Personal financial literacy is more than just being able to add up, it is the ability to understand how money can be managed and refers to the skills and knowledge that allows individuals to make informed and effective decisions about their financial resources.
In the UK, there is a great emphasis on teaching children to read and write, but financial literacy has not traditionally been given the same attention. Thankfully, changes to the 2014 National Curriculum will now see financial education included for the first time, covering areas such as personal finance, interest rates and wages.
However, the need to financially educate adults seems to be slipping through the net.
According to the Chartered Institute of Personnel and Development (CIPD):
“the average household only has enough savings to last 11 days if disaster strikes” – not a very adequate buffer zone for someone put on short time working or, indeed, if they were to lose their job.
A 2014 Shelter survey found that:
“with little or no savings to fall back on, 3.8 million families could be one pay cheque away from losing their home”.
It’s not simply the size of someone’s salary either that determines their financial well-being, despite the widely held belief that higher wages make people feel more secure. A study by Barclays Corporate and Employer Solutions (BCES) called ‘Financial Well-being: the Last Taboo in the Workplace’ found that it was the:
“size of an individual’s savings pot and regular contributions to it that gave people peace of mind and financial stability”.
The UK is also facing a big shake-up with its pension provision, further increasing the need for financial and workplace advice. There are already concerns that many people will be tempted to ‘put their head in the sand’ and choose to either opt out altogether from pension auto-enrolment, or agree to minimum levels of pension contribution, without properly considering the longer term impact on their retirement income.
Financial concerns are known to cause:
Employees preoccupied with their financial problems are shown to be disengaged, distracted and more likely to make mistakes at work – significantly impacting on their performance and productivity.
An over–reliance on credit cards and turning to insidious payday lenders can often escalate the problems and increase rather than alleviate stress levels which then impact on someone’s ability to work effectively. According to a recent article in the Telford Journal, the number of people in Shropshire struggling to cope with payday loan debts has risen to 43,716, compared to 30,762 for the same period last year.
However, it is NOT the role of employers to give their employees financial advice, but they can help source appropriate partners to help brief and educate their employees about budgeting, sensible borrowing, investments and financial planning, through either one-off presentations and workshops or longer term financial education programmes.
According to the Personal Finance Employee Education Foundation (PFEEF) in the US, employers who implemented some form of financial education in the workplace averaged a 3:1 return on their investment – so, not just a nice to have?