April is Financial Literacy Month, a great time for employers to focus on the importance of financial education for creating a more financially secure future for their workers. This April, we encourage you to consider ways to promote financial literacy in your business, helping your workers develop healthy money habits that will benefit them in the future.

Let’s explore why financial literacy is pivotal in fostering a healthy and robust workforce, and discuss key strategies you can use to promote greater financial literacy in your organization.

What is Financial Literacy?

Someone who is financially literate understands the various aspects of money management, including budgeting, borrowing, saving, investing, debt management, and taxation. People who lack these skills are considered financially illiterate.

About Financial Literacy Month

Financial Literacy Month was established in 2004 to recognize the importance of teaching individuals fundamental economic concepts such as budgeting, borrowing, taxation, and other aspects of personal financial management. Research indicates that approximately 66% of Americans don’t have these skills, resulting in a widespread lack of financial literacy.

The Components of Financial Literacy

The core components of personal financial literacy are:

• Understanding one’s personal finances.
• Recognizing and using financial products effectively.
• Budgeting and forecasting personal finances.
• Understanding credit and debt management.
• Investing and understanding financial risks.

We’ll explore each of these elements in more detail in this article.

How Do U.S. Consumers Feel About Their Financial Literacy in 2024?

Data collected in January 2024 indicates that most U.S. adults feel they are “somewhat” financially literate. Those who consider themselves “very” financially literate dropped a point to 29% since 2023.

Those who say they are “not at all” financially literate rose two points to 12%.

How Much Does Financial Illiteracy Cost the Average American?

Financial illiteracy comes with a high cost. A new study found that U.S. consumers estimated their personal financial illiteracy cost them $1,506 per person in 2023. (Survey participants were asked how much money they believe they lost in 2023 due to a lack of knowledge of personal finances.)

This represents a significant jump from $1,171 in 2017.

Interestingly, when people were asked why they felt they were losing more money, prevalent advertising and comparison to peers on social media were cited as factors negatively impacting financial behavior.

Top Benefits of Financial Literacy

People with high levels of financial literacy tend to:

• Save more.
• Invest more wisely.
• Pay less in fees.
• Feel more optimistic about their finances.

Let’s explore some of these advantages in more detail:

More Peace of Mind

Being financially literate gives people a sense of control over their finances. They know where their money is going and what they must do to achieve financial stability and resilience. That generally leads to a more stable financial future and peace of mind.

Greater Resilience to Life’s Challenges

Financially literate people tend to handle financial challenges, such as personal bankruptcies, health issues, early retirement, job losses, debt repayment, and stress, more effectively than those who lack financial preparedness. Consequently, financially literate individuals tend to attain greater financial well-being than financially ill-prepared individuals.

Fast fact: Among Americans who feel they lack any form of financial literacy, 46% are confident that they’re saving enough to live comfortably during retirement. This suggests that those who are not financially literate tend to feel overconfident about their financial skills, like money management, which could be detrimental to their economic well-being in the long run.

Smarter Investing Habits

Financial literacy can prevent people from making potentially devastating investment mistakes that eventually cost money or prevent them from achieving their dreams. For example, financially literate individuals may be less likely to be drawn in by shady pyramid and Ponzi schemes or other get-rich-quick offers that oversell and underdeliver.

Fast fact: A study on financial literacy and its relation to financial well-being concluded that insufficient personal financial literacy could lead to unwise financial decisions, resulting in negative financial consequences for individuals.

Reduced Stress and Anxiety

More than 6 in 10 Americans say they don’t see their financial situation improving in 2024, and more than 50% report that money has negatively impacted their mental health. Financial stress is also linked to a number of health issues, including migraines, backaches, high blood pressure, and depression. Over time, these health problems could mean additional medical expenses, which could further pressure people’s finances.

Less Strain on Personal Relationships

Money can be a significant source of stress for couples. If financial problems are left to fester, they can damage people’s relationships with their partners. Money is widely known as one of the leading causes of divorce in America.

Better Preparation for Retirement

Financial literacy helps young adults understand the strategies and benefits of saving early. This helps them to prepare solid financial plans to secure their long-term future and a comfortable retirement.

Strategies to Improve Personal Financial Literacy Skills

Let’s consider some of the most effective ways to build financial literacy and advance toward financial freedom:

Budgeting

Whether someone is in their early 20s or close to retirement, making a budget is a crucial first step to managing money effectively. Making a budget (and sticking to it) helps people monitor their monthly spending and avoid unintentional overspending. On the other hand, when people don’t know how much is coming in and going out, it’s easy to overlook excessive spending or neglect to put money aside for savings.

Comparing Banking Options

Unless consumers optimize their banking services, their money won’t go all that far. Ideally, they should find out precisely how much their current financial institution charges, what account options they have, and what investment options and rates are available.

Adopting Smart Debt Strategies

People should avoid taking on high levels of debt. If taking on debt is unavoidable, it’s important they be aware of interest rates and make sure payments fit into their household budget. They can also avoid accruing interest by paying off credit card balances in full each month.

Saving Early and Often

Everyone should aim to set aside some money each month in case of emergencies and start saving for retirement as early as possible to give this money time to grow. Automatically depositing money from paychecks into a savings account is one way to stay diligent about saving regularly.

Planning for Major Expenses

Whether it’s a down payment on a new house or car, it’s vital to plan ahead for significant expenses by saving up beforehand and making informed decisions about financing options.

Paying Bills Promptly

To ensure monthly bills are always paid on time, it’s a good idea to set up automatic withdrawals from a checking account or use a bill-pay app. Scheduling email, phone, and text reminders for payments is another effective option.

Saving for Emergencies

A lack of emergency savings can quickly lead to hardship in the event of unanticipated medical expenses, home, appliance, or vehicle repairs, or a loss of income. New data from Bankrate reveals that:

• Nearly 1 in 4 U.S. adults have no emergency savings.
• If they were to lose their primary source of income tomorrow (such as their job), 2 out of 3 U.S. adults would be worried about having enough emergency savings to cover their immediate living expenses for the next month.

By creating an emergency savings fund that includes 3 to 6 months of expenses and regularly contributing to it, people can stay more grounded during challenging times.

Understanding Tax Laws

Financial literacy includes knowing how investment decisions made today will impact one’s tax liabilities in the future. For example, it’s important to understand that income is taxed differently depending on its source—tax rates on income from employment, investments, rentals, and inheritances are very different.

Asking for Help

Workers shouldn’t be afraid to ask for help from their employers, especially if they feel their financial worries are impacting their job performance. Many companies offer employee financial wellness programs or free financial counseling from accredited professionals. These sessions can help people clarify what areas need attention most, such as budgeting and debt reduction, and take positive steps in the right direction.

Teaching Children Healthy Financial Habits

The ideal way to become a financially literate adult is to start learning about money management at a young age. Parents should get their kids started with a savings account to introduce them to the banking system and teach them the value of saving. Which brings us to our next point …

What Role Do Schools Play in Financial Education?

High school education is vital in preparing students for their future careers, but there’s historically been little focus on basic financial literacy in the classroom. The Financial Literacy Crisis in America 2023 report highlights the lingering effect this lack of knowledge has on Americans, even decades after they leave high school:

• 88% of U.S. adults say high school didn’t leave them “fully prepared” for handling money in the real world.
• 3 in 4 U.S. adults say in the years after high school, they “often” (32%) or “sometimes” (42%) feel stress because of money.
• 72% of U.S. adults say they would be “further ahead with their money today if they had a personal finance class in high school.”
• U.S. adults who took a personal finance class are five times more likely to say they graduated high school “fully prepared” for handling their money in the real world.

These findings suggest that a greater focus on developing financial skills in formal settings such as schools and the workplace could have the biggest impact in improving people’s financial literacy and confidence.

3 Common Money-Related Misconceptions that Financial Literacy Can Address

Here are 3 common financial misconceptions that often prevent people from meeting their financial goals:

1. Credit Cards Are to Be Avoided

Some consumers believe they should avoid credit cards altogether, seeing them as a mechanism for racking up unwanted debt. However, the truth is that using credit cards responsibly and making timely payments can actually improve people’s credit scores.

2. I Can Wait Until I’m Older to Start Saving for Retirement

For many younger people, retirement feels a long way away, so they don’t think it’s something they need to consider yet. However, the opposite is true; saving early and often will make people more likely to accumulate enough to enjoy their retirement years comfortably.

3. I Don’t Earn Enough to Save

Many people, especially low-income workers, don’t even bother to try to save as they think the amount they can put aside will be too small to make a difference. But when it comes to savings, any amount is better than saving nothing at all. Equally, once people start saving, it will become a habit. A good approach is to start small and then add 1% each year (or more if one’s income increases more significantly).

The Link Between Financial Literacy and Workplace Wellness

Personal financial literacy and workplace wellness are two sides of the same coin. Financial literacy primarily concerns financial knowledge, while financial wellness is all-encompassing and refers to the health of one’s finances. It’s unlikely that your employees will achieve true financial wellness without first achieving a sound level of financial literacy.

Employers: Are Financial Worries Keeping Your Workers Up at Night?

The short answer is “yes.” A 2023 PwC survey outlined just how much American workers are struggling financially:

• More than 50% of full-time employees feel stressed about their finances.
• 2 in 5 full-time employees say their top financial pressure is that everything costs more these days.
• Only 42% say their compensation is keeping up with the rising cost of living expenses, down 10% from the previous year.

When Employees are Financially Stressed, Companies Suffer Too

Distractions add up and can lead to dips in productivity. Among financially stressed workers who are distracted on the job because of their finances, 56% spend at least 3 hours every week at work dealing with or thinking about their personal finances.

Financially stressed workers are also more likely to leave their jobs. Only 54% feel there is a promising future for them at their company, compared to 69% of employees who aren’t worried about their finances. They are also twice as likely to be looking for a new job.

And 73% of financially stressed employees say they would be attracted to another company that cares more about their financial wellness compared to just 54% of non-financially stressed workers.

Boosting Workers’ Financial Literacy Through an Employee Financial Wellness Program

If your employees have ever asked for financial assistance, you know how awkward these conversations can be, especially if you feel you can do little to help.

The good news is that financial wellness programs are widely available, easy to implement, and can very effectively address the problem of financial illiteracy, providing a win-win solution for both employees and employers:

• Most employees (82%) say they’d like to be more confident in making financial decisions.
• Almost 9 in 10 believe it’s important for employers to offer a financial wellness program.
• 75% say financial wellness programs help reduce their financial stress.
• 66% say a financial wellness program improves their company loyalty.
• More than 50% say a financial wellness program increases their productivity.

5 Steps for Crafting an Employee Financial Wellness Program

If you’re among the 97% of employers who feel responsible for your employees’ financial wellness, here are 5 steps to guide you through setting up a financial wellness program that delivers results:

1. Understand Your Employees’ Financial Situations

Financial challenges can quickly appear in the workplace, so look for the signs. These can include requests for pay advances, early retirement plan withdrawals or loans, and transportation trouble, which may manifest as absenteeism.

2. Assess Their Financial Wellness Needs

Don’t be shy to ask employees what they want to see in a financial wellness program through surveys or in-person discussions. Research suggests that the traditional stigma around getting help with finances may be starting to lift. Today, employees are less likely to be embarrassed to ask for guidance or advice about their finances; just 33% say they find it embarrassing compared to 42% in 2019.

3. Focus on Addressing Employees’ Most Pressing Financial Problems

Ideally, your financial wellness resources should focus on employees’ immediate and most pressing money management concerns. After all, they won’t be able to focus on their longer-term goals or become financially resilient when their day-to-day personal finances are in a state of chaos. A well-rounded program could include free counseling sessions, budgeting, and savings tools, and on-demand pay. Wherever possible, capitalize on digital technological advancements to make financial education more accessible and engaging, for example, by incorporating mobile apps, gamification, on-demand payment options, and personalized online learning experiences.

4. Communicate and Implement Your Solution

Before launching any program, ensure your staff is ready by communicating via emails, all-hands meetings, company intranet, monthly newsletters, or weekly team huddles. Post-launch, keep communicating and reminding your workers to use the benefits as they need them.

5. Measure Success and Improve Iteratively

Set up regular feedback loops that allow you to find out what your employees like about your financial wellness program and how they think it could be improved. You can then make informed decisions and enhance your program’s success.

Time to Move the Needle on Financial Literacy

Today’s financially strained workers are looking for a plan and want your help to get on track. There’s never been a better time to introduce financial wellness programs that prioritize financial literacy and are tailored to employees’ financial journeys and life paths.Payactiv, a pioneer in Earned Wage Access and holistic employee financial wellness tools, is here to help you move the needle on financial literacy in your business. Learn more about our free or low-cost financial wellness benefits today.