In a survey conducted in 2020, American adults answered a list of personal finance questions. Only 52% of those adults answered the survey questions correctly. But those results are really no surprise. After all, only 15 states in the US even guarantee high schoolers will take at least one semester of personal finance before graduating.
As John Pelletier, Director of the Center for Financial Literacy at Champlain College told one editorial. "It's kind of like expecting you to be fluent in a foreign language if you took one semester. It's a little bit ridiculous.”
The financial literacy gap is a huge problem facing America, but it's not an issue for the education system to take on alone. They have budget restrictions and limitations just like the rest of us. That's why The Great Game of Business believes it's time for businesses to start playing a role in education. We even made it our theme for the 2023 conference – "Business As The New Educators."
Here's why businesses should care about the financial literacy gap and why businesses teaching employees financial literacy is a win-win situation for all parties involved:
Benefits of Improving Employees' Financial Literacy
Providing a financial literacy program to employees holds many benefits for the employee AND the organization providing it.
1. Increased Focus and Productivity
When your people are worried about keeping the lights on at home, they're unable to focus fully on the task at hand. With some training and money management skills, employees will quickly learn how to improve their home life situation and can refocus their attention on bringing their "A-game" to work.
2. Reduce Employees' Stress and Anxiety
Debt is stressful. It hangs over your head and builds up a lot of anxiety. No one wants to stress about how they're going to pay their bills. Providing financial literacy training can ease the anxiety debt may be bringing to your employees. Teaching your employees financial literacy skills allows them to regain control of their own finances, make better decisions with their money, and ultimately improve their quality of life.
3. Greater Understanding of Business
With a basic understanding of how finances work, employees will better understand their role in growing the business. They’ll realize that when their company is doing well, that's good for them too. That opens up the door for the company to be able to offer higher pay and bigger bonuses.
4. Improve Retention and Build Loyalty
Providing financial literacy training is a great way to invest in your employees and shows that you care about their growth. When companies provide opportunities for growth to their people, they're more likely to stay. A survey from "Better Buys" found that employees who receive professional development opportunities are 15% more engaged. They're also less likely to leave — reflecting a 34% higher retention rate than employees who didn't receive growth opportunities.
5. Objectives Are Easier To Achieve When People Understand How To Impact Them
Financial literacy training for employees helps support the overall financial plan of the organization. When ALL employees understand the plan and are putting energy toward realizing the company’s financial goals, those objectives become easier to achieve.
Being financially literate in your personal life means you have enough knowledge and understanding of basic finances in order to make sound decisions with your money. To be financially literate in business means having general knowledge of the fiscal and economic landscape of business in order to make good decisions and investments on behalf of the business.
Why Employees Should Be Financially Literate
Traditional management styles have left employees in the dark about any business information that doesn’t directly pertain to their role and job responsibilities. But where this mentality falls short is in the realization that having the whole picture in mind actually helps employees perform more effectively in their roles.
Financially literate employees have a better understanding of how their work (and the work of others) directly impacts the bottom line, for better or worse. That understanding can be very powerful. When employees understand how their actions help or hurt the company, they are more likely to make positive changes that improve operations. Not only that, but knowledge is an empowering force. Knowledge leads to informed and intelligent decisions. It also breaks down barriers and creates opportunities.
Teaching Financial Literacy To Employees
Financially literate employees have an understanding of the company's financials and how to read the company's income statement. This includes standard business terms like profit, balance sheet, and cost of goods sold, as well as understanding what drives these numbers and the implications they may have for business operations.
Financial Literacy Terms To Cover With Employees
When educating employees, aim to give simplified overviews of the financials. Some of the main terms you should include in your training are:
Profit and loss statement (P&L) - a financial document reflecting an organization's profit and losses over a period of time (monthly, quarterly, yearly).
Revenue - the total amount of income generated from normal business operations (top line item or gross income).
Balance sheet - a financial statement reporting a company's assets, liabilities, and shareholder equity at a specific point in time.
Cost of goods sold (COGS) - the total amount an organization paid as a cost directly related to the production of goods sold by that organization.
Expenses - a cost or expenditure a business incurs in running their operations.
Cash flow statement - a financial statement reflecting all inflows and outflows an organization receives
Assets - an owned resource that has current or future economic value.
Liabilities - legally binding obligations or debts owed by an organization.
Equity - the value of a company divided into equal parts owned by shareholders.
Capital expenses - the cost of acquiring or making improvements to fixed assets.
The impact of teaching financial literacy to employees.
Empowering Employees Leads To Better Work Performance
To be clear, when we talk about employee empowerment, we mean granting them autonomy and responsibility, and providing the tools they need to step up and carve out a self-driven path toward success in their role.
Those leaders who believe in and want to develop their people should empower them with business and financial literacy. A study published in the Journal of Advanced Research in Economic and Management Services concluded that delegating authority led to improvements in employee performance. Another study of the 40 best companies to work for found that those with the most empowered workforce were more significantly linked to corporate wealth. Furthermore, empowered employees also have an indirect effect on work performance. In a meta analysis study conducted by the Harvard Business Review, empowered leaders were found to be more trustworthy and employees were found to be more likely to help other employees.
Since knowledge is a great way to empower, it’s no surprise that those employees who have been educated outperform those who haven’t. This happens because by understanding how their individual roles affect the business as a whole, they can perform their work in service to the organization rather than just themselves. Experience has proven that underperforming workforces lack a big-picture mentality. There is a reason why CEOs work so hard. They know what’s at stake and how their actions and decisions are linked to business success, and consequently aren’t simply focused on getting a paycheck on Friday.
Using The Great Game of Business To Educate, Empower, and Engage Employees
The Great Game of Business® is a unique approach to running a business that involves everyone in the discussion of financial information, not just the C Suite. This dialog is intended to empower employees to use that knowledge to contribute to the success and sustainability of the business. In order for employees to be involved in the financial conversation, they must be educated on finances. Start providing financial literacy training to your people today through our online Community Site! Our online Community provides training courses designed for both service and manufacturing companies.