Forty-five percent of employees find their debt level overwhelming. It is always on their mind, weighing them down, creating mental and physical health implications. Much of the struggle comes from employees not understanding how credit and debt work together. Credit is the borrowing of money from a third-party with the intent to pay it back. Credit offers come in many different forms and can lure employees into thinking they have found a way out of debt, but without understanding basic concepts on making minimum payments and interest, they are further at risk of financial harm. According to Tim St. Vincent, a financial literacy educator with Credit Counselling Society in Winnipeg, Manitoba, credit is like a drug in many ways because it can be very easy to get and highly addictive, and if not used correctly, it can drag you down into a dark place so far, you’ll have no idea how you got there. In the International Foundation webcast, “The Dangers of Credit Illiteracy to Staff and the Workplace,” St. Vincent discusses the impact of credit illiteracy on employees and organizations and how to help employees out of the darkness.

St. Vincent highlighted three takeaways for plan sponsors:

1—Financial stress impacts employees mentally and physically, which carries over to the organization.

St. Vincent says 72% of employees report feeling financial stress. Of those, 51% experienced back pain, 44% experienced migraines, and 36% experienced depression and anxiety. The non-financially stressed reported significantly lower rates of those conditions.

High financial stress levels can also lead to a lack of employee engagement; increased distraction, absenteeism, turnover and presenteeism; high health care costs; reduced productivity; and increased costs to the organization due to delayed retirement (e.g., older employees’ health care costs are higher, they cost more on the pay scale). According to the National Payroll Institute, in Canada, financial stress is expected to cost employers over $40 billion in productivity, up from $26.9 billion in 2021. St. Vincent says for the U.S., it is expected to cost employers over $400 billion in productivity, up from $269 billion.

2—Financial literacy education now will help close the education gap for the next generation.

There are basic financial literacy topics throughout one’s lifespan that can be learned and passed down from one generation to the next: budgeting, credit, retirement, investment basics, cash flow, kids and money, couples and money, death and taxes, planning for emergencies, net worth, death and debt, irregular income, preparing for job loss, managing and understanding debt, and preparing for home ownership. Employees are lacking these pieces of education. They may have a basic understanding of the concepts but not enough to set them up for success.

Employees must have knowledge of the above concepts to make better decisions, which in turn will lower their financial stress. It is especially imperative employees comprehend the importance of credit—the relationship between credit reports (a document containing one’s credit history and score), credit history (the text detailing one’s use of credit throughout their life) and credit scores (a numerical representation of one’s credit history predicting the likelihood of repaying debt).

3—“Education is the most powerful weapon we can use to change the world.” -Nelson Mandella

Eighty percent of employees want financial education in the workplace. According to Benefits Canada, 61% of employers agreed to provide financial literacy education during work time. Of those employers who have put financial literacy programs in place over a five-year period, 60% saw a decrease in health care costs, 80% saw reduced absenteeism and 80% experienced increased productivity.

St. Vincent recommends employers interested in setting up a financial education program should make sure the program:

• Is accessible to all employees
• Provides unbiased information
• Is confidential
• Provides employer support
• Is promoted organization-wide and communicated regularly
• Partners with established providers
• Allows for employee feedback and measurement
• Is not judgmental or stigmatizing
• Is continuous and lasts at least a year
• Has a fun design for heightened engagement (e.g., offering company-wide quizzes to get and accumulate points, which can then be cashed in for company swag or paid time off). A benefit for attending the sessions beyond the education is also needed. Employers must try to keep the employees engaged after they have completed the program sessions.

What topics should employers begin with in their program?

• Budgeting
• Credit use and abuse
• Money saving techniques
• Debt repayment solutions
• Managing debt in retirement
• Investment basics

St. Vincent reminds employers that financial education alone is not enough. Employers must provide a follow-up program. This involves providing individualized support to employees offered by accredited credit counselors who can create customized solutions to get employees to a healthy place.

International Foundation members can access a free recording to take a deeper dive into the topic. 

Developed by International Foundation Information Center staff. This does not constitute legal advice. Please consult your plan professionals for legal advice.