Time and Money

What Does It Mean to be Truly Financially “Literate?”

Employers often make an effort to assist their employees with retirement questions.  They may sponsor an annual retirement planning meeting, usually lasting 30-minutes, located in the company’s conference room.  Remember the last one you attended? Did you get help with your many financial questions? Was there any followup? Was a relationship established with anyone knowledgeable to help you on an ongoing basis?  Was there any accountability to help you get anything done?  Most employees who attend one of these meetings goes back to his/her office, gets busy with work-related assignments, and soon forgets all that they just heard.  This scenario has played out thousands of times all across the nation.

True financial literacy does not consist in 30-minutes of lip service. Financial literacy is made up of concrete answers to emotional issues such as how to communicate with a spouse or partner about money, how to get spending under control, how debt affects retirement NOW, and how taxes will absolutely destroy future options if not understood properly. No one talks to employees about any of this in any of these ridiculous meetings. Quality financial training, if an employer is going to bother offering anything for its employees, needs to give accurate answers to questions and especially not beSalesperson about selling a product. True financial literacy is only possible when it is based on principles rather than products, takes a common sense approach to dealing with spending control and debt elimination, and when it can teach employees how to build a retirement income that they cannot outlive.

Financial literacy has tangible, moving parts, with an experienced coach available not only to answer questions, but to hold a person accountable and help make sure things get done.  Real financial literacy in the workplace will not make an employee an expert in a few hours, but it will teach foundational principles that will help employees make solid financial decisions over time.

Here is one example of a financial decision an employee made based on insufficient information he got about retirement planning from his employer:

John, I’ll call him, had reached age 67 and was presented with monthly pension options and chose the “single” option, meaning that he receives a higher monthly income of $3,200 for life. But what it also means is that when he dies, that income ends for both him and his wife.  What he didn’t realize, and what he was not told by his employer, is that when he dies his wife gets zero!  He could have elected to take the lower “joint” option of $2,400 per month for life for two people but John was enticed by $800 more a month with the “single” option and jumped at that.  If he had taken the joint option his wife would  have continued receiving $2,400 each month, but now she will get nothing at all. This angry wife told me personally that when her husband dies, and she stops receiving the $3,200 a month he has been getting because he elected the “single” option, she will dig her husband up, out of the grave, and kill him all over again.

Other questions that often come up for employees go something like this:  Should a young, 30-something employee use his 401(k) money as a down payment on a new house?  His young family doesn’t have any reserve savings for an emergency of any kind.  They don’t have money enough to purchase a lawn mower, or even a water hose.  So should they risk what little money they have accumulated in a 401(k) on a house purchase? It depends. Without foundational and principle-based financial education, he isn’t likely to make the right decision.

And what about one of my clients with four credit card debts totaling $10,000 at 22.9% annual interest charge, while at the same time receiving a $4,000 tax refund each year?  This couple calls the $4,000 their “forced savings account.” That $4,000 could have been used to reduce the $10,000 debt and save $916 of interest each year.  Are the financial planning meetings creditcardtheir employer holds ever discussing tax issues or the silliness of getting a tax refund instead of figuring W-4 withholding properly? I doubt it. All this employee would need to do is increase his exemptions and put that $4,000 into his own paycheck at $333 a month.  Since each exemption is worth $43 a month, he and his wife could take an additional seven exemptions and use that $333 all through the year.  The tax refund would go away, but they would be saving $76 a month in interest.  In 2.5 years those credit card debts would be paid off!

Because no one is telling them how to control spending so they will never need to use their credit cards, they will most likely always be in  debt.  Because no one is teaching them how to increase their exemptions by learning how to calculate them properly they will not have this $333 a month, costing them a small fortune totaling over $68,700 for the next several years!  The interest expense is six times what they owe.  Without true financial literacy this employee will keep making these same mistakes over and over again in different ways.

I could share hundreds of heart-wrenching stories like these.  The ones I have mentioned show the devastating cost of financial illiteracy in the workplace. Few people have access to real ideas that work, or honest ideas that won’t be disguised into a product sale.

Financial literacy is the key to anyone’s successful future.  But beware of where you get your so-called financial “education.” Be sure it doesn’t come from popular financial “gurus” of our time. Although they share their expertise with you, it isn’t the whole picture and cannot ultimately help you since partial information when it comes to money is just as dangerous as misinformation. Be sure it doesn’t come from your neighbor, brother-in-law, or friend at work. They are only repeating what they’ve heard in the media.  To receive true financial education, you must go to a source that can educate you about every piece of the financial puzzle, show you how to put it together so it makes sense, and make sure the whole thing works in harmony.

Money Mastery is the only place you will find this basic financial training, designed to teach foundational concepts based on proven principles and not financial products. These concepts include spending control, debt elimination, predictable tax-free retirement, and wealth on ANY income.  But more importantly, it teaches how these concepts are interrelated and must be attended to at the same time

Money Mastery teaches this true financial literacy and makes it possible for employers to offer it to their employees online at a reasonable annual cost of just $250 for the entire company. Take a test-drive for your employee’s benefit by going online to www.moneymastery.com or contact me at (801) 244-5756, peter@moneymastery.com.