EP16 - Financial Literacy and Employee Ownership

In recognition of April as Financial Literacy Month, this episode explores a critical question in employee ownership—why financial literacy matters when employees are given ownership but do not fully understand its value. Jason Miller and Makenzie Wirth discuss the role of financial literacy in employee ownership and Employee Stock Ownership Plan environments, and why understanding concepts like equity, valuation, and shared success is essential for employee-owners to fully benefit from what they have earned.

From breaking down how employee ownership works to building confidence in financial decision-making, this conversation highlights how financial education empowers employees to think and act like owners. It also examines the risks organizations face when financial literacy and ownership education are missing or incomplete—and how stronger education strategies can unlock the full potential of an employee ownership culture.

Transcript

Makenzie: 
[0:12] Hi everyone welcome back to another episode of journey to an esop and beyond i am your host today co-host today mckenzie worth

Jason:
[0:21] And i'm jason miller.

 Makenzie:
[0:23] And as you know or maybe you are a new listener or you've been here before our goal is to provide an accessible and understandable resource for all things related to employee ownership. Another fact, if you didn't know, which I didn't remember until this morning, April is financial literacy month. So we're going to use this topic and build off of it relative to, of course, employee ownership, but ownership in general. What happens when someone is given ownership but doesn't fully understand what they have in terms of financial literacy

Makenzie:
[1:14] So I think this is a really important topic for a lot of different reasons that don't singularly apply to ESOPs, but I think are enhanced in employee-owned companies. Um when we were taking a look into this uh i guess that the senate declared april being financial literacy month all the way back in 2004 um without delving too far into the political spectrum perhaps they should have spent more than one month a year uh thinking about financial literacy um but with that uh mackenzie what do you when you hear the phrase financial literacy What does that mean to you? What does that evoke in you when you hear that?

Jason:
[2:07] I think it means, I mean, living in a world of financials with that being my background as a CPA and coming from public accounting. I think just being able to understand financial statements, or if that's too specific, understanding finances in general, whether that's personal or in the context of a business, and understanding what decisions are to be made with your finances, how to make those decisions and how to understand the ins and outs of your finances.

Makenzie:
[2:54] I think that's a really good description. I'll share a story with you. So when I was in grad school, I lived on one side of the state and my girlfriend who became my wife later lived on the other side of the state. And then I, of course, crafted my course selection around how long I could make the weekends and drive back and forth between Tampa and St. Augustine. And I remember very distinctly in the times for one of those semesters, the drive time inevitably coincided with a radio show from Larry Burkett, which was Money Matters at the time. And it was all about personal finance. And they had their seven steps. And I listened to that being a finance major. Yeah. The, you know, like, oh, okay, this is really practical money tips and knowledge that just makes sense the more you hear about them.

Makenzie:
[4:06] We adopted those and kind of followed that pattern in our own lives to do that. And I would like to think that in following those prescriptions, It has enabled us with the fortune that we've had and the privilege that we've had in work and being able to work to be financially successful. And I didn't realize what an impact those radio programs had made on our lives personally until many years later when we were looking back on like, hey, well, things could have been really different for us if we had made different choices. is how did we know what to do? And that was, well, I listened to someone who said what they thought an individual should do when faced with various circumstances. And that's the concept that I think about from a personal perspective. And you highlighted, well, in a business, we are making financial decisions as well, kind of knowing what to do with the concept of understanding the underlying information and data and implications.

Makenzie:
[5:25] So where do most people kind of learn about this? Mine was from a radio show. You have an accounting background, have a finance background. I took a bunch of accounting courses I never understood.

Makenzie:
[5:42] The exposure to those concepts at school is not something that everybody gets. So put yourself in the shoes of an employee at a non-financial firm um and and let's speculate for a minute.

Jason:
[5:57] Yeah i feel like this is the classic meme or phrase where people are like why don't why don't we learn this in school like we learn all these other things in school but we don't learn things like you know how to file our taxes or whatever it is um honestly if you're not coming from a financial background or you're not taking it upon yourself to listen to radio shows or podcasts, whatever, about the topic, I would imagine the way you learn is just either one, being exposed to it maybe by chance or like through your job or learning through making mistakes with it and kind of being put in a position where you have to dig yourself out. And maybe that's when you realize, oh, I should understand X, Y, Z before I find myself in this position again.

Makenzie:
[7:01] How many financial mistakes can a person make before they can't recover?

Jason:
[7:13] Probably could only take one.

Makenzie:
[7:16] If it's a big one.

Jason:
[7:17] Yes. It's a big one.

Makenzie:
[7:18] Oh, man.

Makenzie:
[7:22] You know, I didn't want to get into, kind of steered off course from our prep in this, but I think it's relevant. Um, some of the information that, that we pulled was, uh, you know, about half of U.S. Adults can, can answer basic financial literacy questions correctly. And that was done by FINRA. So that's the financial regulatory agency that governs or helps govern alongside the SEC, like broker dealers and all that stuff. So they did a financial literacy survey, and that's what they found. So one and two can answer the questions correctly, which means that one and two don't know the answer. The deeper source of that is of the half that know the answer, we don't always do what we know to do.

Makenzie:
[8:27] So a majority of the population, at least those that participated in the survey, are probably a little underprepared when it comes to making, dare I say, wise financial decisions or better financial decisions than worse, if we want to put it on a spectrum of this financial decision is worse than that one, but this one is better than the other. How do you think that manifests.

Jason:
[8:53] In uh in in employees and really anyone it can create a lot of stress Which I think is pretty common or like a common denominator of general population stress. Like I think that's something everyone may have in common about things that are stressful, whether it's at all times or at some points in their life, they find themselves in some sort of financial stress.

Makenzie:
[9:34] So then it it doesn't it doesn't become a math problem for people it becomes a stress problem and we all handle and tolerate stress in different ways um uh some people uh are invigorated by the concept of stress and perform very well under stress but i'm not one of those And so I try to manage my stress levels so that I can perform clearly and better than not. But if there is a chronic stress problem as part of a personal financial life, if I have a chronic financial problem, it turns into a chronic stress problem, which then creates perhaps an engagement problem at work, I would guess.

Jason:
[10:34] Yeah, absolutely.

Makenzie:
[10:37] One of the other things that's very telling and why, listeners, we think that this is a relevant topic, not just because it's timely for an April show, but that 80% of employees want financial education. And this isn't 80% of employee owners at ESOP companies. It's just four in five employees would like to have some further financial education. And whether that's directly supplied from their workplace or not, it can be. But only about one in four employers offer any type of program related to financial education. So huge demand, huge, I guess, pent up or maybe even unspoken demand in the workplace. And it comes probably from this financial stress that they're feeling. What do you think?

Jason:
[11:40] Yeah, that's interesting. Do you think it's Like if employers are offering programs around this, do you think it's in the context of like the company's financials or just financials in general?

Makenzie:
[11:54] That is a great question. I think we're going to get to both of those throughout the rest of today's show. I want to call it a show. um but uh i believe that they want it personally because they feel the stress again if 60 70 percent of employees are financially stressed they want a solution to that and they want to hear about ways to to lower that stress or alleviate it uh and they're they're going to look to the people that dominate a large majority of their time in life, which, and I don't mean that in a negative way, but work consumes a fair part of our work or of our weeks in our time and in our focus. And so as employers offering financial literacy or financial education resources are ways to help lower stress, educate your workforce.

Makenzie:
[12:58] Allow them to become more engaged, and therefore that feedback loop then applies to the work that they do for you every day. Again, this applies to every company today if you're not an ESOP, if you're just exploring an ESOP, and whether or not you ever become an ESOP, huge demand from your workforce and wanting to learn more about how they can be financially stable.

Makenzie:
[13:25] One of the questions that would, I say questions, one of the solutions, if I have a limited, if I have limited exposure to finance and personal finance and what it means, but I know that I run out of money before I run out of month, that particular saying, then the answer must be, I need more money. So I have to find it.

Jason:
[13:52] How do you think people,

Makenzie:
[13:54] First, do you think that rings true and second how do you think people approach that.

Jason:
[14:00] As a solution yeah i think that's probably the first response is so i should be receiving more money but that's probably just the easier default than let me look at how i'm spending my money in the first place or where it's going what habits do i currently have financially that could could probably change if i can't have an easy fix in demanding a higher salary or whatever it is they're wanting um I feel like the only solution in that case, especially because you can't, unless you really have like some legs dance on with needing or demanding like a higher salary, then the best solution is to look at what you're, what you're spending or how you got to where you were or where you are.

Makenzie:
[15:07] There's a reason that um the personal finance gurus regardless of which one you ascribe to again uh dave ramsey and iced coffee hour and you know whichever philosophy the the fire philosophy the financially independent retire early if you guys aren't aware of what that is like go go check that out. All of those start with get a budget. Some provide tools. There's plenty of resources now that are available to go and grab a budget, but that's a great place to start in taking control of your finances and for your people too. You as owners and as founders know that already. And in a business context, you've got to have a budget. You're tracking to that. You're looking monthly, at least, hopefully, if not weekly, if not daily, on cash flow and sales and expenses and how all of that manifests. You operate financially on a budget because you have to. People are relying on you and there are demands on your resources in order for you to achieve the life that you've been able to today that you are considering transitioning to your employees.

Jason:
[16:32] So with that as the kind of the segue, let's look at from the

Makenzie:
[16:40] Perspective of an employee who becomes an owner. Through an ESOP. So we're layering in employee ownership. And what we are saying based on empirical data that the NCEO produces some great resources on the impact of employee ownership and what that means and ESOP account balances and all of that. So what Aesop's really create is the opportunity for not just financial freedom or stability, but for wealth. And there's a difference there. But it doesn't immediately convey the understanding of it.

Jason:
[17:37] Yeah, I think that's huge. And why we kind of, specifically with our clients too, emphasize the importance of the communication piece because we talk about all the things that an ESOP can do theoretically, but for it to actually manifest that way, your employees have to understand what's going on. And a piece of that is the financial aspect how does it create wealth for them what does that look like is it immediate, is it over time how much wealth are we talking and what do they need to do or what mindset should they have to be able to contribute to that or understand how they can contribute to that wealth

Makenzie:
[18:38] I'm going to share a story. So my oldest daughter is nonverbal. She just turned 17. We're still in the first half of 17. So she's working her way to 18. She doesn't speak, but she can communicate with very, very limited sign, intonation, and kind of full-body communication. So she makes herself known and what she wants and kind of what her preferences are. And believe me, you know it.

Jason:
[19:18] And we have had

Makenzie:
[19:19] To explain to doctors and to people that are meeting her for the first time that she understands everything you're saying. So she gets it. She just can't say it back. And the she has a communication device and devices are only as good as what the output is but you can imagine being a teenager uh that is fully capable of understanding what is being said to her but not always being able to communicate what she wants to say or how she feels about it or really what to do next. And some concepts are really abstract. So if you put yourself in her shoes for a moment and say, well, I get what you're saying to me, right? Get a budget, learn about finance. And now as an owner, you're telling me I'm an owner of this company and ESOP is going to create for me a retirement asset that's two or three times greater than someone who doesn't work for an ESOP company. Or the longer I work here, the more wealthy I'm going to get or I'm going to have a higher net worth compared to a peer.

Jason:
[20:44] But it doesn't solve my problem today.

Makenzie:
[20:47] It doesn't make my mortgage easier to pay. It doesn't help me buy another dozen eggs. It doesn't help me with the price of gas. And my financial stress is not going away just because we're an ESOP now.

Makenzie:
[21:04] And if you communicate, and ESOP's great, and it's a retirement plan, and you're going to be more wealthy in the long run, but we're struggling today, then you can get why employees might be frustrated that you are communicating very well about what an ESOP is, but it's not helping them to learn that financial literacy piece. And it's going to express itself like my daughter expresses herself when she picks up her communication device when she can't find the right words and throws it across the table. It's been broken many times. So we've had to get prepared many times. And as a parent, like that's, that's heartbreaking. Like, I know you're trying to say something and I'm trying to listen and I can't, I'm sorry, I'm not getting it. And I get that, but I get you're frustrated. And I feel like this is a nuance with communicating ESOPs that, yes, you can communicate the benefit and that you're an owner, but the disconnect is in, I'm not feeling it in my day-to-day life. I do feel better that I'm an owner, but the way that it's manifesting for me in relation to my personal circumstances, I'm not picking up. And in that gap in broader financial education, I think will help bridge it. Does that make sense?

Jason:
[22:27] Yeah, definitely. I think it can just seem so abstract at first. And just this like, phenomenon or idea that's going on, but if it's nothing that you can visibly see or tangibly... Um, wrap your head around, then you might have some disengagement at first, or you might not have the excitement that, that you were hoping or that you have as the seller, um, which can be frustrating for both parties. Right.

Makenzie:
[23:06] You're, you're an owner. You're an owner. Now we're all owners and.

Jason:
[23:10] That if I can't see it, if I don't get it,

Makenzie:
[23:15] Then I don't know whether or not I'm, This line came up as we were preparing for today's episode. And the ESOP creates the opportunity for wealth, but it doesn't automatically create the habits that sustain it. And uh owner listener founder you've had uh probably decades it's fair to say for most of you decades of uh making financial choices many wiser than not to get yourself into a position where you have a successful company that is valuable that you are looking to transition, And whether it was intentional or learning the lessons through the school of hard knocks, you've created those habits. And when you make this transition, you have this transaction as an ESOP company, just as we've been talking about, most of your employees don't have that same benefit of making decades of wise financial decisions or educated financial decisions.

Jason:
[24:41] However you want to phrase it,

Makenzie:
[24:43] To be ready to receive what ownership really is to them. How do you think how else do you think it makes them feel.

Jason:
[25:02] Well, I think what keeps coming to my mind as we talk about this is the importance of the feelings that you want to evoke or have, I guess, evoke from your employees when you make the announcement is something that you don't want to just be a one-time thing. You shouldn't just talk about the fact that you're employee-owned once when the transaction closes and that's it. It should kind of be an ongoing message in your company so that you can continuously evoke certain feelings and behaviors and reactions from your employees and not just rely on that one-time announcement. It should be a new part of your culture and a discussion point amongst your entire company multiple times a year.

Makenzie:
[26:13] It's more ongoing than onboarding right i think that that's a really great place to start like how how can you close this gap and i think that's perfect being willing to talk about finance finances personal finance um Um.

Makenzie:
[26:37] I'll, I'll take a moment here before, uh, moving, moving on through kind of these practical levers is, uh, you'd asked earlier around on the personal side or a company side, like, does that, what do they want to see? And we've, uh, talked about the great game of business before here on the concept of open book management. We had Steve Baker from The Great Game of Business on the podcast. We'll have him back soon, hopefully, Steve, if you're listening. And so go check them out. But the concept of allowing employees to see a little bit deeper into the financial reality of the organization and ways to do that without overwhelming them and a process for having that available to them. And so they have really the second practical lever, which is contextual connection to the work. Like, how does my job connect to the company performance? And we talk about alignment of incentives through the ESOP all the time.

Makenzie:
[27:45] But I like that idea of knowing what's happening with the company. Are we doing well? Are we not doing well? What is doing well? How do we measure that? And then how do I contribute to that?

Jason:
[28:00] How do I participate in that? Yeah, I think it could be really eye-opening for employees just if they've never seen the company's financials before and then they see it and they're like, oh, the time that I spent on this falls right on this line in the financials. Just being able to connect the two and understand it and then understand how those financials translate to the company's value can really create that behavioral shift.

Makenzie:
[28:38] What other practical levers do you think listeners can pull to help grow financial literacy and education within their organizations?

Jason:
[28:53] I think another piece to the ongoing communication and messaging and yeah, I guess another piece to that is allowing like a safe space for questions and empowering your employees to ask any and all the questions and know that it's an open line of communication they don't have to ask when you're specifically in those meetings doing announcements or town halls whatever it is um just providing them the resources or the people in the company to go to when they have certain questions to help them to continue to develop their financial literacy

Makenzie:
[29:46] I like that. I'm wondering how it would feel if I didn't believe that I could ask a question or believe that I would get an answer that would be satisfying, especially about something that's so important, right? Trying to provide for my family. I come to work every day. We have bills. We have things we want to do. We have life we want to live outside of work. For some of us, there may be a life outside of work. How do I get there? And that kind of builds back into even career coaching and helping people to see what's possible, where potential is, how they can, how you can help connect their contributions to a greater work, to a larger work within your organization and steps to get there. And we acknowledge that there are so many intertwined concepts between that career and personal finance, like we're talking about today, and ESOPs and employee ownership and the concept of ownership and all of these things. But one step at a time, one bite at a time. One thing that I believe that's important is this is not something that you have to.

Jason:
[31:15] Solve on your own.

Makenzie:
[31:18] You as a founder you as an owner do not have to uh have office hours for personal finance questions from all all the people who work for you and you where all the answers are well this is what i did uh here here's here's where i'm investing like you should go and do the same thing, uh and believe that that that's going to help alleviate that this particular you don't you don't have to do that. In fact, I recommend you not doing that if you're thinking about doing that.

Makenzie:
[31:50] You have resources already that would be very excited to have time with you and with your employees. And think about your bankers. Your bankers would love to have time over lunch or breakfast with a group of your employees to talk about financial literacy. And I would encourage you to reach out to them and ask what types of programs on financial education can you give to my employees? And your financial advisors would love to have access to your employees to talk to them about what it means to build a healthy retirement, to save for a rainy day, to plan big purchases. And your 401k administrator is probably begging you every year to come in and say, your participation is at X percent. We want it to be greater than that. What can we do to encourage people to tell them about the benefit that you're paying for, for your 401k? Great news about an ESOP is if you're eligible, you're in. So we usually don't have problems with participation in the ESOP space. But know that there are actions you can deliberately take to expose your workers to more financial education.

Makenzie:
[33:17] And I know what you're thinking. You just mentioned bankers, advisors, and retirement plan financial advisors. They're going to sell my people things. Probably.

Makenzie:
[33:31] It's kind of their job. And where I would encourage you when you approach them is, as I phrased it before, what financial education resources can you give to my people? And let your people make the decisions. just exposure and access is what they're asking for from that stat earlier 80 percent of them are going i need to learn more give them a way to learn more preface it with make this about education if they want to move forward with something else that that benefits you that's their decision that's not yours nor is it your responsibility but the exposure is a responsibility that you can take up and something that you can do without being without having to do it yourself i guess is what I'm trying to say. Yeah, I would say that's definitely better. Wow.

Jason:
[34:34] I think all the

Makenzie:
[34:37] Time apparently because i'm i say it every episode and as much as i call myself out for it it's so that i don't do it next time and i do it do it every time um, as as we we mentioned um this is useful for any company of any size at any time in in your journey, if you are able to speak into an area of stress in your employees life it's going to create more availability for them to be engaged and that financial stress that 60 or 70 percent of your people are feeling is the top workplace distraction, Distracted workers are not the most productive workers, even if they are productive. Anything that you can do as a time investment or as an educational investment is going to be something that you're going to see tangible results from. Because when people aren't worried about money, they show up differently to work.

Jason:
[35:57] So essentially, it's really benefiting everyone, not just the employee that's looking for financial literacy, but also benefits the company, the leadership. It's a win-win.

Makenzie:
[36:16] I agree. And I would offer that ownership may change the structure. And ESOP is going to change the structure. You can tell everyone they're an owner all day. But the financial literacy and financial education is what's going to change the experience. So listeners, you think about how to communicate to your people. The better you prepare them now when you move forward with your ESOP transaction. It is going to make it a whole lot easier to communicate that additional layer than for everything happening at the same time. And the ESOP itself, the structure itself, isn't the solution to all of their financial worries and woes, nor is it your responsibility to solve all of those for each individual employee, especially when you were doing such a large part for their own financial well-being by considering this type of transaction.

Makenzie:
[37:26] So I do have to say, we've yet to hear from anyone from Idaho. So listeners, if you have a friend who owns a business in Idaho that loves their employees and wants to participate in their future by transitioning through an ESOP, we would love to meet them. If you are listening from Idaho, please reach out and just say, hey, we're here. I want to accomplish my dream of making it out there someday to meet with you.

Jason:
[37:56] Um, Mackenzie, what state do you want to visit?

Makenzie:
[37:59] Um, let's, let's ask for, let's ask for listeners from there.

Jason:
[38:03] Oh, um, I would probably just say anywhere on the West coast. I don't, I don't make it over there very often growing up on the East coast and I do love the East coast. So anywhere on the West coast, I think would be. All right. Nice.

Makenzie:
[38:22] Broader audience, which is great. So listeners, thank you for bearing with us today. I hope that you found value in this concept. I hope it made you think about how you want to approach your employees now and afterwards, or even asking yourself as an ESOP company today, oh, this is something that we can do to enhance the culture and the financial wherewithal for our employees. We're glad that you're here spending this time with us each.

Jason:
[38:54] Week if this is your first time like, subscribe and then we will see you next time