What is financial education/why necessary/problem faced/how to improve

Financial education is the ability to manage your financial life in a healthy way for the present and for the future. It is a skill that everyone should have and can be acquired with company encouragement.

f there’s something that impacts people’s lives in some way, it’s the financial issue. When it is out of balance, it can reflect in several other areas, including the professional.

In crisis scenarios, like the one we are experiencing worldwide, the situation is even more complicated when you don’t have financial education.

The issue is so complex that it deserves to be evaluated and discussed not only in the personal sphere, but also within companies.

In this post, we will address the importance of financial education, how it reflects on organizational behavior and impacts productivity. Still, we will show how to motivate workers to develop in this sense. Don’t miss the read!

What is financial education?

The Organization for Economic Co-operation and Development (OECD) defines the concept of financial education as:

“the process by which consumers and financial investors improve their understanding of financial products, concepts and risks and, through information, instruction and/or objective advice, develop the skills and confidence to become more aware of financial risks and opportunities, make informed choices, know where to go for help, and take other effective steps to improve your financial well-being.”

In other words, financial education is the ability to manage one’s financial life with the aim of living well, in the present and in the future , with confidence to deal with unforeseen events and knowing how to use money consciously.

Have you ever stopped to think if you’re the one who controls your money or if he’s the one who controls you? If your answer was the first option, you probably already understand the importance of financial education.

However, not everyone has this skill and knows how to manage their resources correctly and efficiently.

However, this is a skill that anyone can develop at any stage of life, but ideally, this is taught in childhood.

Both schools and families should prioritize the financial education of children and young people so that they become more aware, responsible and fulfilled adults.

We will see later that having emotional intelligence is one of the main requirements to develop a good financial education.

Challenges are diverse throughout life, but knowing how to deal with them is essential for good mental and financial health. And the company can be a facilitator in this process, as we will see below.

Why is it necessary to develop this skill?

The reasons are many, but let’s start with the economic and social aspect. The percentage of indebted families in Brazil reached the mark of 67% in recent months, according to the National Confederation of Commerce (CNC).

Although this is also a reflection of the pandemic caused by Covid-19, the numbers were no longer positive before it.

How is financial life in the pandemic

In recent months we have been experiencing a serious health crisis around the world, and most people have been impacted in some way, whether positively or negatively, and the latter is the most common.

Some companies managed to expand the opportunities for action, increased the volume of production and this resulted in improvements for the business.

However, this is being a privilege for a few segments; a large part still suffers from sudden changes and struggles to stay on their feet and find alternatives to adapt to the new reality.

Many organizations even had to lay off employees and, in the most serious cases, close their businesses.

It is undeniable that the current moment has reached, with more or less intensity, all segments and one of the main impacts is the financial one.

This change has been noticed not only by companies, but mainly by the population, which is made up of people who work in these organizations.

These are direct reflections of this scenario: layoffs, uncertainty about job continuity, lower wages, changes in working hours and work format, family members leaving their companies and the consequent drop in monthly family income.

All this affects economic life and the behavior of individuals. At times like this, having a minimum of knowledge in financial education makes all the difference to being able to balance the accounts in a scenario of uncertainties .

From the organization’s point of view, companies that manage to maintain their staff also need to deal with the reflection of this in the organization’s day to day.

In addition, they also have to face the full impact on the flow of customers, who cancel contracts or fail to pay for services on these occasions.

Financial issues and mental health

Employees who face financial problems tend to work more anxiously, develop illnesses such as depression, panic attacks, social phobia, physical and mental exhaustion such as burnout and others.

This results in low productivity, poor quality work and negative business results.

For these reasons, it is essential to have financial intelligence to overcome adversity like these, as the moment is quite challenging.

In addition to helping you cope with crises, being emotionally intelligent offers a number of benefits for people in all areas of life, such as:

  • more clarity in identifying financial priorities;
  • better ability to make decisions;
  • more determination to carry out personal and professional projects;
  • more autonomy to achieve financial independence ;
  • improved analytical capacity to solve problems involving money;
  • less chances of indebtedness;
  • more quality of life.

What are the main problems faced by companies?

Although the financial issues of the employees are on a personal level, it is easy for the company to understand the degree of indebtedness of its staff.

It is possible to understand the reality of professionals when we observe some recurring behaviors and attitudes from a high number of people.

Below, we will describe some aspects that may indicate possible problems in the financial life of your staff. Follow up!

High turnover rate

Many employees quit because they are mired in debt . With the settlement money, they can pay their bills. This would explain a high turnover rate , for example.

Indebtedness can be a symptom of the high number of resignations. That’s why HR needs to keep an eye on the company’s turnover to identify the reasons and propose solutions.

Many raise and advance requests

Asking for a raise is a very particular issue and, in many cases, it is fair that the worker is better paid for his work in the company.

It turns out that, often, this can also be a way out for those who can’t find another solution to pay their debts.

Even more common is the request for an advance. Unforeseen circumstances happen, and if the company grants this benefit to the worker, it is certainly offering an extra resource in emergency situations .

The problem is when the same people ask for help too often. This is another sign that something is wrong.

Vacation pay is also often an escape valve for workers to pay off their debts. Here, we can cite two scenarios: the first is the sale of part of the vacation period to earn cash.

This vacation sale is called a cash allowance . In this case, often, the professional is already emotionally exhausted and cannot take the time off to rest.

And, as he needs money, the employee remains carrying out his activities in the company while he could prioritize his well-being far away, breathing other air.

The second situation is when the indebted employee takes a vacation and uses all the money to pay bills .

Even not working, possibly, the professional will not enjoy the moment in the same way as if he were traveling and having fun, for example.

Low productivity

People in debt or with other financial problems are looking for alternatives to solve the situation, and this moves a lot emotionally.

At that moment, it is difficult to concentrate on activities, as problems take over the thinking and this directly reflects on the professional’s performance, who starts to produce less.

Increase in absenteeism and presenteeism

When facing difficulties of this type, it is common for the person to have to leave more often to go to the bank to look for credit alternatives or resolve financial issues during working hours.

This can be one of the signs of high absenteeism rates in your company, for example.

The employee’s absence is also noticed even when he is in the company, did you know?

Due to the fact that this person is in trouble and cannot concentrate on tasks, it is as if he is not there.

Low productivity in this case is so impactful that it is similar to the absence of the employee in the organization.

This phenomenon is called presenteeism, which is when the employee has his body present, but his head is elsewhere .

This is one of the symptoms of a delicate problem in companies that also directly reflects on productivity.

More time in traffic

You might have read this thread and thought “what does this have to do with it?”, right? Believe me, this has everything to do with the financial reality of the professional.

People who don’t have a good financial education tend to spend more and, with that, lose balance in their budget.

So, when money is being mismanaged, in order to get organized again, this person looks for cheaper housing alternatives, which are further away from large centers and, often, from companies as well.

This results in more time in traffic and, consequently, more stress for the employee.

Why invest in business financial education?

Earlier, we talked about the importance of acquiring this type of education from an early age. The good news is that, in general, this is an initiative that is close to being realized.

In many schools, teaching is being reformulated so that financial education is included in the children’s curriculum .

However, many young people and adults did not have access to this type of knowledge and became people who cannot handle money well.

The subject has become so important and discussed by society that it has also drawn the attention of organizations.

Issues such as the correct use of the credit card, the real need to make loans, attention to interest on installments, the use of overdraft, where and how to invest for the future and which investments present better profitability were not discussed by companies until few years old.

It is at this point that business financial education can make a big difference in the lives of workers.

Organizations also have a social role in building a society that is more financially aware and more accountable for its actions.

Failure in the financial education of employees

Employees’ financial health has advantages for companies, and many fail to pay attention — we’ll talk about that later.

Most training is aimed at technical training in specific roles or professional development, and little importance is given to personal financial education.

However, the market has demanded a much more human management from companies, focusing on relationships with their employees.

This includes personal improvement, the search for financial intelligence and emotional intelligence – a determining factor in learning to master all these areas.

How can financial education improve internal processes?

The company has a lot to gain by investing in the financial education of its employees. Employees who are more financially balanced perform their work with more focus, motivation and tranquility, and this reflects on the organizational climate in general.

In addition, when employees are educated in this regard, they have more clarity to identify the company’s financial reality at that moment . 

This helps them understand how their work can contribute to better results in terms of internal spending, winning new customers, wasting inputs, among others.

An example of this is when workers use company resources conscientiously and wisely, even if the cost is not theirs.

After all, they understand that both personal and company assets must be managed with intelligence.

By perceiving what is happening in the company, professionals are able to identify common situations such as the best time to ask for a raise and whether there will really be such a moment.

Thus, frustrations are avoided. In addition, the employee notes whether or not there is an opportunity to earn more through their performance and how this can be done.

How to motivate employees to educate themselves financially?

Studying a lot about the subject and discussing it with employees is a great way to encourage them to think more about the financial aspect of their lives.

It is necessary that the approach is made with the objective of understanding how they can achieve their financial goals. Thus, the conversation will be lighter and more intimate.

For this, with the help of the HR sector, the company must identify its internal audience to determine the most effective type of approach.

For example, if the company is made up of highly educated people from a higher social class, tips on how to save every month may not be necessary.

More executive positions or positions that require great preparation from the candidate require professionals who, possibly, have already had this type of education, whether in the family, in good schools or because of the culture in which they are inserted.

For these, talking about investments and returns for the future can be a good option.

For professionals from lower social classes, the chances of these people having access to financial education are lower, and the approach must be different from the case above.

For this profile of employees, it is possible to invest in guidance on debt prevention, how to save part of their salary and the conscious use of credit lines .

Therefore, it is necessary to map the level of education of employees, to which social classes they belong, in their majority, and what is the reality of life in common in your company.

From there, it will be possible to design financial education programs really focused on contributing to the change in workers’ mentality.

12 tips to contribute to the financial education of employees

After understanding your internal audience and the real needs of employees, check out the suggestions we have selected below that can be implemented by you and your company.

1. Have a plan

Discriminating income and expenses is the first step to organize yourself financially, and this can be done digitally or manually.

As the management of a spreadsheet is something personal, it is interesting for the company to create a standard model and make it available to employees as an incentive to plan accordingly.

In this worksheet, all expenses and all income received such as salaries, extra compensation and benefits must be recorded.

The ideal is to spend up to 30% of your salary on expenses . The rest can be divided between: leaving a part in the account for emergencies and the other part can be applied in investments according to each profile.

2. Setting up the emergency reserve is the priority

After defining the financial plans, employees must understand that it is necessary to have a financial reserve for emergencies .

In this way, it will not be necessary to resort to bank loans, as these are some of the villains of indebtedness when there is no financial balance.

3. Encourage getting started as soon as possible

Many people realize the importance of financial education late, but this is not necessarily a problem.

The most important understanding here is that the sooner you start, the better it will be to achieve financial health.

It’s common to find people who say they don’t know how to manage money and who think they’ll never learn, but it’s definitely not like that.

Knowledge will not be absorbed and applied overnight, especially for those who have bad financial habits.

However, it is important to understand that it is possible and that small actions should be taken as soon as possible, since the process takes time.

4. Create financial rewards programs

In this sense, a good strategy on the part of the company is to offer benefits and awards that involve money as an incentive .

Thus, the chances of professionals working more engaged and committed to fulfilling the goal and earning more money is greater.

Awards must be evaluated according to the profile of each company and the type of business. Small actions, such as the implementation of a career plan , can already have a positive effect.

If the organization works with sales, in addition to the usual commission from salespeople, evaluate the possibility of offering extra income when the goal is exceeded by 30%, for example.

If you are an industry or a multinational, a good measure is to invest in PLR , which is the participation of employees in the company’s profits and results.

This benefit is even highly valued, especially by high-performance professionals, and is a competitive differentiator to attract talent.

5. Change bad consumption habits

It is very common for people to buy on impulse and without the slightest planning or even spend almost their entire salary on superfluous products out of pure vanity.

Financial education starts with being aware to make the best decisions in moments like these, which involve people’s emotions.

With defined goals and based on structured planning, employees gain more financial balance.

As a result, they become more vigilant in relation to spending on impulse or out of vanity, factors that, in most cases, also lead to indebtedness.

6. Think about independence for the future

The current retirement model in Brazil requires even more intelligence and financial independence to have a peaceful future.

This means that the more financially educated a person is, the more chances he will have to make the right choices to accumulate and enjoy money in the future, without depending on government help.

7. Use practical financial management tools

Currently, there are several apps that help manage finances in an easy and practical way, often integrated with bank accounts to automate the process for customers.

These platforms are worth investing in as they give you a pretty smart picture of how money is being managed.

8. Promote internal marketing actions focused on finance

Activities aimed at promoting financial education in the company do not need to be monotonous and tiring lectures.

It is possible to think of endomarketing strategies that encourage employees to think about the relationship with money differently.

They can be through campaigns, dynamics, training and other forms of interaction.

9. Adopt transparent communication on the subject

For many people, discussing money is still a taboo and there is prejudice to talk about debt , saving money and even how much you earn.

This behavior is part of the culture of our country. Without knowing it, there are many people who are afraid to talk about money, which we call moneyphobia .

To help demystify this issue, embrace more open communication about money.

This helps to discuss pre-established concepts, encourage people to talk openly about the topic, exchange ideas about the importance of saving and making money work, among others.

10. Broaden the mindset about money

Educating yourself financially requires a change of thinking, that is, seeing the relationship with money in a different way .

There are those who think that dealing with money is very complex or that investing is something for rich people, but this is not the reality.

No matter how small the salary, it is possible to save and save at least a part of it monthly, just be organized.

The main issue is to change the understanding of the subject and understand that it is possible to relate to money in a healthy way.

For this, keep in mind that there are four basic premises of financial education: earning, saving, investing and accumulating to acquire wealth.

Money should be seen as an asset that can work for the person, not the other way around. But it’s only possible to do that when she’s already debt free, and that’s where financial education comes in.

From this knowledge, each choice must be made consciously and respecting the reality of each one.

The change in mindset must also come from the highest hierarchy in the company. She must see financial education as a social responsibility of the organization.

Whenever possible, in addition to promoting actions for employees, it is essential to develop strategies that can also involve families.

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