Insurance Company Employees' Financial Expertise and Practices: Implications on Benefit Participation and Satisfaction

Abstract Employers continue to shift financial decision-making responsibility for employee benefits to employees. This article examines employees' financial practices, financial expertise, and levels of benefit participation and overall satisfaction. We show that there are significant differences in employees' financial practices and financial expertise based on socio-demographic characteristics. While levels of benefit satisfaction and employer ranking are high, significant differences in how employees feel toward their employer exist. Employees more highly value traditional benefits than nontraditional benefits, but satisfaction with benefits was high regardless of take-up rate. We also find that respondents are more knowledgeable over experiential financial concepts than more specific financial concepts like qualifying conditions for a traditional individual retirement account. Employer-sponsored financial education programs, which increase employee understanding of employer-provided benefits and their importance to employees' financial well-being, should improve overall employee satisfaction, loyalty, and productivity. INTRODUCTION The nature of the employment relationship is undergoing fundamental changes that have implications for how companies attract, motivate, and retain talent (Christensen, 2002; Fronstin and Helman, 2000, 2003; Roehling et al, 2000). The bond between employer and employee has shifted from a long-term relationship involving loyalty and commitment to a contract-like economic exchange (Tsui and Wu, 2005; Davolt, 2006). When employees do not have the financial skills to evaluate the benefits options that are available to them, they will push for more benefits, feel less financially secure, and be more dissatisfied with their place of work (Keating, 1997). As employee benefit costs and complexity continue to escalate, employer-sponsored financial education has proliferated (Bell and Lerman, 2005) and finding answers to knowledge-based employee benefit research questions has grown in importance. Our article contributes to the relatively new program of research on financial literacy by analyzing insurance company employees' benefits-related financial expertise and practices. We expand the empirical literature in this area as follows. First, we provide evidence that overall levels of benefit participation and employer ranking can be very high while employees' financial practices, financial expertise, and attitude toward their employer vary based on socio-demographic characteristics. Next, results show that employees more highly value traditional benefits than nontraditional benefits. We also find that satisfaction with benefits was high, independent of take-up rate. Last, we find that respondents are more knowledgeable over experiential financial concepts than more specific financial concepts like qualifying conditions for a traditional individual retirement account. While baseline data provided in this study are most readily transferable to large firms where the demographics are predominantly female, married, and middle aged, our results should also be of interest to policymakers and regulators who are concerned with improving level of employees' financial expertise and understanding of employment-based benefits. The remainder of the article is organized as follows. In the next section, the relevant literature is discussed and hypotheses and methods are presented. After that, differences in the variables tested are described in the "Results" section. We conclude and summarize in the penultimate section and also suggest areas for future research. BACKGROUND, HYPOTHESES, AND METHODS In a survey of related literature, Martin (2007) suggests that the value gained by financially informed employees spans a number of areas, including indirect wage options. Oamek (2005) calculates that effective financial education in the workplace generates a tangible productivity return on investment in the hundreds of dollars per employee, net of program costs. …