Teaching Workers How to Budget

EXECUTIVES AT PRUDENTIAL first started to notice the change about a year and a half ago.

More workers at the financial services firm were turning to an employee assistance program. But in addition to seeking help with the typical legal- or family-related concerns, the staffers were asking questions about a spouse who had lost a job, about a depleted retirement account or about paying for a child’s education.

To get its employees’ focus back on work, Prudential came up with a plan. Through its health and wellness department, the company would offer employees a budget coaching program and the services of a certified financial planner. “It seemed people would benefit from coaching very specifically targeted to helping them get their finances under the most basic control,” says Kenneth Dolan-Delvecchio, vice president of Prudential’s health and wellness department.

It is a little examined side effect of the downturn: The loss of productivity due to anxiety. According to a MetLife study released last month, more than three-quarters of employees said financial advice and guidance programs would improve their productivity. And they are being vocal about their needs. About one-third of employers report that they have seen a spike in demand for financial education from employees in the past 12 months, according to a November poll by the Society for Human Resource Management.

President Obama seemed to acknowledge the problem when he signed an executive order in January creating an Advisory Council on Financial Capability -- tasked with helping individuals make informed financial decisions. He also designated April as National Financial Literacy Month.

The verdict is out, however, as to the effectiveness of such programs, which sometimes end up attracting those employees who don't need the help, experts say. Who is benefitting, then? Financial education companies like Financial Finesse, for starters. Based in Manhattan Beach, Calif., Financial Finesse, which doesn't sell financial products, charges employers between $150,000 and $500,000 a year, depending on the size of the program. In 2009, business was up 20%, says the company CEO, Liz Davidson, who expects continued growth this year. “Employees are asking HR managers for this, and HR managers are calling us as a result,” Davidson says.

Can a financial literacy campaign really make a difference? Here is a look.

Employers responding

Five years ago, just 2% of employers offered financial education workshops to employees, according to a Hewitt Associates report that included a survey of companies on the availability of “financial security” programs. For 2009-10, that figure jumped to 19%, while 8% of employers offered financial counseling to employees (for 2004-05, this category didn’t exist in the report). As employees bring their financial concerns to work, employers “realize they can’t be just focused on retirement investment; they have to deal with other issues,” says Kent Allison, head of PricewaterhouseCoopers’ National Financial Education Practice.

This year, for example, PricewaterhouseCoopers rolled out a financial assessment component of its financial education program. It’s a 15-minute questionnaire, asking workers about their retirement confidence, use of employee benefits, level of financial stress, and more. Allison likens it to a health risk assessment used in corporate wellness programs. Employees get a “wellness score,” along with a report recommending actions to take and educational information, says Allison.

Shift in focus

The move represents a shift in management’s approach to employees' financial literacy. Traditionally, employers have taken a narrowly-cast responsibility, encouraging their employees simply to save enough for retirement. Now, instead, some companies are beginning to tie their employees’ productivity at work to their overall feeling of financial security—not unlike the approach they’ve taken to health and fitness.

“It boils down to the absolute basics,” says Lynn Pettus, national director of Ernst & Young’s employee financial services practice, which has also seen more interest in its services over the past 18 months. (Ernst & Young does not sell financial products.) While retirement planning is still a big topic, Pettus says that about a year ago she noticed more workers calling into the company’s financial planner line -- a call-in service staffed with accountants and financial planners and used by about 40 companies – with questions about credit-card debt and budgeting.

Barriers to being more effective

So are these programs successful in improving workers’ financial well-being? There have been few conclusive studies about the effects of workplace financial education. But the consensus is that workplace education does work – but with limitations.

One hurdle to their efficacy is their voluntary nature, according to Lewis Mandell, a professor of finance and business economics at the University of Washington, who has studied financial literacy programs. Often, those who attend employer-sponsored money-management workshops or retirement planning seminars – individuals who check their 401(k) holdings multiple times a day and have a six-month emergency fund – are the ones who don’t really need the instruction. “It’s very hard to get those people who need it to attend,” Mandell says.

In fact, even with the apparent need for financial assistance, employers might have difficulty filling a room.

Since it’s been initiated, just 200 employees have accessed Prudential’s budget coaching program – about 1% of the entire domestic work force. “It’s a start – though a little less than I hoped,” says Dolan-Delvecchio. While he declines to discuss how much the program is costing, he says it is “very cost effective.”