Financial literacy and firms: Why employees must have it

Financial literacy is how well an individual uses his or her financial know-how to make better money-decisions, like prioritising savings over social expenditures;  paying bills on time with the cognisance of early-bird-payment (or discount to be gained) or delaying non-interest bearing bills payment until the last day of the window of opportunity to pay, bearing in mind time value of money; saving up for the future; investing in real estate to earn capital appreciation or in companies share to earn dividends, government bonds and making small investments to earn extra income (passive income). It also includes how to prioritise finances, delay consumption and improve investment. Attitudes and preferences are important elements of financial literacy. It may be overwhelming and messy initially, like saving for the rainy days or to start a business. The key is to start low and learn as time goes on to foster good habits and attitudes about one’s finances.

Financial literacy programmes are quickly becoming a part of companies’ wellness initiatives. Companies are now concerned, more than ever, about the financial literacy of their employees because of the heinous implications to companies if employees run into financial mess. About 70 percent of Americans admit to being stressed over personal finances and 63 percent live from pocket to mouth. Living costs like payment of rent, food and drinks, transport, electricity bill, digital satellite television, phone bills, internet charges etc, college debt, childcare, job loss, credit card debt, emergency needs, medical bills and other liabilities can cause financial stress. To this, 88 percent of U.S. adults expressed how lack of financial education leads to lack of confidence when handling money and only 17 percent of them say they took a personal finance class while in college.

In the same survey, 75 percent believed that they would make fewer mistakes and be better at their finances if they have had prior access to financial education. With over 59 percent of Americans prioritising “saving more money” as their Year 2024 resolution, a workplace financial literacy programme can help employees secure their economic well-being. Financial literacy is better learned when you are earning income. It is like a person learning to drive a car. Most people will not get the rules until they get to the steering wheel. Money or lack of it can evoke a multitude of emotions, such as guilt, envy, pride, anger and shame. A lack of financial knowledge can make it more intimidating in an increasingly complex financial landscape. Young workers who have just started earning money must be guided on how to handle money. They go to the high streets and see: “Buy Now, Pay Later”, or “Buy One, Get One Free”, or “Buy Two For The Price Of One” or “Just Six Easy Instalments” or “Clearance Sales” etc and they mostly find themselves in a dilemma.

Without the perspective of some financial knowledge, employees can land in catastrophic debt before they realise it, especially now that they have access to easy loans than before, mostly on Apps in their phones. This necessitates the need for a financial education exposure. By minimising large debt purchases early in life and creating savings habits for emergencies and retirement, one can dramatically decrease stress and allow interest to accrue on one’s savings instead of accruing on one’s debt.

Financial literacy basics for corporate, groups and individuals

There are three motives for holding money, according to John Keynes (1936), in his “General Theory of Employment, Interest and Money”. These motives are: (1) Transactionary motive (2) Precautionary motive and (3) Speculative motive. Money held under transactionary motive is spent on rents, foods, transportation, obligatory telephone calls and other planned expenditures. Money held under precautionary motive is used to fund unexpected events that require cash outlay. They take care of sickness, accidents and emergency expenditures. Money held for speculative motives is used to finance any investment opportunity that arises in future. Money saved to buy or construct houses, buy shares from corporate organisations and fund further education are under speculative motives.

Benefits of providing financial education to employees

According to mental Health Foundation, 2024, a poll finds that ‘one in ten’ (10%) of UK adults feel “hopeless” about their financial circumstances, ‘more than one-third’ (34%) feel “anxious” and ‘almost three in ten’ (29%) feel “stressed”. Employees’ performances in the workplace have been correlated to employees’ state of mind. If employers can ensure that employees are okay in their financial life, not with more pay, but by ensuring they know how to handle their finances, companies will benefit more. Employees who are financially literate and who can successfully handle their finances do not agitate for an increase in salaries and or advance salary payment as reckless employees do. Corporate organisations who can provide financial education or who ensure their employees are financially literate have peace of mind and uninterrupted sessions at work.

Financial literacy is as essential to the well-being of individuals, groups and corporate organisations the same way a healthy diet, a good night’s sleep and personal and professional growth are essential. The more employees practise good financial health habits, the better the results on their wellbeing. Financially literate employees feel more confident at work and make more informed decisions. It is on record that those workers who take their financial planning very well retire to an easy life.

Having a sound financial education is the best way of mentoring one’s children about financial discipline and how to be wealthy in life. Wealth is not only made through ensuring more money is generated but also ensuring as little money as necessary is expended.

How to provide financial literacy to employees

There are corporate organisations and financial consultants that are set up and ready to provide financial education to employees. Multinational organisations usually collaborate with their management consultants to offer financial literacy education to their employees using classroom-style approach. Some organisations provide their employees with “Financial Well-Being Toolkits” which comprise financial education like financial planning, budgeting, debt management, retirement and investing. There were also occasions when two or more than two companies collaborated to offer joint financial literacy to their workers. American Express, Dow Jones and Moderna collaborated with Financial Literacy for All (FL4ALL), an American initiative, to promote financial literacy in their workplaces.

Some workers are more financially disciplined than others due to their background or experience. Some organisations do organise break-out sessions where each worker narrates his or her financial experience and how he or she is coping with his or her salary. These sessions help a lot! It is also possible to do a survey and identify workers who require financial education before deciding whether to organise on-site or off-site financial literacy classes for workers.