-Pilot Financial.

Each year, Northwestern Mutual offers a two-day pre-retirement seminar for employees age 50 and over and their spouses. Day 1, which is facilitated by an outside Certified Financial Planner (CFP), touches on many financial and nonfinancial aspects of shifting to a non-working life. Day 2, run by Northwestern’s own retirement planning experts, is more quantitative, with discussions of the company’s retirement benefits, asset allocation strategies, estate planning, and life and long-term care insurance. Speakers from the Social Security Administration and Medicare also participate.

Jefferson-Pilot Financial’s Retirement Readiness Workshop is also two days. Attendees complete a Retirement Success Profile that highlights 15 financial and psychological factors of a successful retirement. The Profile compares the future retiree’s attitudes about retirement with his or her current behaviors, thus revealing any gaps between the two.

"For example, one of the Success Factors is leisure activities," said Jay Wenberg, JD, vice president of management development for Jefferson-Pilot Financial. "Let’s say someone puts down on the Attitudes section that they plan on doing a lot of woodworking during retirement, but from their Current Behaviors we learn they don’t have any power tools in the garage. That gap is something that needs to be addressed."

At SunTrust, employees age 55 and up who have been with the company for 10 years are eligible for a day off to participate in a pre-retirement workshop. The workshop devotes equal time to the accumulation phase and the distribution phase of retirement finance. Participants learn more about the company’s pension and insurance benefits for retirees as well as other factors for a successful retirement.

"People want to know, ‘When I get to retirement, do I have an income I can’t outlive?’" said Mike Armistead, SunTrust vice president of retirement education and facilitator of the pre-retirement sessions. "Through forced savings plans like 401(k) plans, people are doing a better job of setting money aside. They have less of an understanding of how to distribute that money during retirement so that they have an income for life."

The Hartford Financial Services Group offers a three-evening pre-retirement seminar for eligible employees. Among the presenters are in-house financial planners, a tax attorney who discusses estate planning, and a representative from Social Security.

General investment planning is another popular topic of financial literacy education. Fidelity Investments places great emphasis on investment education for its 29,000 U.S. and 1,500 worldwide associates. According to Jerry Porter, Director of Financial Services Education at Fidelity, three reasons for the push are to make associates better personal investors, better advocates of Fidelity, and better job performers.

Fidelity offers its associates a number of personal finance classes, many of which are led by the financial advisors who work in the company’s retail financial centers. Associates also have access to financial advisors for one-on-one sessions, and certain internal employees are devoted to helping Fidelity associates with their investments. All associates also have access to a comprehensive PortfolioPlanner tool that helps them set financial goals—everything from saving for retirement to saving for a child’s wedding—and track progress.

"We know that people who are unfamiliar with investing get scared, so they make bad choices, like putting all of their 401(k) contributions into cash," said Porter, who writes a regular financial education column in the company’s employee newsletter, Fidelity Exchange. "We want to make our associates the best personal investors they can be. We give them vast resources, and from Day One of employment, we educate them about investing."

While investment education for employees is laudable, companies must take care to provide guidance, not advice. Investment advice tells an employee which specific security to invest in, whereas guidance does not.13 This distinction is critical, because certain people who provide investment advice to retirement plan participants are considered fiduciaries and have potential liability in connection with participant-directed investments.

"We very much make sure not to give advice to people, but to give employees the resources to make their own, informed decisions," said Bill Buholzer, director of employee benefits at Northwestern Mutual Life. "We’re very careful about that, even when our own financial representatives are running the workshop or seminar."

Many financial services firms have assembled a series of employee seminars and workshops on personal finance topics. For example, TIAA-CREF has a Financial Education Series consisting of 25 seminars. Sessions are offered for TIAA-CREF’s 6,000 employees at three main locations (New York, Charlotte, and Denver). Some of the more popular workshop topics include "Developing an Investment Strategy," "Life Insurance," "Saving for College," and "A Woman’s Money, A Woman’s Future." TIAA-CREF subject matter experts facilitate each session.

"We use a workshop setting for this series to encourage interaction and questions," said Rosemary Markowski, Senior Consulting Officer, TIAA-CREF. Participants in "Developing an Investment Strategy," for example, have a pre-class assignment. Class time is devoted to using tools that allow each participant to develop a personalized investment strategy. All participants exit the class with an Action Step.

Wachovia Corporation has a series of three financial education workshops for employees. The topics are "Saving for Retirement" (making the most of Wachovia’s 401(k) plan), "Planning for Retirement" (setting and meeting retirement goals), and "Asset Allocation Planning."

Each spring, Northwestern Mutual offers its 4,500 employees a six-part workshop series on financial planning. The components are "Basic Budgeting and Debt Management," "Individual Retirement Accounts (IRAs)," "Asset Allocation," "Estate Planning," "Saving for a Home Purchase," and "Education Financing."

Funding children’s college education is another common financial education topic among financial services companies.

In 2003, New York Life Insurance Company debuted its full-day College Funding Fair, featuring a mix of outside speakers and in-house experts. The featured presenter was Kalman Chany, author of Paying for College Without Going Broke. Other presenters were from Upromise, a free online college savings service; American Education Services (AES), a full-service financial aid organization that also helps parents uncover scholarship opportunities; New York Life’s 529 plan, CollegeSense; and Wells Fargo.

The College Funding Fair was held again in May of 2004 and was simulcast live on the company’s intranet for employees outside New York.

"We made the College Fair attractive to employees of all ages," said Kathleen Lavin, assistant vice president of work/life at New York Life. "Employees with young children who are in the early college-funding stages probably got all they need from the first fair. But people with high school-aged children are in full panic mode right now and want to hear all they can about paying for college."

Many firms deliver financial literacy to employees through personal finance courses. Nationwide Federal Credit Union offers its members, who are Nationwide employees, classroom-based financial courses that are taught by two certified counselors from Consumer Credit Counseling Services. Last year the two counselors conducted 89 classes, as well as many one-on-one sessions, touching more than 1,600 Nationwide employees.

"When we started these classes, we were concerned that our employees might be embarrassed to be seen by their co-workers going to a class in, say, how to balance a checkbook," said NFCU’s Edwards. "But our people want to improve their financial situation, and if necessary, an employee is willing to talk openly about what a mess his or her credit is."

Nationwide Federal Credit Union also offers Nationwide employees a series of basic financial courses online. The MoneyChoices series, sponsored by Visa, consists of 20 lessons in five courses: "Financial Basics," "Your Financial Future," "Setting Goals," "Building Financial Skills," and "Tips & Resources."

To help its employees better understand employee benefits in general, and the company’s offerings in particular, the Hartford Financial Services Group sponsors employee benefit workshops each fall. The purpose of these workshops is to help employees customize their benefits elections. Workshop facilitators guide employees through benefit and pension options, and they model the options around personal situations. Employees can also call a toll-free number for one-on-one assistance developing an individual benefit plan.

"We have made this session broader, deeper, and more far-reaching than it used to be," said Karen Macke, senior vice president of compensation and benefits at The Hartford. "For example, we’ve added a session on our flexible spending account benefit. Since doing so, utilization in this benefit has increased from 10 percent to 30 percent of the eligible population. There’s a big demand for education like this."

Philippines insurer Cocolife offers a free forum called "How to Manage Your Personal Finances (Those Credit Card Blues)." The topics addressed include balancing expenses versus earnings, prioritizing needs over wants, the criteria you should use for determining whether to use cash or credit cards for a certain purchase, differentiating a charge from a credit card, and the credit card cycle.

SunTrust sponsors a Mapping the Future seminar program for its employees. A key component is enabling participants to perform a high-level gap analysis to uncover any potential shortfalls toward their various savings goals. The session also covers basic investment strategies and ways to minimize expenses and maximize savings. The company is planning an advanced course for employees who want to undertake more sophisticated financial planning.

At the Great Eastern Life Assurance Company in Singapore, all staff who deal directly with customers and agents take an introductory financial planning course given by the company’s Centre of Excellence. The company also teaches staff about the benefits of financial planning. And to encourage employees to meet their financial needs, Great Eastern is one of many financial services companies that offers discounts on its own products to its employees.

Financial companies also continue to make use of technology to improve their employees’ financial literacy. Fidelity is beginning to use desktop technology to beam its financial classes live to remote employees’ computers.

In late 2003, Lincoln Financial Group implemented a new human resources Web site for employees. The site, called MyLinc, arranges benefit information and education into sections—MyLife (life insurance, military leave, adoption assistance), MyHealth (health insurance), MyMoney, (payroll, retirement plans, stock purchase plans), MyTools (claim forms), and MyWorkplace (company policies).

Finally, companies have found that one of the best ways to improve financial literacy is to periodically remind employees about educational offerings and to contact them at actionable moments—for example, holding a benefits workshop in conjunction with open enrollment. KeyCorp employees who are nearing the annual 401(k) contribution limit will receive an email about other savings options. New employees who have not enrolled in the 401(k) program within 45 days of their hire date receive an email reminding them of the benefits of enrolling in the plan.

"Even though our people work in the financial services industry and have a pretty good financial acumen, they need reminders and reinforcement about certain issues," said SunTrust’s Armistead.

With efforts like these and many more, perhaps the employees of financial services companies can help alter the depressing financial literacy statistics.

1 2003 Retirement Confidence Survey, EBRI Online, http://www.ebri.org/rcs/2003; 19 April 2004.

2 "Survey: Seniors Flunking Finance," CNN.com, http://www.cnn.com/2004/EDUCATION/04/01/flunking.finance.ap/index.html, 1 April 2004.

3 Stanley H. Breitbard, "Jump-Starting Financial Literacy," Journal of Accountancy, December 2003, p. 56.

4 Charles Keenan, "Financial Literacy: How it Adds Up to Good Business," Community Banker, March 2004, p. 36.

5 Senate Resolution 316, 9 March 2004, http://www.jumpstart.org/bills/senate%20resolution%20316.doc.

6 Ibid.

7 Lois Vitt, Project Director, et al, Personal Finance and the Rush to Competence: Financial Literacy in the U.S., A National Field Study Commissioned and Supported by the Fannie Mae Foundation, Institute for Socio-Financial Studies, Middleburg, VA, 2000. http://www.fanniemaefoundation.org/programs/pdf/rep_finliteracy.pdf.

8 James O Mitchel, "Should You Improve Consumers’ Financial Literacy?" LIMRA’s MarketFacts Quarterly, Spring 2003, p 37.

9 Steven R. Herrmann, "Financial Planning in the Workplace," Employee Benefit Plan Review, October 2003, p 15-17.

10 Mitchel, p. 37.

11 Vitt, et al.

12 2003 Retirement Confidence Survey.

13 Angela Parrish, "Guidance and Advice Programs: Helping Employees Navigate Today’s Turbulent Markets," Employee Benefit Plan Review, May 2003, p. 23.