If your company’s employees are like most, they’d score a big fat F on a financial literacy test.
Every year, the Teachers Insurance and Annuity Association of America (TIAA) and the Global Financial Literacy Excellence Center (GFLEC) quiz working adults on their knowledge of investment choices, saving money, insurance options, the stock market and so forth.
And every year, the overall score is right around 50. The TIAA/GFLEC annual survey results repeatedly show:
- comprehending “risk” is the most difficult idea for people to understand
- financial literacy is highest among whites and Asians
- younger employees tend to know less than older folks (not a surprise), and
- lower financial literacy correlates with money problems, lower income levels and debt problems.
Those who score lowest on the survey (answering seven or fewer of 28 questions correctly) are six times more likely to have difficulty making ends meet, three times more likely to be debt-constrained and unprepared to deal with a sudden $2,000 medical or auto bill, for example.
Hourly wage workers are also more likely to be financially illiterate than salaried, college-educated employees.
Make sure your teams do what they can to help, and not hurt
Employees with shaky knowledge of financial matters may not understand why it’s important to save for retirement and learn more about a company-sponsored 401(k) plan. In addition, they might not get why certain deductions were made from their paychecks or what a tax that isn’t spelled out is for (and could be afraid to ask someone, to boot).
Here are three ways Finance staffers can help explain questions and concerns, and in so doing improve workers’ financial literacy:
- Keep it simple and as short as possible. Use conversational language where you can. Where acronyms are necessary – such as FICA – make sure they’re spelled out in the first mention.
- Use visuals. Most people have an easier time processing info when it’s presented with pictures. Charts and graphs can be helpful tools in your explanations.
- Get a fresh set of eyes. Have someone who doesn’t work in Finance/Accounting/Payroll read any written communication, and ask the person for a summary so you’ll know if it gets the point across.
