Teaching employees how to fish

Question: At what age should companies start preparing their employees for retirement?-HR practitioner

Answer: As soon as they are hired!

What?!

Oh yeah. Have you ever experienced asking for directions while already traveling? Don’t you just hate it when a person tells you that if you have gone past a certain landmark then you have already missed your turn? Why can’t they give a landmark before you hit your turn?

With the average life expectancy getting longer, retirement planning five years before retirement age is now too short and risky. While retirement planning at 40 still seems reasonable, doing it for employees who are just hired is much better as it is like giving PDOS (pre-departure orientation seminars) to OFWs.

Firstly, why should companies even care about employees’ welfare in retirement? When I started in the trust industry, I quickly learned that companies set up retirement plans not only to better fund retirement benefits mandated by law but also to attract talented employees and foster loyalty. Why, who wouldn’t want to be working for a company that provides financial security even after employment?

We have done a lot of retirement planning training programs. Many of the participants, usually in their 40s and 50s, would always reply that they wish they had taken the training much earlier. Why? These individuals may have raised their cost of lifestyle so high that it would take years to unwind such high living. Consequently, little is left for retirement planning. They may have taken on huge mortgages (car or home), racked up so many charges on their credit cards, kept insurance coverage to below what is necessary for them and forgotten about investing entirely. The worst part is that such individuals try to play catch up by planning to set up their own business upon retirement. We tell these people that what they are planning is a very dangerous thing as the money they are paid on retirement is their last. A business, on the other hand, bears the highest level of risk among all investment alternatives.

But would the newly hired even pay attention to retirement planning when the lure of consumerism is so strong? Surprisingly, they do. In fact, our online discussion group is composed more of people who are younger than 40. And we credit this to the growing popularity of financial planning.  Even magazines devoted to mothers, babies and the like feature personal finance articles. The Philippine Daily Inquirer is one of the first to feature personal finance among broad sheets, both in print and on the Internet.

One other thing we noticed is that employees treat company benefits like entitlements and get so addicted to them. Company loans in particular are normally “maxxed” out. An emergency loan is contracted even though the real purpose is not for an emergency. If there are loans from a cooperative within the company, these too are taken out. Once the addiction sets in, loans outside of the company are contracted. So how does the addiction to loans arise? The answer is fairly simple. In our programs, we ask people to list down their expenses in a year. Then we ask if, before the program they knew they were spending that much. The answer is invariably no. People prefer to remember fewer things, like the amount of monthly salary. But they shut out of their minds the myriad of things they spend on. And when another item is up for spending now, the normal reaction is that future salary or wage will take care of it.

So in our training programs, we help participants develop the habit of monitoring their cash flow through our unique 30-day EnRich Financial Milestones Journal. Here they actually list down daily their beginning cash, sources of cash and uses of cash for the next 30 days. Beginning cash + sources of cash – uses of cash = ending cash for the day and beginning cash for the next day. So they will not forget to do their journal, we send text messages to each participant every single day for the duration of the 30-day program. The text messages contain not only words of encouragement but also reminders of the lessons in the training program. Text messages are sent very early in the morning.

One more thing, it is more effective if a company teaches employees financial planning using a third-party trainer that is not selling any financial product. That training will be perceived as objective and a true caring action on the part of the employer, and not just a tactic to subdue requests for pay increases. As a result, deeper loyalty is fostered.

If you want to see how we train people for their retirement in particular and other major life events in general, join us on October 27 for another EnRich program. And as a special treat, we are giving away five free seats to the first HR practitioners who will attend. Visit www.personalfinance.ph or www.income-tacts.com or call (02) 216-1541 for details.

Here’s to a long and healthy retirement for all of us.

(Efren Ll. Cruz is a registered financial planner of RFP Philippines, personal finance coach, investment adviser and best-selling author. Inquiries may be sent by SMS to 0917-505-0709 or e-mailed to [email protected]. To learn more about the RFP program, visit www.rfp.ph or e-mail [email protected].)