Question: When we review our employees’ actual take-home pay, many fall below the borderline we set for them. The culprit is often the numerous deductions for loans they avail themselves of. Indirectly, this problem leads to less focused employees at work. How can we arrest this problem?—HR practitioner
Answer: The problem is not uncommon. In fact, if more loans are made available to employees, the more they will borrow to the max. Why? Because they will be able to enjoy the benefits of their future income “now na.”
More importantly, the question strikes at the heart of employee productivity nowadays. With the phenomenal growth of consumerism, employee productivity is not just about accurate job analysis, adequate remuneration, participative management, sufficient skills training and objective staff appraisal. Employers need to be concerned also with how employees handle their personal finances.
Some might say, “But we already pay them at or higher than the industry average in terms of salaries, wages and benefits. They shouldn’t have problems with money.” C. Northcote Parkinson, in his book “The Law and the Profits” said that, “individual expenditure not only rises to meet income, but tends to surpass it, and probably always will.”
Yes, employees and people in general will tend to live larger than what their incomes can support, unless they are reminded of what their values in life really are, and are given the effective tools with which to manage their own money better. In any household, there should be two sources of income: income that comes from employment or a business and income that comes from the household’s own earning assets. Earning assets are born out of savings from the first source of income. How can earning assets even see the light of day when there is hardly any left from the income from employment or a business?
So here’s a question for employers: Instead of just providing loan facilities for employees, why not also provide them personal finance education training followed up by investment facilities and other personal finance reinforcing systems? The benefits to employers would be enormous as there would be less absenteeism, minimal presenteeism, higher take-home pay, lower availment of health benefits, lower wastage in production, and readiness for retirement.
According to the research conducted by the Personal Finance Advisers Philippines Corp., or PFA, around 70 percent of employees surveyed suffer from financial stress. This stress emanates from problems as benign as not knowing how to grow money for future needs to as malignant as not even having enough money for transportation to get to work.
Employers in the US are starting to see and understand personal finance as the new variable in the employee productivity equation as more of them are now conducting financial education workshops and providing financial counseling.
The Philippines is not far behind. Based on the experience of PFA over the last two years, more and more companies are now paying attention to the impact of their employees’ financial welfare on their bottom line.
They allocate a good portion of their training budget for personal finance programs and support mechanisms at work, both run and recommended by independent training providers, to ensure that the employee is not distracted by money problems. The independence of training providers is important to ensure that both employers and employees get objective advice on personal finance programs and support mechanisms.
The interesting thing is that the training investment for personal finance programs is perhaps cheaper than most other training programs. Yet these programs provide just as much productivity benefits as the rest.
Just like any training company worth its salt, we did some metrics to see if our personal finance program was indeed effective. We divided our survey respondents into three categories: those who would assess their financial wellbeing as low or from 1 to 4 on training day; those who would assess their financial wellbeing as medium or from 5 to 6; and those who would assess their financial wellbeing as high or from 7 to 10. We did two survey runs, one on training day and the other at about three months later.
We found out that those with low financial wellbeing on training day had average assessment of 3.6. During the second assessment, they scored an average of 5.6. Those who assessed their financial wellbeing as medium scored 5.7 on training day. On the second assessment they scored an average of 7.4. Finally, those who assessed themselves with high financial wellbeing on training day scored an average of 7.3. On the second assessment they scored an average of 7.5. Conclusion? Personal finance training works!
But what about those employers who do not have the budget to send their employees to personal-finance training programs in great numbers? Well, there are public runs of personal-finance training programs, just like the “EnRich” program of PFA happening on July 16, where a couple of employees can be sent at a time.
So to all the HR practitioners out there, remember the new variable in the employee productivity equation—personal finance.
(Efren Ll. Cruz is a registered financial planner, investment adviser and best-selling author. Questions about the article may be texted to 0917-505-0709 or e-mailed to efren@personalfinance.ph.)