United Way of the Midlands Workplace Financial Education Initiative

United Way of the Midlands estimates that over 700 people have graduated from their Workplace Financial Education Initiative since May 2006. Angela was one of the first. Fourteen months later, Julie Kalkowski, Director of the Financial Stability Partnership, set out to interview clients from the first training. As she entered the lobby of Angela’s workplace, an excited woman ran across lobby. “I will always be so grateful to you, my family is so grateful to you,” she effused to a puzzled Julie.

Realizing that Julie did not recognize her, she explained, “I‘m Angela!” Julie could not believe it. She remembered Angela, but this woman looked 10 years younger. “I’ve lost 40 pounds. My husband and I aren’t fighting about money anymore. Talk about a life changing program—this is it!”

The Financial Stability Partnership, a collaborative between United Way of the Midlands and the University of Nebraska at Omaha, College of Public Affairs and Community Service, Workplace Financial Education Initiative, is already successful. Quality Living Inc., the first employer to use this Initiative, estimates that the employment retention rate of graduates is between 10% to 19% higher than for staff who have not been in the program. It’s also estimated that approximately 90% of the graduates have either enrolled for the first time in retirement savings programs or increased their rate of savings towards retirement.

History

In 2005, staff from the Federal Reserve Bank of Kansas City, Omaha Branch and United Way of the Midlands worked together to design an effective financial education initiative that could be delivered in the workplace.

They started from the observation that financial education alone does not change behavior or people’s financial choices. However, research showed that if financial education was paired with household financial planning, it might work.

A hybrid model pairing classroom financial education with financial consulting by a certified financial planner in the workplace was piloted at the Federal Reserve Bank both at their Denver, Colorado and Kansas City, Missouri branches in the fall of 2005. It was a resounding success and United Way of the Midlands quickly began testing the program in Omaha, Nebraska.

To recruit a good, culturally competent trainer with financial planning skills, Julie issued a Request for Proposal (RFP) outlining the requisite program components which included:

• Eight hours of classroom education by a skilled and culturally competent trainer,
• Household financial consulting by a certified financial planner
• Follow-up for up to a year.

Waddell and Reed and Family Housing Advisory Services were chosen as providers to implement phase I of the initiative inside their individual programs.

“The workplace is the proper venue for financial education because people spend so much of their time at work,” Julie says. “They’re a captive audience and financial stress affects the employer’s bottom line.”

Paying for the Program

Two banks contributed $5,000 each to fund pilots at three businesses: Quality Living, Inc (May 2006), Nebraska Furniture Mart (May 2007) and Godfather’s Pizza (September 2007). All three employers chose Waddell & Reed as their provider.

The employee enrolled in the program pays at least 50% of the cost. The program offers 3 levels aimed at people in different financial life stages and are priced accordingly from $320 for entry level workers to $680 for workers planning to retire soon.

Following the success of these pilots, the initiative was rolled out in Omaha. The 12 employers now in the initiative may give staff an hour paid time off or a mix of lunch hour and paid time for the classes. Most employers pay part of the cost and schedule payroll deductions over several months for the employees’ share of the cost.

Employers like it because it increases employee retention. One employer intends to put all staff through the initiative. Prior to participating, they had a retention rate of 70% for frontline staff and 80% for supervisors. Now the retention rate for both is 89%. In addition, Nebraska Furniture Mart has had all but five of the Initiative participants enroll in employer-based retirement savings, and majority of program participants have increased their retirement savings. Besides reducing employee turnover, other employer benefits include reduced absenteeism, increased productivity, reduction in 401(k) loans and garnishments, and increased employee engagement.

Julie makes the connection between education and teachable moments, like tax time and savings.

“If people are eligible for the EITC, the initiative makes sure they get it,” she says. “If people are receiving a large refund with a major EITC component, the financial planner helps them apply for advanced EITC and plan how they’ll use the extra money in their monthly budgets.”

Debt Consolidation

A bad credit report is a major barrier to employment in Omaha. Cleaning up old debt cleans up credit reports, increases employment chances for workers, and moves them closer to being eligible for a bank loan at 7% rather rather than 26% at Buy Here, Pay Here operators.

Last year, a financial planner told Julie that some clients of the initiative were paying 20% or more on credit cards and could not possibly get out of debt in less than seven years. The Sherwood Foundation provided Julie a loan loss reserve of $150,000, which she uses as collateral for loans to graduates of workplace financial education initiative with loans issued by Mutual First Credit Union. If a client takes a loan for $5,000 to pay off credit card debt, Julie will invest funds in a Certificate of Deposit (CD) for that client in the credit union. The CD provides collateral for the lender while the interest earned on the CD helps to offset costs of the program.

Critical requirements are that initiative graduates have to:

• Be actively engaged with their planner;
• Be recommended by their certified financial planner; and,
• Make a plan to use the monthly savings.

They may pay down their mortgage, or save. One single parent says, “Having financial goals makes it easier to say no.”

Julie has made five loans to people whose average interest rate has consequently dropped from 20% to 6.7%. The credit union likes the program because it allows it to:

Obtain new pre-qualified clients

Provide cross-selling opportunities

Offer loans at significantly reduced interest rates to clients.

At the same time, clients clean up their credit reports and save a significant amount monthly from reduced interest payments.

Avoiding Fringe Financial Services

Nebraska Furniture Mart, one of the employers in the initiative, has agreed that initiative graduates can, with the approval of their financial planner, get same credit terms (currently 0% interest) as people with good credit. Without this deal, many would resort to fringe providers such as “rent to own”.

Omaha workers rely heavily on fringe financial services. While nationally there is one payday lender for every 3,500 households, in Nebraska the ratio is 1 for every 2,300 households. A study showed that consumers that go to payday lenders spent over $19 million in excessive fees in just two counties local to Omaha. Most of that money is removed from the local economy. Getting workers into the financial mainstream boosts local economies and supports local jobs.

What Makes it Work?

The Federal Reserve Bank of Kansas City agreed to evaluate changes in employee behavior over time as a measure of performance of the pilots. Participants at all three pilot sites were given pre- and post-tests. While final results have not yet been tabulated, Julie knows already that it is making difference.

Julie attributes the success of the initiative to:

• Great trainers
• Certified financial planners
• Development of financial goals including savings
• Upfront buy-in from employers’ upper management
• Cleaning up credit

Future Plans

Julie is passionate about providing more support to low-income workers. She has plans for

• A Bank on the Heartland campaign in conjunction with the Mayor’s office using the Bank on San Francisco model: http://www.sfgov.org/site/bankonsf_index.asp?id=46628
• Debt consolidation loans in collaboration with employers and financial institutions
• Working with Grameen bank, which has just moved to Omaha after starting in Queens where its average loan size is $2,200
• State legislation to increase reporting requirements for a real time database of payday lending activity and a cooling off period for payday loan customers.