Why You Should Nudge Employees to Make Smart Financial Decisions

by David Creelman | Posted | Total Rewards

Why You Should Nudge Employees to Make Smart Financial Decisions

Is it any of your business if employees make poor financial choices like buying a house they can't afford or running up credit card debt?

Not really. Being free to make our own bad decisions is one of the perks of adulthood. However, that doesn't mean we can't take an interest in employees' financial health just as we do their physical health.

The analogy between financial health and physical health is a surprisingly good one. Companies invest in wellness programs because they are good for the company and good for employees. Investing in financial health is similar. Certainly we want employees to be in good financial shape simply because we care about employees; however there are also some direct payoffs for the company.

The payoff in helping employees be smart about money is that poor financial choices can create serious stresses that distract the employee from work, make them irritable and possibly encourage unethical behavior. Certainly anything we can do to reduce that stress is good for the company; who knows... it may even reduce the pressure for constant pay increases.

Smart financial decisions pay off for employees. When reward professionals think about nudging employees to make smart financial decisions they're usually thinking about investing in pensions.

This is useful and we know some simple techniques to enhance these investments such as making it an opt-out decision (if you don't want to contribute to your pension you have to tell HR, otherwise it just happens automatically) and not giving people too many choices (since that paralyses decision making).

Frank Wiginton, CEO of Employee Financial Well-Being, points out that most employees are not as concerned about pensions as they are stressed out and worried about paying the bills at the end of month. Helping employees with day to day spending will have a bigger impact on stress and all the negative side effects from this stress.

So what can you do to actually help your employees?

Wiginton says that most people genuinely don't know where all the money goes. That's the heart of the problem. Helping them identify how much money they're spending and where they're spending it sets the stage for getting control of their bills. For many people, a tune up of their spending can significantly ease their stress.

Is this something you should actually act on?

Before you either roll out a program or dismiss the idea, it's easy to test the water by asking a few people if they think financial stress is an issue amongst employees, and by checking with your Employee Assistance Program (EAP) vendor about how often they see financial stress as an issue.

If it is an issue, then you can put a toe in the water with a pilot program. Ideally you'll apply some good evidence-based thinking to how you run the pilot.

Make sure you select a random set of people for the pilot and also set aside a control group. Survey both groups before and some months after the program. This will show if the program has had an impact.

That may sound like scientific overkill but really it's just sending a three- or four-question survey to two groups of people at two times-well within the ability of most HR departments.

What's the payoff?

Financial problems plague many employees and usually those problems are preventable.

Paying people well doesn't help if they spend poorly. So perhaps the reward function in organizations should help with wise spending, not just fair pay.

Your Turn: What tips do you have for improving your employees' financial savvy?

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