The first step into being financially literate is developing a spending plan or budget. The next steps are managing credit and building savings. A lack of knowledge in this area is not only an immediate distraction, but it is a major cause of stress in the workplace and thwarts retirement efforts.
Credit has been incredibly easy to get, and people take advantage of all the nice things that it can provide. However, without proper management of their credit, employees pile up mountains of debt that can leave them well past their means of being able to pay and can produce financial ruin.
The poor use of credit is the third leading cause of bankruptcy in the United States, following medical expenses and job loss. People often have “minimal thinking” when it comes to credit, meaning they think only of paying the minimum payment on each line of credit. However, this usually leads to accruing credit on various fronts such as numerous credit cards, car loans and personal loans, which eventually exceed their ability to pay. This can lead to further loans necessary to pay off existing loans. All the while, interest, fees and penalties add to the burden, making debts impossible to pay. The downward spiral of ever-accumulating debt often causes extreme stress, physical and mental health problems, and poor focus at work, not to mention a ruined credit history.
How literacy programs can help employees with creditFirst of all, applying good credit management helps to eliminate extra costs stemming from penalties almost immediately. It also reduces interest and certain fees over the long-term. As credit is brought under control, more cash is freed up to either pay down credit accounts (like credit cards), or place into savings vehicles. As accounts are paid off, credit recovery occurs and purchase power increases.
Creating a spending plan and implementing a credit management plan will help free up extra money. The next step is to apply that extra cash into savings vehicles for both short- and long-term use. There are a variety of advantages for having extra money set aside.
A natural occurrence of life is the unexpected emergencies that tend to happen at awkward times. Damaging storms, car and major appliance failures, illnesses, etc., can present major hurdles to those without the immediate funds to attend to them. Personal savings not only meet such needs, but they also prevent the use of costly credit cards or payday loans.
Practically everyone expects to reach retirement age and be able to leave work and enjoy life by spending time with grandchildren, traveling, participating in hobbies and social events, and much more. However, a large percentage of the American workforce is ill-prepared for retirement due to a lack of financial literacy and poor savings habits. Many will have to depend solely on Social Security, and others have inadequate savings to match their current standards of living. Retirement savings ensure that the years at the end of life are rewarding, instead of a difficult struggle.
Given how important these key factors are to the very foundation of how an employee feels about his/her financial life, why do employers spend more time and effort on enrolling employees into retirement accounts than they spend on addressing day-to-day financial issues, such as budgeting and debt? As we change the conversation and employees learn to effectively put such practices into effect, they gain relief from financial pressure, lower their stress levels, are happier and healthier, can better realize their goals, and perform better at work. Better work performance by employees should be at the top of the list of priorities for any employer.
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