Financial education: the way forward for employees

While an understanding of the inner workings of the national economy may be beyond the majority of the general public, Gordon Brown believes we should all at least have a basic grasp of how best to manage our personal finances.

This was apparent in the Treasury’s 2004 Pre-Budget Report, which set out a strategy for “financial inclusion”,  with the aim of giving everyone access to banking services, affordable credit and free face-to-face money advice.

In March of this year economic secretary to the Treasury Otto Thoresen, who has been charged with examining ways to approach the latter of these three priority areas, called for suggestions on the best means of delivering a national approach to generic financial advice

In response, the Chartered Institute of Personnel and Development (CIPD) has called on the government to ensure that its approach to improving financial education among the general public be joined up with work that is already being carried out by a growing number of employers.

This can range from offering staff basic information about the best ways to save to pension advice, debt counselling and help with understanding what state benefits employees might qualify for.

“Many UK organisations are now offering financial education to their staff, which can deliver benefits for both the employee and the organisation,” said Charles Cotton, reward adviser at the CIPD.

He said the advantages to the employer include: a reduction in stress or poor performance caused by employees’ non-work-related money worries; a better appreciation among employees of the true value of the benefits package provided by their employer; and employees being more able to make an informed contribution to improving the organisation’s financial performance.

In a recent report highlighting some best practice in this area, the CIPD pointed to an initiative carried out by children’s charity Barnardo’s as an example of what progressive employers can achieve.

Called ‘Learnaboutmoney’, the scheme saw the organisation produce a workbook for employees with information about money management, borrowing, investment, taxation and saving for retirement. According to Barnardo’s there has been a noticeable improvement in the ability of employees to understand financial concepts, particularly in respect to changes to its final salary pension plan.

Passenger transport company First Group has also been proactive in this area according to head of reward, John Chilman. He says a number of schemes aimed at helping staff budget more effectively has cut workforce turnover by 20%.

Many of First Group’s employees, such as bus and train drivers, earn relatively low wages. “Some are also migrant workers who may not be financially literate,” said Chilman.

The company has established a financial advice centre for employees and set up a credit union to encourage responsible saving. The credit union works by transferring money from an employee’s wage into a saving account each month.

Increasingly employers are offering financial education as part of an employee assistance programme (EAP) said James Bradley, a director of service delivery at Employee Advisory Resource (EAR), a provider of EAPs.

EAR delivers this advice on behalf of employers and can organise staff open days and drop-in centres or make a free telephone advice line available.

According to Bradley the trend towards flexible and part-time working arrangements has caused a noticeable upturn in the number of queries about child tax credits and other benefits workers might qualify for.

“If employers can help their staff optimise their income it can only benefit them,” he said.

The Financial Services Authority (FSA) is also offering employers free financial advice for their employees through an initiative called Financial Capability.

FSA representatives are available to attend a seminar on an employer’s premises and take questions from employees on a range of day-to-day money issues.

“We hope to reach 500,000 employees by 2011,” said an FSA spokesperson.

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