April is Financial Literacy Month and it's the perfect opportunity to help your employees with financial education and awareness. Encouraging employees to take control of their financial well-being through education, tools, and other resources can lead to better budgeting, saving, debt management, and retirement planning.
This article discusses financial planning topics designed for employers who wish to educate and empower their employees to make informed decisions–ideally leading to a happier and more productive workforce.
Helpful financial resources—like workshops, courses, and budgeting tools—are often available locally through community organizations or educational programs. To discuss financial planning from either an employer or employee perspective, please reach out to Benefit & Financial Strategies today.
1. Understanding Paychecks & Withholdings
Some employees don’t fully grasp the breakdown of their paychecks, namely deductions, taxes, and benefits. Sometimes, employer-provided benefits can be confusing, leading to budgeting mistakes and an unexpected tax liability.
Employees should understand:
- How much of their pay is withheld for federal, state, and local taxes, and why this is done;
- How pre-tax and post-tax deductions impact pay differently;
- W-4 forms and how to optimize one's withholding to avoid end-of-year taxes due; and
- Benefits, like health insurance, retirement contributions, and flexible spending accounts, which are deducted from their earnings.
Employers who provide employees with clear explanations of their paychecks' components, especially those who have resources available, such as an online dashboard and paycheck calculators, lead the way in helping employees make better informed financial decisions.
2. Budgeting & Expense Management
Effective budgeting is one of the most important financial skills employees should develop. A budget can help prevent overspending, plan for paying off debt, and save more money.
Employees should be able to:
- Differentiate between needs and wants, especially those who are on a tight budget. This can mean avoiding impulse purchases, sticking to buying essentials, and eating out less.
- Understand the 50/30/20 budgeting rule, which has been found to be helpful for many individuals making a budget for the first time. 50 percent goes towards making purchases that are household needs. 30 percent towards items that you want and 20 percent should be put toward savings and/or debt repayment.
- Use, or perhaps your company could even provide access to, apps or other computer software to track spending habits, savings contributions, and debts.
- Set financial savings goals. Whether saving for emergencies, retirement, or major purchases, having even a small nest egg can make a world of difference.
Budgeting workshops, whether in-house, through local resources, or provided by third-party organizations, are great at helping employees with planning for their future.
3. Importance of an Emergency Fund
You never know when an unexpected expense will reveal itself. Medical mishaps, veterinary care, a broken down car, and loss of employment are a few of the most common expenses that often need to be paid immediately.
Having an emergency fund–ideally, three to six months' worth of living expenses tucked away for a rainy day–can be a lifeline during an undoubtedly stressful situation.
Some ways for employers to help encourage employees to save for emergency situations include:
- Having automatic savings options through payroll deductions. Money that is automatically added to a savings account makes funding the account more streamlined and effective.
- Financial education workshops, brochures or infographics, or other resources focused on the importance of building and maintaining an emergency fund. This can encourage participation among more workers.
- Employer-sponsored savings programs that provide matching contributions. With free money on the table, employees will jump at the chance to save more money.
A stress-free employee is a happy one. When bad things happen, and money is available to help alleviate the situation, employees worry less and remain engaged in their work duties.
4. Managing Debt & Improving Credit Scores
Let's face it: a good credit score is a vital asset for those looking to make big purchases, such as a house or car, and who don't want to get beaten up on interest rates. Avoiding incurring debt or paying down existing debt is key to a good credit score.
Here are debt-related topics that can help employees boost their credit ratings.
(i) Good and bad debts
Knowing the difference between good debt, such as mortgages or student loans, and bad debt, like high-interest credit cards, can help employees focus on the most important items to pay down.
(ii) Debt repayment strategies
Two common methods are the snowball approach, in which small debts are paid off first, and the avalanche technique, where high-interest debts are tackled first.
(iii) Credit score impact
Having a good score leads to lower interest rates on loans and credit cards, improves credit approval, and can help with getting better terms on rental applications and housing.
(iv) Ways to improve credit scores
For example, making on-time payments, keeping credit utilization low, and avoiding too many credit inquiries.
Making sure employees can get approved for housing and transportation purchases is a major benefit to employers. Helping with managing debt and improving credit ratings is one of the best financial literacy topics to cover.
5. Retirement Planning & Employer Benefits
It's a given that the older one gets, the more retirement planning becomes a focus. It's important to help younger employees understand why starting to save now for their future retirement is in their best interest.
Employees should understand:
- How employer-sponsored retirement plans, such as a 401(k) plan or IRA account, are one of the best benefits they receive.
- The power of compound interest and why early contributions can mean more money at their disposal when it comes time to retire.
- Employer matching contributions, how they work, and why all employees should take full advantage of them.
- Traditional versus Roth retirement account benefits and how these programs grow their money.
Employers should invest in their employees' ability to save for retirement. Whether offering contribution matching or not, having savings programs at their disposal can make a huge difference when the day comes to hang up the gloves.
Financial Literacy Resources for Employees in Flagstaff
Workers in Flagstaff are well-resourced for financial education. Financial literacy courses are taught by Coconino Community College, and educational classes focused on budgets and managing debt are offered by local organizations, such as the United Way of Northern Arizona.
The Flagstaff Public Library has personal finance resources available for free. This includes various workshops and countless books about finance.
Get Financial Literacy Advice for Your Employees From Benefit & Financial Strategies
While one doesn't have to be fluent in finance to make for a better way of life, it certainly helps to have a general understanding of your own financial situation. Having financial stability, whether it's a steady paycheck, savings, or a very good credit score, can greatly improve one's lifestyle and reduce associated stress.
Benefit & Financial Strategies helps employers and individuals with financial planning. To speak with a financial advisor about your goals, please reach out today to schedule a consultation.