Are you an employer? Are you a human resource manager in an organisation? Are you in some sort of leadership position where you are mentoring others or you have people reporting to you? Then this article is for you. Over the last couple of years more and more organisations have realised that their employees are facing challenges with their personal finances. These challenges in some way always end up affecting work performance.
If someone is stressed out about money, chances are they are not delivering one hundred percent at work. Of course the problem always lies with the individual and they have to take personal responsibility. But could there be some things that you as the employer/manager is doing that is not helping and at times even encouraging financial indiscipline. I have worked with several organisations over the past and these are some of the key things that I think companies are doing wrong when it comes to tackling the issue of personal financial management of their employees.
1. Allowing salary advances. When someone takes a salary advances it means that at some point expenses exceeded income. They are living a life they cannot afford i.e. one that is above their means. That equation is never rectified so they keep coming back for a salary advance. I have worked with organisations that actually now have to do two payrolls because of advances. The advances to the employees have become a right.
When people know they can always count on a salary advance, their motive to manage a budget or their expenses is not there. Think about it -the reward for overspending is getting money in advance. If you want to foster a culture of proper financial management stop allowing salary advances. Don’t make an irresponsible purchase just a salary advance away. If this has been a long-term culture, you can wean people off the advance. I worked with a company that decided they would stop the advances in three months. People had been warned and had the three months to get used to the idea of not asking for money every two weeks.
2. Encouraging people to spend on image. Large organisations and banks seem to be extremely notorious for this. Many people have told me that when they were promoted into certain positions, their CEO’s or bosses put pressure on them to “upgrade their image”. This is usually in the form of an expensive car and moving into certain neighbourhoods. If you have been or are in this position I would like to start by reminding you that many CEO’s are not paying for that very image that they are putting pressure on you to conform to. The company is usually paying for their car, house, entertainment, dog food etc. In some organisations even people just joining are being encouraged to live up to a certain image.
A client of mine who is a banker recently told me that he had succumbed to this pressure only to realise that his clients did not care whether he came to see them with a luxury vehicle or he came by public transport. They only cared about the quality of his work. When you subject your employees to this pressure it becomes a never-ending prison for them. After the attention of the car wears off they will feel they have to keep buying something to get that false illusion of “respect”. Hence the never ending upgrades and spending sprees. As an organisation, encouraging people to spend on image is simply irresponsible.
As an employee, please take what you are encouraged to do with a pinch of salt. Your boss may actually be the one caught up in this image trap and is dragging you down. Remember you are the one who has to pay from your salary for this “image”. Make the right decisions for yourself.
3. Preferring to give consumer loans and not investment loans. A certain company I gave a talk to would give their employees what they called “fuel advances”. Surely, if you have to take a fuel advance it means you should face the facts and accept you cannot afford to be driving the car. The same company would not allow people to take the same amounts of money for investment. Another company would give car loans for three years at 3% but would not give them the same amount of money for the same period to buy land. Many banks will give their employees cheap loans for consumption purposes or for their personal home. However loans for investment purposes would be charged at higher commercial rates.
These kinds of policies continue to encourage excessive consumption especially since one can take cheap credit to keep consuming. But anything that would lead to true financial security is actually discouraged. It would work far better if the consumer loans were not extended or were made the more expensive option whilst investment loans were the cheaper option. If you can give me assistance in buying a car that will depreciate in value, why not extend the same help and enable me to buy an asset that actually appreciates in value? These policies continue to help people get trapped in a consumption cycle.
Theses are just some of the insights I have acquired as I work with different companies. Many of them needed to realise that they were indeed playing a part in creating a culture of financial mismanagement. Certain policies and messages they were sending out became the fuel for some terrible financial decisions people had made. As an organisation the last thing you can do to help your employees manage money better is actually educate them.
We did not learn about money in school. Some companies are recruiting young graduates who immediately move to high incomes and they just do not understand how to cope with the change. As much as you maybe doing technical training related to their jobs some life skills training that helps them manage their personal lives around that job is also important. It also shows that your interest in their lives over and above the job they do.