INTERVIEW: Carrie Schwab-Pomerantz on Financial Literacy

Sharlyn Lauby

14 Jul 2009

Last week, I featured an interview with former SHRM board chair and EVP, HR for Regions Bank, Janet Parker, on financial literacy in the workplace. It’s important for businesses to realize they have an obligation to employees beyond just issuing a paycheck. Offering financial literacy education can bring value to our workplaces.

But as an employer, if I want to provide financial literacy programs, where do I start?

Janet Parker was kind enough to introduce me to Carrie Schwab-Pomerantz, President of the Charles Schwab Foundation. The Foundation is a private, non-profit organization funded by The Charles Schwab Corporation. The Foundation’s mission is to create positive change through financial education, philanthropy, and volunteerism. My thanks to Janet for the introduction and Carrie for spending a few moments with the Bartender.

1. Everyday, we hear about the financial crisis in the media. Is it too late for financial literacy education to have an impact?

It’s never too late. But certainly, the sooner an individual understands and applies the basic principles of financial literacy, the easier it is to achieve financial security. In fact, if we can encourage everyone in their early 20’s to start saving 10% of their income for the rest of their lives, America will be in a better place. What young people don’t realize is that it’s not just how much money you have to save, it’s how much time you have to save that makes the biggest difference.

The truth is financial literacy evolves over a lifetime. Being financially literate means understanding how to manage your cash flow (income and expenses), handle debt responsibly, save and invest, prepare for the unexpected with the right insurance and, lastly, create an estate plan that represents your wishes should something happen to you. The more prepared we are to adapt to changes in our financial lives, the more financially fit we’ll become.

For middle-aged workers who haven’t given much thought to their financial lives until now, there is no time like the present. Get involved with your finances: create a budget with a line item for savings, save as much as possible by taking advantage of your 401(k) and IRA, consider delaying retirement or start collecting social security benefits later. It will pay off.

2. What should a business do if they want to start a financial literacy program?

There are various tactics a business can take to help employees become more financially literate. The first step is to put the right programs and systems in place, such as a 401(k) program with automatic enrollment, gradual contribution escalations, varied investment options and a company match. My mantra is “make it automatic” – and it’s been proven that opt-out vs. opt-in features increase participation.

But a 401(k) plan alone doesn’t guarantee success. Broad-based education is critical. Employees need to understand how to live within their means and manage debt before they can think about saving and investing for the future. In fact, according to a recent Schwab study of four generations of Americans, 7 in 10 would like professional saving and investing advice from their employer. Take advantage of this desire.

An employee’s lack of comfort with investing can also get in the way of his or her long-term financial security. In addition to providing access to workshops, newsletters and educational websites, a company should consider offering one-on-one 401(k) consultations. Most plan providers offer this service. In a recent Schwab pilot, plan participants who met with an investment professional saved twice as much as those who did not receive a personal consultation. While on the surface, this appears financially daunting to implement, employers have a strong incentive: studies show that there is a strong correlation between financial stress and an employee’s productivity, which in the long run has a higher cost to the company. And most plan providers offer this service for free.

3. Can you share a success story with us?

There are many success stories to share, especially for those companies that make their employee’s financial wellness a priority. In the attached Schwab-Ariel Black Paper, check out what McDonald’s did to respond to the lack of 401(k) participants among its black store managers. I’ve also included a case study that shares NCCI Holding’s success in their quest to increase participation rate and help their employees diversify in anticipation of retirement.

Families can also find more information and resources on promoting financial literacy at Schwab MoneyWise.

4. Lastly, here at HR Bartender, we do serious work but try not to take ourselves too seriously. So, my question is what’s your favorite drink (adult or not)?

Vodka martinis, with an olive.

Thanks again Carrie for sharing this information. I found the case studies to be very valuable…great info to share with senior leadership.

If we want to continue to see positive movement in our economic condition, education and training is key. People need to make smart financial decisions, not only to improve their short-term circumstances, but their long-term position.