Credit Scores Fall for First Time in a Decade

In the latest evidence of employees’ precarious financial situations, Americans’ average credit score dipped for the first time in a decade as more borrowers fell behind on payments.

The national average FICO score was 717 as of October 2023, down from 718 in July, according to FICO, a data analytics company that focuses on credit scoring services. Increasing missed payments and mounting consumer debt are contributing factors to the decrease in credit scores, FICO said.

The news is the latest indicator of the precarious financial position among employees, and data employers might want to pay attention to. Financial pressures have been mounting for workers in the past couple of years, with soaring inflation, erosion of emergency savings and other financial pressures taking their toll on workers.

That employee stress weighs on organizations, as well: For instance, nearly half of U.S. employees who are struggling with their finances say their concerns distract them while they’re at work, a 2023 PwC survey found. Although some employers have beefed up financial benefits as a result, employee financial well-being hasn’t rebounded yet.

SHRM Online rounded up additional news on the credit score drop, as well as the general state of workers’ financial well-being.

‘A Noticeable Milestone’

Ethan Dornhelm, FICO’s vice president of scores and predictive analytics, called the dip in credit scores “a notable milestone,” adding that “this is the first time in well over a decade that the score went down.”

The dip comes as high interest rates and high prices have weighed on most Americans’ financial standing. FICO found that consumers as a whole are falling deeper into debt, causing an increase in credit card balances and an uptick in missed payments.

Average credit card utilization was 35 percent in October, up from 33 percent a year earlier, and just over 18 percent of borrowers had a more than 30-day past-due missed payment against their credit accounts, up from 16.5 percent the year before.

(CNBC)

Most Workers Say Paychecks Aren’t Keeping Up with Inflation

Government data may find that inflation is on a downward trend, but inflation’s impact is still having an outsized effect on employees and is contributing to soaring financial stress.

More than half of workers (53 percent) feel their paychecks are not keeping up with the pace of inflation, according to a new Workforce Monitor study from the American Staffing Association and the Harris Poll. About 2,000 workers were surveyed. Meanwhile, the survey found, nearly 4 in 10 (38 percent) U.S. adults said their overall financial situation is more stressful than it was 12 months ago.

The survey results confirm the financial squeeze employees are feeling, even though government metrics find that inflation has fallen significantly since its 40-year peak in summer 2022, said Richard Wahlquist, chief executive officer at the American Staffing Association.

“Americans continue to feel the pain of inflation every time they go to the grocery store or the gas pump,” he said, “and over the past few years, many went into debt to keep up with inflation.”

(SHRM Online)

Employee Financial Stress Peaks, Employers Act

With workers’ financial stress growing and becoming a significant problem for their employers—for instance, only 42 percent of U.S. employees rate their financial health as good or excellent, a 10-year low, according to a study released last year by Bank of America—employers are stepping into action.

More than half of employers (54 percent) offer financial wellness tools, according to a 2023 survey by the Employee Benefit Research Institute. What’s more, roughly 30 percent of employers said they were planning to implement such tools, up from 25 percent in 2022. And almost 40 percent of company officials ranked employees’ financial health as a high concern, an increase from 29 percent in 2022. Employers are adding benefits such as financial counseling, student loan repayment plans and emergency savings options. Provisions from the SECURE Act 2.0, which President Joe Biden signed into law in 2022, are designed to increase retirement savings. They also make it easier for employers to contribute to student loan repayment and emergency savings accounts.

(SHRM Online)

Financial Pressures Affecting Retirement Savings

Over the past year, persistent high inflation, debt and market volatility have taken a hit on retirement accounts and driven steep declines in workers' confidence about their post-work savings. A significant number of employees dipped into their retirement accounts in 2022 and 2023.

And in 2023, both workers' and retirees’ confidence in having enough money to live comfortably throughout retirement significantly dropped from 2022's numbers, falling to 64 percent from 73 percent among workers and to 73 percent from 77 percent among retirees, according to data from the Employee Benefit Research Institute (EBRI) and research firm Greenwald Research.

“The last time a decline in confidence of this magnitude occurred was in 2008, during the global financial crisis," Craig Copeland, director of wealth benefits research at EBRI said last May. "This shows that the current economic climate—in particular, inflation—is eroding the confidence that Americans had in their retirement preparations going into the pandemic.”

(SHRM Online and SHRM Online)