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Financial Education Before Raises

Wage increases are essential to helping employees keep up with the cost of living. But raises are far more effective when they are combined with financial literacy. The vast majority of U.S. workers are living paycheck to paycheck and are unprepared for a financial emergency. A staggering percentage of employees state they are only just getting by financially, and lament they don’t know how to effectively manage their money. Because of this, it’s becoming continually more important for employers to provide employees with financial education before, or in conjunction with, wage increases.

Employees rely on raises to match the cost of living. But without financial literacy, every raise will be limited by its ability to combat inflation. In contrast, employees who are financially educated can use every increase in pay to improve their quality of life. As a result, employers who provide financial education reap rewards in the form of greater employee loyalty, higher retention rates, and increased productivity.

Why Raises and Fair Pay are Important

Raises are important both for keeping up with the cost of living and for compensating employees for exceptional work. Fair pay ensures your employees have enough income to live on and are adequately paid for the work they are performing. It also takes into account the education, skills, and experience they need to perform that work. Unfair pay might be reflected by employees living far from the workplace because they can’t afford local housing.

But fair pay benefits both employee and employer. When Gravity Payments increased employee wages across the board, Rosita Barlow became more committed to the company. She said, “We had employees who lived an hour and a half away and had to commute in. Those people were now able to afford living closer. So now we’ve just killed a three-hour commute on a daily basis and knocked that down to maybe 20 minutes of a commute. And that actually got them excited and that gave them more of a mental space to say, I want to do all of this stuff. I want to give back in some way to the company that’s supporting me with these goals.”

Fair Pay, Fair Work

Employees work harder for employers who value them and who reflect their appreciation in compensation. In his podcast episode, Why it Pays More to Pay More, Adam Grant says, “When people decide they’re worth more, they work harder and smarter to earn it. This is the fairness instinct at play: yeah, people think it’s unfair to be underpaid, but they’re also uncomfortable being overpaid. I’ve found in my research that at work, the majority of people are not takers or givers, but matchers: they believe in giving what they get. Asking for more than they deserve would violate their sense of justice, and if they feel overpaid, they elevate their contributions to restore a sense of fairness.”

Financial Stress and Productivity

Financial stress, the most common stress in the U.S., is proven to reduce worker productivity. Not only do concerns about money frequently distract employees at work, but the stress actually reduces IQ points and prevents workers from performing optimally. MIT professor Zeynep Ton says, “When you don’t pay enough, and people can’t put a roof over their heads and food on the table, then their physical health suffers. Their mental health suffers…When you’re constantly thinking about money and how to make ends meet, your IQ literally drops. There’s a 13 point drop in your IQ…The mechanism is that your brain is constantly thinking about other things. Do I pay rent this month? Or do I go to the doctor this month? How do I pay for childcare? You don’t have resources to be able to think and be productive that way.”

In a similar sense, employees who are under deep financial stress may find themselves in a bitter cycle. Stress reduces their productivity, which reduces their ability to earn money, which increases their financial stress. The National Bureau of Economic Research states, “If poverty reduces productivity, it creates a mechanism that amplifies negative income or wealth shocks. Faced with a calamity, people would be less productive exactly when they are in greatest need of cash.” In other words, financial stress renders people incapable of generating income precisely when they need it most.

Why Employees Need Financial Literacy First

As important as fair pay is, financial literacy is perhaps more important. Financial literacy is what will allow employees to use their pay to their greatest advantage. An employee struggling to make ends meet will not benefit from a cost of living raise. The increase will, at best, only serve to offset the rising cost of living. But the employee will continue to have the same financial difficulties unless they learn to manage money differently. 

Financial education teaches employees how to budget effectively, how to take advantage of good debt and eliminate bad debt. It teaches them how to decrease interest costs and how to make their money work for them. By learning these things, employees can use their income to improve their lives. This means they can use every raise more effectively. 

ROI for Financial Wellness

Employees who know how to use their pay more effectively are more productive, more dedicated, and happier in the workplace. Improving financial literacy among the workforce means employees will no longer need a side hustle, which allows them to focus more attention on their primary work. This also reduces stress levels and therefore improves overall employee health. Financial Impact says, “Companies that implement an effective financial wellness program will experience a huge ROI through the dramatic reduction of employee sick days, healthcare costs, worker’s compensation, and disability management claims. Furthermore, their employees will work harder and perform at a higher level if they are not distracted by their personal financial issues.”

Financial wellness is quickly becoming one of the most popular employee benefits. Employers know the cost of turnover can be high, so retention is vital to the company’s bottom line. People Managing People says, “30% of new hires leave within three months. Even in a tough job market, great employees are in high demand. If you wish to keep them focused on your business, you need to provide benefits that few others do. What’s more valuable: Providing a 1% pay increase over the competition, or teaching the person how to make the most out of their salary every month?”

Financial Education in the Workplace

Since the majority of employees did not receive financial literacy training in school, many rely on their employer for financial education. Employers are in a great position to offer financial education alongside employee wages. Financial Impact says, “The workplace is one of the most effective places to administer financial wellness training, because most people receive their main source of income through their workplace and are encouraged to utilize their company’s retirement programs. By providing workplace financial education, employers can help their employees develop skills to manage their paychecks and save for retirement. This will simultaneously elevate the company’s culture, because employees will feel as though their employer is on their side and cares about their financial future.”  


Employers who help their employees take advantage of their pay see decreased stress levels among employees, which increases productivity and employee satisfaction. Beyond that, employees recognize companies who treat them well and take care of their overall wellbeing. These employees become more loyal to the company and more dedicated to helping the company achieve its mission.

Paying employees fairly is important, but equally important is educating them on how to take advantage of their pay. Providing employees with financial education before raises will help them more effectively use their wage increases. Raises typically only last as long as it takes for inflation to catch up again, but financial education is a lifelong gift.

Find out how 101 Financial’s Workplace Wellness program helps employees manage their money and use their pay increases more effectively.