Article 5 - Why and how to invest in financial training for employees

 What is financial literacy?

 

Financial literacy is defined as “the ability of people to make financial decisions in their own best

short- and long-term interests” (Mandell, 2008). Unfortunately, this skill is in short supply, which

may erode both personal and aggregate welfare (Lusardi and Mitchell, 2007). Additionally, it is well known that financial institutions as well as the society benefit from the importance of financial literacy (Lo Prete, 2013). Numerous elements, such as socioeconomic status and way of life, have an impact on financial literacy (Lo Prete, 2013). An organization's financial literacy index is based on educational attainment.

Employee financial education is a terrific method to make the business the most desirable place to work. Investing in employee financial education not only helps to retain the best employees, but it also yields outcomes that are hard to dispute.

 

We'll go through some of the main benefits of giving staff finance training high priority and why it should be implemented.

 

1.                  Enhancing financial knowledge among employees

Every aspect of business is impacted by finance because, whether it is run for-profit or a non-profit organisation, an organization cannot function without cash flow. Every department depends on money to operate, and every department is influenced by finance (Ćumurović and Hyll, 2019). Additionally, employees must consider their personal finances, which are mostly based on their income. Also, earnings have an impact on retention; most workers would leave their current employer to work for a higher paying job (Ćumurović and Hyll, 2019).

However, if they understand that the organization value their work and want them to maximise their finances, by educating them on how to optimise their expenditure through financial education that is tailored for everyone will undoubtedly increase the employee retention rates.

 

2.         Streamline organizational processes and communication

            Confusion is one issue that slows down business operations, especially communication. If the employer often use jargon that the employees are not familiar with, it makes it more difficult to get the employees to work with interest. This process may take a long period as employees must first listen to explanations from the part of the organization before they can begin with.

Providing the staff with adequate training to simplify the jargon may lead to discussions among themselves and adopt to pertinent terminology much more quickly (Bharadwaj, 2014). As a result, when they are familiar with these terminology, acronyms, and procedures, such as payroll queries and financial terminology, the employees would get accustomed to it. As a result, less time would be wasted on defining terminology and posing fundamental queries before any problems could be resolved.

 

3.         Reducing fraud and financial mishandling

            Financial education is the ideal defence against attempts at frauds and finance mishandling. With proper understanding, the employees would not take a go at a fraud if they understand that there are no loopholes in the adopted system (Malshe and Agarwal, 2015). Employee finance training can be used as a method to inform all employees about the risks posed by fraudsters as they would be aware of the circumstances in order to defend themselves and the organization. This training prepares the employees to stay away from falling into a fraud or financial misconduct.

 

4.         Increasing employee retention and engagement

            We have already discussed the viability of enhancing staff retention by means of providing financial training. But what about employee engagement in organizational activities?

            The majority of workers, who make up a substantial portion of the workforce, are concerned about their financial status. Further, worried workers will undoubtedly have a tougher time focusing on their work in an effective manner. Employee's fears can be lessened by empowering financial education s for them (Balakrishnan et al., 2013.). As a result, they will be able to focus fully on work as they won't be demoralized and stressed about their financial issues. Additionally, happier workers with lower stress levels will not choose a new job or change the environment they are comfortable with.

 

With the above, we’ve discussed the benefits of having financial education. Now, lets have a look into how we can implement financial training for employees.

 

1.         Financial literacy and analysis

            Financial literacy and analysis can be very helpful, especially if you want to make personal or organizational financial savings.

Employees can develop their budgeting and financial planning abilities by starting with a solid foundation in financial literacy and analysis. This raises their overall satisfaction levels and ensures that they are more equipped to handle whatever financial challenges they may have.

Seminars that mentor popular financial topics are an example of financial literacy education. These topics are designed to assist staff members in understanding financial documents they are looking at. The purpose of conducting this is to increase staff members' general knowledge of corporate and micro level financing. Additionally, it aims to aid workers in developing their financial analysis skills.

 

 

2.         Tax compliance

            Competency in tax compliance is of paramount importance when it comes to Training and developing employees  within organizations. Tax procedures can particularly be extremely complicated given the financial practices being practiced. This is especially true if the business relatively new. Thus, the business also may not be familiar with tax returns or general tax rules.

Training on tax compliance might be very useful for employees who are engaged in financial activities. It may be also beneficial in managing personal taxing as well. Employees working in the finance departments, for instance, may learn how to use tax return software (Use of technology) to manage taxing within their firms.

 

3.         Industry-specific training

            Every industry has specific requirements and abilities that must be mastered by its employees. Financial education for employees tailored to the area of business may increase the productivity of the organization. Industry-specific financial training, for instance, can include subjects such as industry norms, suggestions for those with flexible contracts, or information on commissions.

Employees who receive commission-based bonuses and even salaries need all the information they can acquire about the framework of their commissions. Knowledge on how much can they earn before paying extra taxes is essential on areas such as; what products or services have greater commission rates, and why?

 

4.         Leadership and management

            Organization's leaders must be able to support the growth of their teams or divisions. This growth should be sustainable and consistent. Training is always a fantastic approach to help with this. It is beneficial to the organization and the wellbeing of staff as well.

Budget management training for teams or departments is a common task for all levels of leaders in the organization. With the right training, they can uncover how to make the most of every rupee allocated to them, giving each employee what they need to produce outstanding organizational outcomes. They must also be proficient with the management tools that the business uses.

Managers that understand how to use cloud HR softwares, for instance, to manage training, objectives, and employee performance for their teams, will be very valuable to the organization, particularly in the area of finance. Thus, the organization will be able to make the best use possible of their personnel and financial resources.

  

With the above factors, it is evident that training employees in financial aspects will benefit the business and its employees. Employee financial education is helpful for increasing retention rates in addition to helping the business to improve its financial performance. This aspect will distinguish the organization concerned from its competitors and teaches its staff members on how to maximise their pay.

In a nutshell, it's always beneficial to investment in staff financial training and therefore, it is highly worthwhile.

 

Video 1: What is Financial literacy

References

1.    Balakrishnan, C., Masthan, D.D., Chandra, D.V., n.d. Employee Retention Through Employee Engagement - A Study At An Indian International Airport.

 

2.    Bharadwaj, A., 2014. Planning Internal Communication Profile for Organizational Effectiveness. IIM Kozhikode Soc. Manag. Rev. 3, 183–192. https://doi.org/10.1177/2277975214542059

 

3.    Ćumurović, A., Hyll, W., 2019. Financial Literacy and Self‐Employment. J. Consum. Aff. 53, 455–487. https://doi.org/10.1111/joca.12198

 

4.    Lo Prete, A., 2013. Economic literacy, inequality, and financial development. Econ. Lett. 118, 74–76. https://doi.org/10.1016/j.econlet.2012.09.029

 

5.    Lusardi, A., Mitchell, O.S., 2007. Baby Boomer retirement security: The roles of planning, financial literacy, and housing wealth. J. Monet. Econ. 54, 205–224. https://doi.org/10.1016/j.jmoneco.2006.12.001

 

6.    Malshe, A., Agarwal, M.K., 2015. From Finance to Marketing: The Impact of Financial Leverage on Customer Satisfaction. J. Mark. 79, 21–38. https://doi.org/10.1509/jm.13.0312

7.    Mandell, L., 2008. Financial Literacy of High School Students, in: Xiao, J.J. (Ed.), Handbook of Consumer Finance Research. Springer New York, New York, NY, pp. 163–183. https://doi.org/10.1007/978-0-387-75734-6_10