Dr. Thomas Garman

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Super Literacy From Bamboozlement to
EngagementThe Bottom Line for Funds and
Employers

• Dr. Thomas Garman
• November 11, 2004

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Contents

• What is financial literacy? Why does it matter?
• What does poor financial literacy cost?
• What is effective financial education?
• Who should take the lead?
• What are the outcomes?
• Final messages

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What is Financial Literacy?

• The ability to make informed judgments and to
  take effective decisions regarding the use and
  management of money CLTF
• Being a good money manager means.
• I understand financial products and how to use
  them to achieve my goals and monitor my progress
• I know I am doing okay
• How many good money managers
• do you know?

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What are the Results of Good Financial Literacy?
Concepts, principles and knowledge test scores
for school children however, for adults

• Good money managers have a high level of
• Financial Well-being
• They have the 3 Cs
• Attitudes, Behaviours, Control, and Confidence
  to succeed financially
• The best financial education makes this happen,
  and note that this is not product education

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Four Easy Literacy Questions?

• How confident were you at age 25 to invest
  5,000 for retirement 35 years later?
• (Confident or not?)
• Can you choose to be financially secure?
  (Disagree or agree?)
• Does the financial health of your
  members/employees drive the financial health of
  your business? (Disagree or agree?)
• In fact, good member/employee financial
  well-being drives employer profits and Super Fund
  success.

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One Who is Not Financially Literate
Education ONLY about products contributes to
financial illiteracy. Why? It makes people

• Makes poor spending choices
• Overly indebted
• Postpones saving
• Suffers financial
  stress
• Is bamboozled
• Has multiple super
• accounts

Not Engaged
Passive
Anxious
Confused
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One Who is Financially Literateis Engaged in
Money Issues

• Comparison shops
• Achieves short, medium and long term
  savings goals
• Product selections
• match savings goals
• Enjoys average to
• above average
• financial well-being
• The custodian on my floor
• who makes US16,000 has
• high financial well-being

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Why Financial Literacy Matters

• 88 report they have only basic financial skills
  60 lack confidence to make a financial decision
  46 are anxious about it (Money Solutions)
• 48 unaware of choice of fund (ACNielsen)
• 2 generations of working adults have low literacy
  (CFLTF)
• Average age of Australian nurses is 46 years
  its 48 for teachers. They did not learn personal
  finance in schools, thus they are in desperate
  need for workplace financial literacy education.

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Why Financial Literacy Matters

• The costs and responsibilities of choice concerns
  both funds and employers
• Employees will make choices when they join and
  leave an employer (20 pa)
• Choice will cost funds/employers money spent on
  education, more than current estimates
• However, some people still will make poor choices
• Current product education emphasis has had
  little impact on savings
• Thus, financial literacy is a community issue

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Key Questions

• How literate are your members/ employees? (How
  literate are YOU?)
• Can they assess their money management choices?
• Can they make the right financial decisions?
  Human Resources Directors recent workshops on
  only 3 choices resulted in confusion because the
  employees were not provided education to
  understand the choice information before them
• Are they ready for choice?

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What Does Poor Literacy Cost?

• Financial stress is a major source of
  relationship tension
• Stress adversely impacts health, job errors,
  workplace accidents
• Lower national savings because those with low
  financial well-being cannot save 10 - 20
  per payslip
• Results in higher burden on public purse

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What does Poor Literacy Cost? Australian Research

• 2/3 lack funds to meet retirement goals (ANOP)
• 50 are not saving for retirement (FPA)
• Cost of mistakes is high for someone earning
  36,000 per annum, up to 790,000 is potentially
  lost lifetime wealth (CFLT)
• Baby Boomers under-prepared (ANOP)
• Singles and women are even less prepared (ANOP)
• 31 of families with children in financial
  difficulty (CBA Smart Savings Survey 2003)

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What does Poor Literacy Cost?

• US Retirement Savings
• 1 in 5 adult workers are overly indebted and
  financially distressed
• 75 do not save or do not save enough
• For many American workers, their VISA balance is
  larger than their 401(k) balance
• Many American owe more on the SUV parked in
  their driveway and on their MasterCard than their
  balance in their 401(k) account (median
  401(k)US55,000)

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What does Poor Literacy Cost?

• Toms research says Every time someone on your
  work team brings his/her money worries to the
  job, workplace productivity drops

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Poor Financial Literacy US NAVY

• 43 problem paying bills officers 45
• Bad checks 174,000
• Wages garnished 108,000
• Bankruptcies- 4,300
• Security revocations 60
• Non-deployment - 28
• Teleconference ADF has similar issues

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Key Question

• What does poor financial literacy
• cost your organisation?
• The total cost of poor financial literacy for all
  Australians could run into the billions
• Poor financial literacy is very hard on
  individuals and families
• Lost productivity is a big issue TODAY

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What is Effective Education?

• Aims to improve financial well-being by
  building the right attitudes, behaviours,
  control, and confidence (The ABCs)
• Provides a blend of education, guidance,
  coaching, and advice to reinforce learning and
  motivate to take next steps (Guidance and
  coaching is not in the US model hats off to good
  Australian financial educators)
• Empowers people to believe I can do this
• Money skills are learned habits, like driving a
  car (My mom taught/coached me to drive)
• Most people learn best by doing, not reading

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What is Effective Education?

• Learning framework/structure should-
• Build knowledge, involvement, confidence,
  motivation, and action
• Offer an on-going process to change savings
  habits
• Be personal (to ones money experience and to
  ones investment experience) and relevant (at MY
  teachable moment Tommy saves 2,000 a year for
  only 10 years starting at age 21, but twin Timmy
  does not begin until age 31 and he will never
  catch up)
• Be interactive
• Should be scaleable, accessible, and affordable
  (Please note that this is not just product
  knowledge education)

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Effective Education Includes?
Interactive Learning sparks curiosity
1-on-1 Guidance changes behaviors
Scaleable Education
Complex Advice
Single Issue Advice
Financial Advice
Most people need this
50
80
Some people need this
20
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Key Questions

• How much are you spending on financial education
  today?
• Does it engage your members/employees?
• Is it delivering results?
• Do you know what quality education should
  achieve?
• Do you know how to measure success?

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Funds and Employers Should Take the Lead

• Super decisions and most learning occurs in the
  workplace
• Both are major beneficiaries of a literate
  population
• Both offer the most relevant places where
  education can be provided continuously

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Why Should Funds Take the Lead?

• Choice -
• Opens the market to more competition
• Gives members the power to make good or poor
  choices (Funds want members to be well-informed)
• Creates opportunities and risks for every fund
  (Fidelity and other US companies are expanding
  their workplace financial education efforts
  because they now recognize they risk losing
  US500,000 or US1,000,000, or more, from too
  many long-time members who move their money to
  funds that offer more a engaging, personalized
  and empowering financial education program)
• Financial success for funds is based on growth in
  both funds under management and members

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Why Should Employers Take the Lead?

• Choice -
• Will be exercised at work
• Will be confusing for many
• Will require additional resources
• Will create the risk of litigation

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Why Should Funds and Employers Work Together?

• Become the fund of choice and employer of
  choice
• Share the cost of quality education
• Measure the outcomes
• If your education provider is not delivering,
• sack them!

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Key Questions

• What can your organisation do TODAY to deliver
  quality financial education effectively to your
  members and employees?
• What organisations can you collaborate with to
  improve member/employee financial well-being?

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Fund Outcomes

• Members
• Retention and attraction
• Higher voluntary contributions
• More funds under management
• Lower benefit protection costs
• Better asset allocation decisions
• More satisfied members
• Achieve long-term savings objectives
• Make better use of other member benefits

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Employer Outcomes

• Research (Toms and others) shows that financial
  well-being has little to do with income or age.
• Research shows that as financial well-being
  rises, these factors definitely improve for many
  employees (holding income and education constant)
• Stress about money issues
• Health and work life (FWB predicts 25 of health)
• Pay satisfaction
• Job performance rating
• Intention to quit employer
• Retirement savings contributions
• The fact is that financial well-being definitely
  predicts these job outcomes

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Australian Financial Well-being Scale

• The Australian Financial Well-being Scale
  measures ones subjective financial well-being
• It comes from researching peoples poor and
  good financial behaviors
• AFWBS Made up of 10 questions on the ABCs of
  financial well-being (attitudes, behaviors,
  control, and confidence)
• Stands on the shoulders of 20 years of US
  research
• Developed in cooperation with University of
  Melbourne professor of tests and measurements
• AFWBS assesses ones Financial Health much like
  a doctor checks ones temperature, blood pressure
  and heartbeat
• AFWBS 10 questions ask How satisfied, How well
  off? How do you feel?
• Its all about me! Am I in control? Am I on
  track financially?

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Australian Financial Well-being Scale

• (Insert slightly skewed distribution here insert
  two 20 boxes below toward left and right sides
  of distribution insert words Take a snapshot of
  employees financial well-being and then look at
  last years absenteeism and job performance
  ratings for those employees with good FWB upper
  20 and poor FWB lower 20, and take those
  results to executives place a US 5.7 at
  appropriate point in distribution)

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Employer Outcomes

• These are the outcomes that can be expected from
  good financial well-being
• Cost Savings
• Absenteeism and sick days
• Workers compensation claims
• Turnover
• Accidents and errors
• Disciplinary actions
• Revenue Gains
• Less work time spent on finances
• More presenteeism (Present, but not focused
  Talent2 November 2004 study of 1,000 Australian
  found 20 waste at least one full day of work
  each week)
• More productive key personnel
• Retention of best employees

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Employer Outcomes

• US employers can expect 450 in job outcomes from
  each employee who slightly improves financial
  behaviours and financial well-being (Toms
  research)
• Based on a program cost of 150, this is a ROI of
  31
• A similar return might be expected in Australia
• WHY? Because work outcomes are directly related
  to financial well-being

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The Financial Well-being Scale Allows YOU to

• Benchmark how your employees are doing
  financially today
• Get baseline data now using the Australian
  Financial Well-being Scale?
• Apply Quality Financial Education
• Ask later on if and how much
• Financial behaviours and well-being have improved
• Work outcomes improved
• Calculate the ROI WHY? PTO

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Employer and Fund Outcomes
Our goal at Monsanto is to have employees who
are so financially astute and so financially
secure that they work for us because they want to
not because they have to. (CEO response to why
employees, spouses and significant others are
given 6-8 hours per year to learn financial
education on company time) ?Schlumberger ?
United Parcel Service ? Weyerhaeuser
? IBM ? Mobil ? US Department of Defense ?
TIAA-CREF ? Chrysler
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Take Action!

• Choose a financial education provider who does it
  the right way and shows a commitment to
  measuring the results
• Benchmark the levels of financial well-being
  before and after implementing a program
• Calculate the ROI on work outcomes
• Explain the bottom-line argument to CFO and other
  executives

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Key Questions

• Do you understand what money skills your
  members/employees need?
• What is the strategic benefit?
• Do you want to be a fund/employer of choice?
• How can you measure what you implement?

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Final Messages

• Australian research shows that financial literacy
  is low and has substantial hidden costs
• Quality financial education can deliver a
  substantial payback
• Funds and employers have the responsibility and
  opportunity to address the issue TODAY

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Final Messages

• Changing peoples money behaviors, habits and
  skills creates more confident, self-reliant and
  productive members and employees
• When people understand what they need and why,
  they are empowered to save for the future (They
  create their own utopia of financial well-being)
• Who will be the early adopters and champion
  financial education?

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In Closing

• I leave Super Funds, their members, employers,
  and their employees with the immortal words of
  the great US baseball player, Yogi Berra, of the
  New York Yankees, who often fractured the English
  language with his truisms like
• If you dont know where you are going, you will
  end up somewhere else.

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Thanks!