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July 1999

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Teaching Dollars and Cents Makes Sense
Educating Employees About Personal and Business Finances

Making sense of dollars and cents can be a money-maker at both personal and corporate levels, so why isn't financial literacy a strong point in company training programs? According to Arthur Leavitt, chair of the Securities and Exchange Commission, "The lack of training employees in financial literacy may be one of the biggest disgraces in this country."

John Holland, improvement program administrator for United Illuminating Co. in New Haven, Conn., and John Guman, lead tax accountant, took Leavitt's message to heart. With management support, they organized a team-based effort to develop a model personal finance program designed to train United Illuminating employees in financial decision-making.

"While businesses may readily see value in teaching employees about workplace finance," explains Holland, "We feel it is critical to make that link between personal financial decisions and those made on the job."

Creating the Link For All Employees
"How many employees today are spending their time at work trying to figure out whether to finance their home mortgages? How many are agonizing over how their next bills may be paid?" asks Holland. "Developing a program that focuses on financial literacy for the family as well as for the business demonstrates that the company is committed to its employees' financial well-being in both the workplace and at home."

According to Guman, "Big ideas come from people." The initial step in the U.I. effort adapted those initials to develop a company organization known as Unlimited Ideas. A brief video introduction stresses that "People are United Illuminating's best resources. We need new ideas, and ideas can be generated if you put your mind to it."

Holland, the program manager for U.I., and Guman, a team member of U.I., explain that deregulation in the electric industry was followed by a decline in morale for its workers across the country. United Illuminating, which is now marking its 100th anniversary, was forced to cut its work force considerably. It needed cost reductions and employee understanding. But, as Holland and Guman are quick to add, ideas require careful analysis and an accurate view of potential cost-savings.

"An improvement in financial education can determine results and help in setting company goals," Guman explains. "Financial education improves decision-making, but financial realities have to be brought down to the personal level. Regardless of whether it relates to individual employees or to shareholder values, the bottom line is 'What's in it for me?'. In fact, in our century-old firm, many of the employees have been stockholders for fifteen or twenty years."

Cutting Costs, Gaining Value
In the team-based approach taken by United Illuminating, the effort involves management, employees and the appropriate unions. Attendance at team sessions was mandated by the company's CEO.
"Many of our union people are linemen or members of outside work crews who have little to do with the business areas of the company. It was important that they be part of the work sessions. We needed their input on possible savings through rescheduling or trouble-shooting efforts," Guman points out.

In an effort to reduce expenses, it was decided to use internal consultants whenever possible, and only in setting up the framework for the final financial training guidelines was an external consultant required. The cross-functional teams were comprised of four financial area representatives working with four representatives from other departments in the company.

According to Guman, this group came up with a pilot program relating to the economics of business. The CEO attended the first meeting, stayed the entire day and took part in answering questions from those in attendance.

"In this pilot program, those present were designated as 'stockholders,' and, suddenly, they began to question a number of company expenditures," Holland notes. "They wanted to know why there are company cars for the executives, why a company brochure was printed in full color and similar dollars and cents questions.

"In a sense, our own workers were being coached to conduct subsequent training sessions. They were asking questions and getting answers. The pilot program points out what works and what doesn't," Holland continues.

Other teams worked on aspects of personal finance issues related to decision-making.

Explaining Personal Finances
Holland and Guman suggest that a personal finance program could be offered as part of a standard benefits package, with a program tailored to address the specific industry or focus of the company. In the model created under their supervision, there are five levels of financial training based on employee age and probable family needs.

First, the basic finances for living on your own, a program adaptable to employees ages 20-29. These would include how to select a checking account, the differences between credit cards, how debit cards are used and the importance of saving for retirement. Within the company, this could also include flexible company benefits and health insurance options. An overview of mortgage and auto financing options might also be included.

The second and third levels relate to the "baby boomers." For ages 30-39, it might cover the purchase and refinancing of a home, and more sophisticated investment venues. It should also include saving for off-spring college expenses and advanced issues of health and life insurance. Ages 40-49, the prime earning years, require knowledge of allocation strategies for balancing risk-reward options.

The age bracket for ages 50-59, needs to be directed toward planning for retirement, as well as considering inheritance strategies and how taxes can be used to an individual's advantage.

Finally, Holland and Guman's model address ages 60-69 with a complete focus on retirement options, company buy-out packages, health insurance and investment strategies. Also at this time, potential retirees need to consider medical coverage, prescription plans, estate planning, long-term care insurance and reverse mortgages.

High Profit Sharing
Speaking of the need for financial literacy at the personal level, Holland and Guman stress two benefits for both employer and employee.

"First, such training sets the basis for understanding corporate financial issues. There are many similarities between the financial measures we use and decisions we make at home and at work. Issues such as long term debt versus home mortgages, budgeting paychecks versus budgeting a company project and debt/equity investing versus credit card/savings account measures. These are critical to both company and personal survival."

Secondly, they point out that "by giving the employee some financial training, much of the fear and uncertainty relating to everyday life may be defused. If an employee understands that refinancing his debt may lead to tax savings and a better cash flow, they will be a happier employee. If the employee understands the value of a 401(k) plan or deferred compensation, they will have a better appreciation of the company's compensation package. Employers may gain a company loyalty previously lacking."

Financial Statement
According to Holland and Guman, the United Illuminating financial training program had expenses of approximately $50,000, and so far has identified about $2-million in savings for the company. It has also resulted in employees being able to speak up concerning company expenses because they have been instructed to do so. In addition, improved business skills have made it possible for many people to move ahead in the firm and in the business welfare of their personal lives. In addition, they report that the unions now regard management with more trust than they did before the training programs took place.

Holland stresses that the overall aim of financial education training is that of getting employees and management to talk the same language.
Pointing out that a sense of money is vital in both personal and business experience, Holland and Guman insist that educating employees on money and its benefits should be of prime consideration in company training programs.

After all, it only makes sense.

July '99 News for a Change | Email Editor
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