What’s at the root of employees’ financial illiteracy?

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How do so many people get into financial trouble in the first place and why does the problem seem so difficult to remedy?

Unless people actually seek such knowledge, they are left to figure things out as they go through life. The problem with this approach is that high percentages of people become financially bound and gagged before they ever learn the consequences of poor financial decisions, and still others never seem to learn from their mistakes.

This lack of financial education produces a society that, by and large, adapts poor spending behaviors that sabotage their financial efforts throughout life. Not only do these people struggle to make ends meet, but they arrive at retirement age with very little, if any, savings. A study conducted by the National Institute of Retirement Security in the last few years revealed that 18.3 million American workers between 45 and 64 years old had zero retirement savings. Even workers between the ages of 25 and 64 who have pension plans were found to be inadequately prepared financially for retirement, having a collective $6.8 to $14 trillion shortfall in comfortable savings.

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This can leave such retirees either totally dependent on Social Security, welfare and charity programs, or working well past retirement age to supplement their inadequate incomes.

Lying at the root of such inadequate retirement savings is financial illiteracy. According to a Carson School of Management study, those who grew up in economically lower environments had the tendency to be more impulsive in their spending, take more financial risks and succumb to spending temptations more quickly than those who were raised in more financially secure environments. It can be reasonably assumed that financial education plays a part in this equation, since it is common knowledge that people in poorer homes and communities are usually less educated overall compared to their wealthier counterparts.

How people react to money in their present position is, therefore, a direct result of both childhood environments and personal life experiences, which together form current habits. The combination of a lack of financial education in schools and a large percentage of the American workforce being raised under economically stressful conditions, produces an unknowledgeable and unstable environment that is formed through poor financial habits. These destructive spending and saving habits, and the financial stress they produce, are only worsened by negative experiences and any adverse economic conditions that may arise.

How do we remedy this?
One of the major roots of poor employee performance and costly workplace activities is financial illiteracy. The promising aspect of this annoying and costly root is that it is easily remedied by creating behavior changes through financial literacy programs. Employees cannot save for their retirement futures until they address their past behaviors and present actions.

Financial education programs can help address some of these issues by providing corrective knowledge that empowers employees to make real positive changes in their behaviors and, thus, in their finances. As workers learn to change to more financially productive habits, their attitudes and work performances will improve, they return to being assets instead of liabilities for companies, and they more efficiently and effectively utilize retirement savings programs. The reward for simple financial education programs is felt tenfold by not only the workers but also the employer. This investment is well worth it.

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Financial literacy Financial stress Financial wellness Financial planning