Question: Our employees are so mired in debt that they routinely go on overtime work, treating the extra pay essentially as part of their basic wage so that they have added means for debt repayment. What’s more, their payroll ATM cards are pawned to lenders who charge higher than usual interest rates. When payday comes, the creditor goes to the ATM with his stack of ATM payroll cards and withdraws the loan payments. Usually, whatever is left is too small for our employees. Consequently, they end up borrowing again, making this practice a vicious cycle. On the other hand, some borrow heavily from our employee-run cooperative, which has loan repayments on salary deduction. At times, employees are left with very little take-home pay. How do you think we should handle such employees who, because of their debt problems, are now hardly focused and productive at work?—HR Manager and attendee of EnRich CD-RW training
Answer: About the title, do you remember that part of the movie Titanic where Leonardo di Caprio’s character stood at the bow of the ship shouting “I’m king of the world!”? What if he fell overboard? What would the crew do?
Well, on the assumption that he was spotted falling into the sea, the captain would stop the ship and send a rescue boat to fetch him. As he is brought back on board, Leonardo’s character will be given first aid and probably given warm clothing as the waters of the Atlantic Ocean are chilly. Then he would get a good scolding, or something similar to it.
The same is true for people who are drowning in debt. We do not scold them while they are fighting for dear life. We throw them a lifeline. That lifeline can be in the form of assistance to restructure their debt. And since debt repayments are a function of interest rate, repayment term and loan principal, companies can assist their employees in negotiating for lower interest rates, longer repayment terms and/or partial debt condonation. Debt condonation is not something new. It is part of the negotiations of countries going through severe debt crises, the most recent of which is Greece.
Drastic stand-alone measures like mandating a certain percentage in take-home pay, unilaterally removing loan benefits where repayments are on automatic salary deduction or even moving back to passbook from ATM payroll accounts will not work if the root of the problem is not attacked. This is where the (gentle) scolding in the form of personal finance training comes in.
Personal finance, especially when applied with behavioral economics, works because it explains the rhyme and reason as to why people find it so easy to spend and borrow. Moreover, it provides the solutions to help avoid falling into the debt TRAP (i.e. Time you pay, Rate of interest you pay, Amortization you pay, and Principal you repay).
There was a time when LBM meant looking for better management. But with job-hunting not as easy as before, employees have had to do with their current work. And employees often fail at being content with their current jobs, financially speaking, because they suffer from the new meaning for LBM, which is loose budget movement.
The temptation to spend is all around us. Internet technology has even given the temptation to spend and borrow more speed and stamina. Such temptation preys upon both the psychological and physiological workings of the human brain and body. The key is to be aware of how we are hardwired so that we remain in control of our brain and body, especially when under attack by consumerism’s temptations.
The collaboration of Jatis Imagineering (Jatis) and the Personal Finance Advisers Philippines Corporation (PFA) produced the country’s first free personal finance mobile app called Ya!man. To help raise the financial awareness of consumers, Ya!man provides simple tools on doing a week of budgeting, computing the effective interest on loans (whether they are on diminishing balance, add-on-rate or 5-6), determining the appropriate amount of life insurance coverage given a particular financial situation, computing for the future cost of children’s college education and computing for the future cost of retirement. Each computation produces a brief analysis and allows the user to ask for tips from a personal finance expert. And all of these are for free. Ya!man may be downloaded from www.personalfinance.ph.
Now here is the million-peso question: Why should an employer spend time and money teaching its employees how to be financially free? No less than the founder of the Personal Finance Employee Education Foundation (PFEEF) of the United States observed that financially literate employees improve profits. The PFEEF has done over 20 years of research on financial literacy.
But more importantly, the founder made this statement that strikes at the heart of corporate social responsibility: “What could be more important to your employees morally and socially than to have them be better off financially when they leave you than when they started with you?”
So to employers, throw your employees a lifeline if they are drowning in debt and then teach them about better money management. The money you save (for them) may very well be your own.
(Efren Ll. Cruz is a registered financial planner of RFP Philippines, personal finance coach, seasoned investment adviser and bestselling author. Questions about the article may be sent by SMS to 0917-505-0709 or e-mailed to firstname.lastname@example.org. To learn more about the RFP program, visit www.rfp.ph or e-mail email@example.com.)