© Copyright 2004 Invest In Your Debt, Inc. The Business Case for Financial Education Personal Financial Wellness and Employee Productivity Dr. Thomas Watson, Ph.D.

2 © Copyright 2004 Invest In Your Debt, Inc. Dr. Thomas Watson President of Watson Communications Intl, Inc.Corporate Training Company President of Watson Communications Intl, Inc.Corporate Training Company Company founded in 1990 Company founded in 1990 Headquartered in Longview, Texas with offices in Guam Headquartered in Longview, Texas with offices in Guam Professor in Texas A&M University System for 10 years behavioral science Professor in Texas A&M University System for 10 years behavioral science Over 25 years experience in international training and research Over 25 years experience in international training and research

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4 © Copyright 2004 Invest In Your Debt, Inc. Introduction The majority of financial education programs are narrowly focused on retirement education/planning The majority of financial education programs are narrowly focused on retirement education/planning Smart employers are broadening their perspective about financial education to include debt elimination, money management and financial coaching Smart employers are broadening their perspective about financial education to include debt elimination, money management and financial coaching

5 © Copyright 2004 Invest In Your Debt, Inc. The Rationale for Comprehensive Financial Education Is Strong What if someone promised, you the employer, a plan to achieve the following: a positive return on every dollar invested in comprehensive financial education a positive return on every dollar invested in comprehensive financial education reduced pressure to increase salaries reduced pressure to increase salaries reduced HR administrative costs reduced HR administrative costs increased worker productivity increased worker productivity increased moral and loyalty increased moral and loyalty reduced absenteeism reduced absenteeism increased number of worker retirements on time rather than delayed increased number of worker retirements on time rather than delayed reduced exposure to litigation based on fiduciary liability as fewer retirees have financial problems reduced exposure to litigation based on fiduciary liability as fewer retirees have financial problems reduced stress over financial matters and stress-related illness reduced stress over financial matters and stress-related illness fewer accidents fewer accidents reduced turnover reduced turnover

6 © Copyright 2004 Invest In Your Debt, Inc. Traditional Investment Focused Retirement Education Programs Have Limited Effectiveness For many employers, retirement plan participation rates have reached a plateau and in some cases are actually falling For many employers, retirement plan participation rates have reached a plateau and in some cases are actually falling Many workers have money problems and cannot afford to save for retirement Many workers have money problems and cannot afford to save for retirement Some workers are not convinced that they should be saving for retirement Some workers are not convinced that they should be saving for retirement

7 © Copyright 2004 Invest In Your Debt, Inc. Positive Results Research suggests that employees can benefit greatly from targeted financial education offered from their employers Research suggests that employees can benefit greatly from targeted financial education offered from their employers

8 © Copyright 2004 Invest In Your Debt, Inc. Research by Virginia Tech University* 66% of employees are very concerned about making ends meet 66% of employees are very concerned about making ends meet 54% of average income workers are dissatisfied with their financial wellness 54% of average income workers are dissatisfied with their financial wellness 52% report they live from paycheck to paycheck 52% report they live from paycheck to paycheck 30% feel they are always in financial trouble and 35% find it hard to pay bills 30% feel they are always in financial trouble and 35% find it hard to pay bills 44% do not set aside money for retirement 44% do not set aside money for retirement 60% do not have enough money set aside to live for longer than two months if they lost their jobs 60% do not have enough money set aside to live for longer than two months if they lost their jobs *Research by Dr. Thomas Garman, Virginia Tech University, 2001

9 © Copyright 2004 Invest In Your Debt, Inc. Employee Financial Wellness and Worker Productivity Are Positively Related* Employees with poor financial wellness are more likely to: Be absent from work frequently Be absent from work frequently Receive poor performance ratings Receive poor performance ratings Spend excessive time at work dealing with personal financial problems ---- approximately 20 hours a month Spend excessive time at work dealing with personal financial problems ---- approximately 20 hours a month Experience a decline in job productivity from one year to the next Experience a decline in job productivity from one year to the next *Research by Dr. Thomas Garman, Virginia Tech University, 2001

10 © Copyright 2004 Invest In Your Debt, Inc. Research Findings on Employee Wellness* Best employees - those who have average or above average financial well-being Best employees - those who have average or above average financial well-being Worst employees - those who are dissatisfied with their financial situation Worst employees - those who are dissatisfied with their financial situation Financial well-being directly Predicts employees performance ratings, pay satisfaction, absenteeism, and conflicts between work and money matters Financial well-being directly Predicts employees performance ratings, pay satisfaction, absenteeism, and conflicts between work and money matters *Research study by Dr. S. Joo, Texas Tech University and Dr. J. Kim, University of Maryland, 2002

11 © Copyright 2004 Invest In Your Debt, Inc. Military Research Research by the Military Family Institute concludes that the direct and indirect costs to the Navy for poor personal financial behaviors of workers is between $208 and $294 million annually Research by the Military Family Institute concludes that the direct and indirect costs to the Navy for poor personal financial behaviors of workers is between $208 and $294 million annually The cost to the Department of Defense, an employer of 1.4 million people, is about $1 billion annually The cost to the Department of Defense, an employer of 1.4 million people, is about $1 billion annually

12 © Copyright 2004 Invest In Your Debt, Inc. Negative Impact of Employee Debt on Employer Profitability Direct Costs – Work time wasted dealing with financial concerns, more absenteeism and lower job productivity Direct Costs – Work time wasted dealing with financial concerns, more absenteeism and lower job productivity Indirect Costs – Stress, health care, turnover, accidents, substance abuse and theft Indirect Costs – Stress, health care, turnover, accidents, substance abuse and theft

13 © Copyright 2004 Invest In Your Debt, Inc. Corporate Financial Education There is a growing national movement to offer financial education in the workplace, partially because so many workers are going to have extreme difficulty finding money for retirement There is a growing national movement to offer financial education in the workplace, partially because so many workers are going to have extreme difficulty finding money for retirement

14 © Copyright 2004 Invest In Your Debt, Inc. Employers Profit When Helping Improve Employee Financial Well-Being* Each employee who only slightly increases his or her financial well-being will contribute an Extra $450 to the employers Bottom Line of Profitability Each employee who only slightly increases his or her financial well-being will contribute an Extra $450 to the employers Bottom Line of Profitability This is $160,000 to an employer with 1,000 employees where only 30% of the workforce makes relatively minor but genuinely positive changes in financial well-being This is $160,000 to an employer with 1,000 employees where only 30% of the workforce makes relatively minor but genuinely positive changes in financial well-being The return comes from reduced employee absenteeism and less work time wasted dealing with financial problems The return comes from reduced employee absenteeism and less work time wasted dealing with financial problems *Research study conducted by Dr. S. Joo, Texas Tech University, 2003

15 © Copyright 2004 Invest In Your Debt, Inc. Employers Reap the Benefits Very high participation rates in 401(k) plans 90+ percent range Very high participation rates in 401(k) plans 90+ percent range Reduced net operating cost Reduced net operating cost

16 © Copyright 2004 Invest In Your Debt, Inc. The Value of Employee Financial EducationModel Created by Ernst & Young

17 © Copyright 2004 Invest In Your Debt, Inc. Smart Employers Offer Targeted Financial Education That Helps Workers Make Informed Decisions About: Employer-sponsored retirement plans Eliminating debt and money management Financial coaching

18 © Copyright 2004 Invest In Your Debt, Inc. Employees Benefit as Well Less stress on and increased financial wellness off the job Less stress on and increased financial wellness off the job Feel less pressure to make more money Feel less pressure to make more money Increased capability to participate in and contribute to retirement plans Increased capability to participate in and contribute to retirement plans Less moonlighting to make ends meet Less moonlighting to make ends meet Lower household debt-to-income ratio Lower household debt-to-income ratio Increased self-esteem and improved attitude about work Increased self-esteem and improved attitude about work Increased saving for retirement Increased saving for retirement Increased overall financial wellness Increased overall financial wellness

19 © Copyright 2004 Invest In Your Debt, Inc. Clients Who Have Offered the Invest In Your Debt Financial Education Seminar to their Employees Eastman Chemical Company Eastman Chemical Company Neiman Marcus National Distribution Center Neiman Marcus National Distribution Center Exxon/Mobil Exxon/Mobil Xerox Corporation Xerox Corporation City of Houston City of Houston Harris County (Houston) Harris County (Houston) Citibank Citibank Methodist Healthcare System Methodist Healthcare System Ernst & Young Ernst & Young State of Texas State of Texas Novation Novation

20 © Copyright 2004 Invest In Your Debt, Inc. Relieve Employee Stress Through Financial Education Thank your for your time.