Financial Capability Programs: What Works in the Workplace
This week we are releasing our preliminary findings of Prosperity Now's Financial Security at Work Initiative, sponsored by the Prudential Foundation. This initiative addresses the realities of low- and moderate-income workers' financial challenges and looks at the employer as a provider of services that can lead to financial capability and stability. Part 1 gave an overview of the problem and supporting literature; Part 2 will present and discuss four models that have displayed positive results in the field.
While the unemployment rate is slowly falling, many workers are still struggling to make ends meet with low savings high debt, and low credit scores. Financial capability programs, which help participants gain the skills, knowledge and access to the products and services they need to manage their financial lives effectively, can alleviate some of this struggle. We often talk about offering these programs through existing social service providers, but integrating financial capability services into the workplace is another good way to meet people where they are and help mitigate their financial challenges.
The Government Accountability Office (GAO) recently highlighted the unique access employers have to their employees' finances and other benefit programs, which means employers are also uniquely positioned to connect their employees to financial capability services. The objective is not only to inform consumers, but to give them the access to financial products that will help them convert knowledge into action and produce positive, lasting outcomes.
Achieving financial stability is a lifelong process, and workers of all ages and professions have a need for financial stability. That is why introducing financial capability programs in the workplace—where we are engaged from youth to retirement—can be so effective.
We have identified four financial capability program models that work especially well in the workplace:
- Financial coaching
- Online learning and financial management platforms
- Connecting workers to financial products
- Increasing savings through education and product design
Financial coaching focuses on building a one-on-one relationship between a client and a coach to achieve the client's self-defined financial goals. A coach assists the client in changing their financial behaviors and making small steps to improve their finances. The PolicyLab Consulting Group found that financial coaching helps low-income households increase their assets.
For example, $tand By Me, a financial coaching program in Delaware, shows the potential for reaching workers in their various workplaces. This state-funded program provides customized financial instruction and personalized solutions to the unique situations of the participants. $tand By Me has reported that participating employers feel more positively about their businesses and employees experience reduced debt and improved credit scores.
One reason this program has been successful is because of the role of the state government in providing funding, support and visibility. More widespread involvement from states across the country would increase the capacity of workplace-based financial coaching programs.
The impacts of financial coaching efforts are readily apparent. The Local Initiatives Support Corporation (LISC) recently released a report focusing on their Financial Opportunity Centers, which provide financial coaching combined with workforce development and public benefits counseling. Overall the results have been extremely positive, with the majority of clients improving their credit scores and increasing their net worth.
Online Learning and Financial Management Platforms
Online platforms use technology to disseminate financial information and resources. Online learning can reach more people at once, give recipients more flexibility on when they participate and allow consumers additional access outside of work by having the option of viewing the tools at home. As a result, this is often an easier way to bring financial empowerment services to employees.
One example of this type of online learning platform is PayPerks. PayPerks provides education tools, such as online tutorials and surveys. They also offer incentives—often monetary—to encourage learning, as well as fostering the ability to make financially healthy choices by implementing what was learned.
Connecting Workers to Financial Products
The Federal Deposit Insurance Corporation found that one in thirteen households were unbanked in 2013. This number does not include those who are underbanked and use alternative financial services. Since being unbanked often excludes individuals from traditional and safe means of taking out loans, these same consumers are often victims of predatory lending. The Pew Charitable Trusts found that more than five percent of American adults—about 12 million a year—have taken out a payday loan in the past five years.
Workplace-based financial capability programs can help workers achieve financial stability by connecting them to appropriate, affordable financial products. This means helping consumers access bank accounts, non-predatory loans and retirement savings accounts, to name a few. There is a clear need for workplaces to connect people to quality and safe financial products.
One example of this type of program is the State Employee Credit Union in North Carolina. This member-owned credit union offers short-term loans with low interest rates as alternatives to predatory payday loans. This allows employees to cover unexpected costs without being charged exorbitant fees and interest rates and getting trapped in a cycle of debt.
Increasing Employees' Savings
Prosperity Now knows the important role that savings plays in financial stability. Saving for an emergency, saving for college, saving for a car, saving for a house, saving for retirement—all are necessary for households to be financially stable and have a secure future.
Many existing programs focus primarily on long-term savings, which is important for financial security. But short-term savings are often more crucial to an individuals' ability to respond to a financial emergency. Many low- and moderate-income households, despite seeing the need to have these emergency funds, are unable to meet their savings goals. The U.S. Financial Diaries addresses the scale of this problem and finds that as little as 7% of households were able to meet their emergency savings goals.
myRA is one example of a program that is attempting to address both long- and short-term savings with an easy, low-fee, quality savings product. myRA is administrated by the U.S. Treasury Department and allows employees to automatically contribute to a savings account through payroll deductions. Although it is primarily for retirement savings, the contributions can be withdrawn at any time without penalties. This could be a product that could fill both needs for a low-wage workforce.
Each of these program models attempts to address a different employee financial need or challenge by bridging the gap between knowledge and action. These programs not only provide information to employees but also promote healthy financial behavior.
Stay tuned for an analysis of the promising practices in the field in Part 3 of this blog series coming tomorrow!