Workplace financial education alleviates employee stress

An employee who worries about dire future financial straights will not perform well in the here and now.

Stop fretting. You’ll worry yourself sick.” That might have seemed silly when your mother said it, but the health literature takes the linkage quite seriously. HR professionals see the connection on a daily basis. A family crisis at home or extreme stress on the job can provoke or prolong headaches, nausea and other physical illnesses among employees.

New research suggests that personal financial health is linked to physical and mental health and possibly to job performance.

A 1999 study for the Association for Financial Counselling and Planning Education (AFCPE), by five academics from Virginia Tech and Texas Tech universities, asked 178 employees of a south eastern U.S. manufacturer about their fiscal and physical health and how their bosses had scored them in their latest job performance reviews.

The researchers concluded, “Workers who reported that their performance rating was high also perceived better financial wellness,” and “those with better financial wellness reported better (physical) health.”

Although the researchers recommend additional study to better understand the relationships, the results are not entirely surprising.

People that plan and keep to a budget, have an exercise program and healthy diet are probably equally well prepared and disciplined in organizing and completing workplace assignments. Conversely, people that cannot keep up with household bills may feel similarly besieged at work.

“Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

Mr. Micawber’s advice to David Copperfield remains as true today as when Charles Dickens wrote his semi-autobiographical novel 150 years ago. Happiness depends more upon planning, budgeting and saving than upon a person’s particular income.

HR professionals may not be able to instill happiness among their employees, but they can reduce stress by providing workplace financial education programs. Seminars and counselling can provide employees with the tools to budget, save and invest for the future.

The AFCPE study found that the 100 employees who participated in financial education seminars were significantly more confident than the 78 that did not.

It is noteworthy that the median responses of the two groups were so far apart on the question: “I worry about how much money I owe.” Non-participants were significantly more inclined to worry about debts than participants who attended the seminars.

Those that attended the seminars became more confident and proactive. Three quarters of the participants in the AFCPE study felt “more confident in making investment decisions,” after taking the workshops. Almost half (45 per cent) increased their contributions to their personal or employer-sponsored pension plans.

Workplace financial education has a positive impact on the confidence of employees. Jack Parker, a retirement educator and a senior financial advisor at the Retirement Counsel of Canada, contrasts the benefits of pre-retirement and other workplace financial education with the costs of a more passive pension communications program.

“There are a lot of misconceptions that employees can pick up on the shop floor and around the water cooler. Unfortunately, these misconceptions tend to be believed because people don’t read their pension entitlement document. This often comes up in seminars. Many participants will say, ‘Well, I was told by so-and-so,’ and I’ll respond, ‘Well you were not given all of the facts.’”

Considering the cost of providing a pension and benefits package to employees, it’s a shame if employees don’t appreciate its value and features. Three other good reasons to provide a workplace financial education program include:

•help employees make more informed choices about benefits and early retirement options;

•lessen employee stress regarding their future retirement incomes; and

•enable employees to make change that will enhance their future retirement incomes.


Parker finds that most pension entitlement documents sent to employees go straight into the garbage. Among the few people that actually read the documents, most say, “I don’t understand it.”

Retirement education seminars include information on:

•the employer’s pension plan;

•sample pension entitlement documents;

•early leaving opportunities;

•survivor benefits;

•pension estimates; and

•how retirement benefits are calculated.

Parker notes that some retirement-track employees assume that their pension entitlement is simply the amount available should they retire today.

Retirement planning should consider all income sources, including the employer pension, their personal pension plans and those of their spouses. Unfortunately, most people underestimate the value of the Canada Pension Plan.

If someone contributed at the maximum rate from the day the CPP was launched in 1966 until Dec. 31, 2000 they would have paid in $16,600. In the first year of retirement, effective January 2001, at age 60 the person will receive $6,510 ($542.50 per month) and within 30 months will get back every dollar contributed. The CPP is also indexed to inflation.

Simply knowing how much retirement income will be available to an employee and his family may not, by itself, alleviate anxieties. Parker cites a case he encountered last year that is fairly typical among retirement-track members of employer pensions today.

The husband’s gross salary was $57,000 a year and his wife did not have an income.

Their gross pension income was $39,000. The couple was alarmed. “How can we possibly live on a third less than we’re living on now?” said the employee’s wife.

What appeared to be a $18,000 shortfall ended up to be only $5,500 after deducting the $12,500 the husband paid in CPP deductions, Employment Insurance, union dues, the employee share of health, dental, vision and life insurance and contributions to a personal RSP. The $5,500 shortfall was reduced to $3,300 after adjusting for the lower rate of taxation on the lower income.

The $3,300 is then divided by the 220 days a year the employee went to work. Consider how much money someone saves on business clothes and dry cleaning, lunches, fuel and parking when not going to work. In this light, the employee’s pension setup would not crimp the couple’s lifestyle come retirement, and financial stress was alleviated.

Sometimes the calculation of future retirement income is not so reassuring. In those situations, pre-retirees can consider four types of options:

•aim for higher investment returns;

•retire later;

•buy down; and/or

•work part-time in retirement

Some employees in their late 50s and early 60s are still heavily invested in Canada Savings Bonds and other low return investments. Moving even a small portion of their savings into growth investments such as balanced or equity mutual funds can significantly increase growth in their portfolios.

Retiring even two or three years later than initially planned can significantly add to one’s savings and investments (more years to contribute) and reduce the required retirement income (fewer years of retirement).

Buying down is an option as well. For example, people can sell their bigger home in the city to buy condo apartments downtown or a home in the country and invest the difference to enhance their retirement income.

In those cases where both partners have used up their maximum RRSP contribution room, they place the resulting non-registered money in the name of the lower-income spouse where it will be taxed at the lower tax rate.

Part-time work is becoming a popular option now that more employees are choosing early retirement. It doesn’t take a lot of hours to make up for the $6,510 a year in CPP you’ll be missing between age 55 and 60.

“The most common response when I wrap up a pre-retirement seminar is, ‘I wish I’d had this seminar 10 years ago,’” says Parker. Once employees understand their financial situations and options they want to take action. Unfortunately they have less time to plan ahead and fewer options to select as their retirements draw nearer.

In light of the AFCPE research, HR professionals can significantly enhance employee confidence and pro-active behaviour by investing in financial education for younger employees as well as retirement-track personnel.

Asaf Shad is the director of the Employer Services Division, Retirement Counsel of Canada based in Mississauga, Ont. He can be reached at (905) 822-8831 or [email protected] or

To read the full story, login below.

Not a subscriber?

Start your subscription today!