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The How-To: Financial Literacy Education For Employees

People with high levels of financial literacy have lower levels of financial worry, and only 14% of UAE employees fall into this category.
The How-To: Financial Literacy Education For Employees
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Guest Writer
Director - Global Services and Solutions, Central & Eastern Europe, Middle East & Africa (CEEMEA) at Willis Towers Watson (WTW)
8 min read
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Financial literacy among the general public is low, and monetary worries remain a common source of stress, absenteeism and poor performance at work. Given that a happy, healthy and engaged workforce is vital for business productivity, employers need –now more than ever– to focus on improving the financial education of their employees. They must help staff gain the confidence to improve their financial wellbeing, and the confidence to face changes, both in their personal circumstances and the wider economy, without losing their focus at work. Not to mention being tempted to leave their current role in search of better paid work elsewhere.

But improving employee financial literacy and wellbeing is not just about teaching staff how to budget better, or save more. It is a more complicated task that needs multi-faceted action if effective, long-lasting results are to be reaped. Here are some of the things companies can do to tackle poor employee financial literacy and help develop a productive and secure workforce.

The employee perspective 
According to Willis Towers Watson’s 2017 Global Benefits Attitudes Survey on Financial Wellbeing in the United Arab Emirates (UAE), overall employee financial wellbeing has fallen since 2015. In fact, 64% of UAE employees now say that money concerns have become a more important issue for them over the last two to three years. The survey’s findings also reveal that over one third of UAE employees have no savings, and that the level of worry about financial security in the UAE is markedly higher than in other (both developed and developing) countries. Specifically, 59% of UAE employees say they worry about their future financial status, compared with 52% and 45% of employees in developed and developing countries, respectively.

The employer’s perspective 
Yet despite this high prevalence of money worries among employees, only 38% of UAE employers say they plan to actively encourage staff to better manage their finances. The other 62% would do well to reconsider, because recent research by the UK’s Chartered Institute of Personnel and Development (CIPD) has shown that financial wellbeing affects the overall performance of the businesses that people are working for, as well as on a personal level. Specifically, the CIPD found that one in four UK workers say that money worries affect how well they do their job, and one in 10 say they struggle to concentrate and make decisions at work when faced with money worries. Furthermore, Willis Towers Watson’s 2017 UAE survey shows that 23% of employees in the Emirates have short and long-term financial worries. More than two-thirds of these individuals say that money concerns keep them from performing their best at work and more than half would move to a job elsewhere if they could. Having underperforming, disengaged staff like this is problematic for employers. Not only do they negatively impact workplace morale and overall business productivity, but their lack of engagement increases the risk of them departing suddenly, resulting in unexpected recruitment and training costs. So, employers who want a happy, productive workforce –and an optimally performing business– need to prioritize the financial education and support given to their employees. But this can’t be done unless employers have a good understanding of how their employees make financial decisions and what their key financial priorities are.

Related: Why Reducing Employee Healthcare Isn't Saving You Money

The different financial employee types 
So far as financial decision-making is concerned, according to analysis published in the Willis Towers Watson survey mentioned earlier, there are four types of employee:

  • Budgeters – those who follow a strict budget and don’t generally overspend.
  • Actives – those who monitor their financial situation but don’t budget or overspend.
  • Reactives – those who don’t actively monitor their financial situation or overspend, but instead spend in response to their current situation.
  • Spenders – those who don’t monitor their financial situation and often overspend.

The report highlights that just 31% of UAE employees are ‘budgeters’; in other words 69% of employees don’t usually plan their outgoings, and as a consequence are more likely to face financial uncertainty and worry. The report goes on to show that between 41% and 52% of ‘non-budgeters’ have significant personal debt; and that more than 50% of the ‘spenders’ category (who make up nearly one-third of UAE employees) have no savings and simply subsist from one pay cheque to the next. Employees can deal better with mounting personal debt –or indeed avoid it completely– if they are financially literate. Not surprisingly, research shows that people with high levels of financial literacy have lower levels of financial worry. But at present just 14% of UAE employees are classified as having high financial literacy.

So, what exactly can employers do to change this?

How to improve employees’ financial literacy 
As the above figures reveal, most employees are not natural budgeters and instead prefer to make spending decisions in the moment. With this in mind, simply teaching employees to better manage their finances by budgeting is unlikely to suit many. And if an approach does not naturally suit an employee’s personality or preferences, they are unlikely to stick to it in the long term.

An employee-centred approach –tailored to employees’ existing habits and preferences while addressing their current financial priorities– is much more likely to succeed, especially if the following three strategies are used:

1. Selecting tools relevant to the specific workforce: From websites to apps, spreadsheets and financial advisors, many different tools are available for people who wish to better manage their finances. However, just as we all choose to spend money on different things, there is wide variation in the financial management tools favored by different groups. When Willis Towers Watson surveyed UAE employees according to age, gender and annual income, they found that employees in all groups favoured tools for tracking spending and saving above all other options. But respondents aged under 40 cited online portals or mobile apps, with real time access to financial information, as their second preference, while those aged 40+ opted for a financial advisor over online resources. Male employees also showed greater preference than female employees regarding financial advisors; while people earning less than AED 10,000 per month were more open to having personalized suggestions on how to improve their finances than those earning a higher wage.

If you are unsure about the best tools for your workforce’s specific demographics, ask them for their input. They will be able to confirm the tools they are most likely to use and what they want to achieve with those tools. This will help ensure that you don’t waste time and money on strategies that, in the end, do little to improve the financial literacy and decision-making ability of your employees.

2. Identifying employee priorities: Looking in from the outside it’s easy to assume that factors, such as paying off debt and obtaining a mortgage, will always be the highest priorities for most employees. But this doesn’t always hold. For example, Willis Towers Watson’s 2017 Global Benefits Attitudes Survey UAE revealed that the top five priorities of UAE employees were general savings, housing costs, saving for a house, general household costs, and saving for retirement. But when analyzed by age and gender, funding general household expenditures was a higher priority for women than men, while men were more concerned with paying their mortgage or rent. Saving for retirement was also higher on the agendas of men than women, with married men citing retirement as a higher priority than single men.

3. Setting pre-agreed boundaries: When attempting to improve employee financial literacy, a fine balance needs to be struck to ensure that employers provide the support needed by their staff– without that support becoming intrusive. Research on this topic suggests that people want their employers to encourage and facilitate the improvement of their financial literacy, but want this to happen without their employers becoming over-involved in their personal situations. For example, the majority of UAE employees (60%) are happy for employers to provide tools that outline personalized suggestions on how employees can improve their finances, but fewer (43%) are happy for employers to send personalized messages about specific financial decisions.

As these three strategies show, the key to successfully improving employee literacy lies in clear communication with your workforce before implementing any changes. Effective change is more likely to be achieved when a company’s approach addresses the specific, rather than assumed, needs of its workforce.

Financial wellbeing – the ultimate goal 
It’s true that financial literacy is vital for minimizing money worries, but it’s just one piece of the much larger puzzle that is financial wellbeing. To achieve financial security and wellbeing, employees can’t just acquire the knowledge and skills needed to effectively manage their financial resources: they must put them into action. As such, employers can help set their staff on the path to financial security, by providing employment benefits and services that are centred on improving financial literacy.

Then, once higher financial literacy has been achieved and people are more confident and competent in their decision-making, further support can be provided. This additional support helps employees to progress up the pyramid that leads to financial wellbeing: first getting out of debt, then achieving positive cash flow, then acquiring short-term and eventually long-term savings, and then finally creating wealth and achieving financial independence.

Related: Stressed Employees? Why Financial Wellness Programs Can Help

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