Many companies still don’t consider it their role to teach – or even encourage – their employees to save money. On the contrary, some executives still think it’s better to have an employee in debt because, supposedly, it’s easier to keep them under control that way.
Several studies indicate, however, that stress resulting from debt, poor investment choices, and similar situations leads to a significant drop in productivity, creating problems for companies.
A 2018 study titled “The Employer’s Guide to Financial Wellbeing” concluded that debt reduces productivity in companies by approximately 15%. This result was reached by interviewing over 10,000 employees in the United Kingdom.
Therefore, instead of considering this a matter of personal interest, in the sense that each employee knows what is best for themselves and how to use their money, companies can and should encourage their employees to save money and manage their finances.
And the best way to achieve this is through financial education programs and encouraging them to make safe investments that allow them to secure a reserve for the future, such as through company-sponsored private pension plans.
And this should be considered not only as a way to benefit employees, but as a way to obtain a significant return, since this type of initiative will provide:
- A significant increase in productivity.
- Greater talent retention
- A lower rate of absenteeism due to financial stress.
- An improvement in company culture.
Avoiding financial stress
Without planning and without the habit of saving, the employee is left at the mercy of what is known as financial stress.
This condition is defined by the Financial Health Institute as the result of financial or economic events that create anxiety , worry , a sense of scarcity , and is usually accompanied by a physiological stress response.
In other words, due to the pressure and inability to get rid of their debts because of a lack of planning and not having the habit of saving money, the employee ends up having their performance impacted by these constant worries, which can be considerably reduced with financial education and the habit of saving money.
Many companies have already noticed this trend. A ranking conducted in 2019 by Você S/A magazine, which classified the 150 best companies to work for, revealed that 75% of them already provide some type of financial guidance to employees, while 41% offer advice and support for financial planning.
Establishing partnerships with employees
It’s true that adopting a paternalistic tone and trying to demonstrate that you, as the CFO or decision-maker of the company, know better than the employee about their needs, is not the best strategy to follow.
However, by adopting a partnership strategy, trying to get closer to the employee and showing the benefits of, for example, joining a company-sponsored private pension plan, the results can be quite positive.
Instead of simply offering a private pension plan, the company can supplement the amounts deposited by the employee. For example, for every R$1 deposited by the employee into a company private pension plan, the company can deposit another R$1 to encourage them to choose this type of investment.
This incentive represents a great return for the employee, since regardless of how much the total amount they deposit yields, they will already have a return of at least 100% resulting from the contributions made by the company in this partnership.
And don’t think this is some form of corporate philanthropy, quite the opposite.
In addition to helping employees with their long-term investments and reducing their stress related to financial matters, the company also benefits because the cost of making these contributions is 60% of the cost of contributing the same amount directly to employees’ salaries.
This is because there is a guaranteed return in tax benefits when the company commits to offering a private pension plan and makes contributions for the employee.
The importance of your employees saving money in a scenario of default.
“The expectation is that delinquency will continue to fall over the next few months, but at a slow pace. Even with delinquency gradually decreasing, families still face difficulties in meeting their obligations on time, so much so that there is a high number of people with unpaid bills.
Furthermore, a survey conducted by the Central Bank and released in 2017 indicated that 56% of respondents do not create a household budget, while 69% stated that they had not saved any part of their income in the last 12 months, demonstrating the urgent need for greater financial education.
Companies that care about their employees should try to prevent them from becoming part of this statistic because the harm that default causes in people’s lives is countless: greater difficulty in obtaining credit, making installment purchases, and accessing financial services in general.
The need to save due to changes in the economy and legislation.
One difficulty that companies face when trying to raise employee awareness about the need to save money is the fact that, for decades, USA was a country of rentiers, with stratospheric basic interest rates that made simpler investments, such as savings accounts, reasonably profitable.
This scenario persisted for decades until recent years, when the Selic rate (the basic interest rate of the economy) began to fall sharply.
To give you an idea, we went from a scenario with a basic interest rate above 25% in the first months of 2003 to a target set by the Copom (Monetary Policy Committee) of 4.25% at its last meeting, held in February 2020.
As a result, traditional investments, such as savings accounts, have lost their appeal.
Now, it’s necessary to educate those people who still think like they did in the past, just as it’s necessary to show employees of the new generations how important it is to have a contingency plan in an unstable economy with a high unemployment rate like ours.
The issue of pension reform and the real attractiveness of private pension plans.
Furthermore, regarding the relevance of private company pension plans, it is necessary to educate employees about the changes being made to the public pension system. Now, a longer contribution period is required to access the benefit.
It is in this context that private corporate pension plans should be introduced, as a necessity in the face of an increasingly challenging scenario for those who intend to have a comfortable retirement.
It is also a good option for those who want to save money so as not to be completely at the mercy of political and economic instability, as they can draw on a reserve for this type of emergency.
However, the rising costs of traditional private pension plans have ultimately driven their returns to meager levels.
This is because, despite the advantage of contributions being deductible from income tax returns, the administration fee charged by large banks can reach 3% per year, in addition to the possibility of a fee of up to 3% being charged on each contribution made.
This scenario has led some market analysts to consider private pension plans to be one of the worst investments currently available. Despite this, the issue remains quite controversial and centers primarily on the high fees charged by large banks.
If the company chooses brokers and entities focused on this type of service that offer better conditions, with lower administration fees and fewer charges, then corporate private pension plans can indeed be a great option, especially when the company encourages investment by making additional contributions for employees.
As Felipe Medeiros, founding partner of the company Mais Retorno and one of those consulted for the creation of the ranking, states, not all private pension plans are bad.
“They can be an interesting investment option, with a good return, especially those offered by independent institutions, such as brokerage firms. However, the more traditional plans, usually offered by large banks, are full of fees and offer a meager return,” he says.
This perspective is shared by Arlete Nese, PhD in Administration and co-author of the book “Fundamentals of Supplementary Pension Plans”.
“The IoT [Internet of Things] has reduced product placement costs, expanded access to the product independently, and enabled greater comparability between institutions,” he says.
For her, it is the role of any company that adheres to principles of social responsibility to encourage employees to save money, with private company pension plans being a good way to prevent employees from becoming dependent on social security in light of recent changes to public pensions.
Creating a competitive advantage for your employees
In short, regardless of whether your company is large, medium, or even small, investing in financial education and investments such as corporate private pension plans is a great way to reduce turnover, since employees with good financial literacy and secure long-term investments tend to be much less stressed than those who don’t save and don’t think about the future.
Furthermore, this type of benefit can be offered regardless of the company’s size because, with technological advancements, this process has become increasingly accessible and less bureaucratic, no longer requiring a large corporate structure to implement these benefits.