Financial worries not only keep employees awake at night, they also can spill over into the workplace and create significant costs for the employer.
"When employees are suffering financial hardship, they bring that hardship into work," said Ray Johnson, vice president of consumer wholesale banking for BofI Federal Bank in San Diego. "It shows up in their work and in their own health, increasing health care costs and driving down productivity."
A 2017 study of 1,600 workers conducted by consultancy PricewaterhouseCoopers found that nearly half of employees who are worried about their financial health miss work occasionally and are less productive when they are at work, spending at least three hours of work time dealing with personal financial issues. In a company with 10,000 employees, this translates into $3.3 million in lost productivity per year, with another $166,000 per year due to financial-related absenteeism.
Lost productivity may be even greater among younger employees. A Bank of America/Merrill Lynch survey of 1,242 employees in the Millennial generation found that 60 percent of Millennials spend more than three work hours a week dealing with personal financial issues. If poor financial management—and using work time to deal with the repercussions of that—becomes an ingrained habit, employers could face an even greater productivity drain as these workers start families, buy homes and meet many other financial milestones.
The problem may be getting worse. A 2017 survey by consultancy Willis Towers Watson found that 34 percent of U.S. workers believe their current financial concerns are negatively affecting their lives, compared with just 21 percent two years ago. A total of 4,983 U.S. workers participated in the survey, which was conducted in July and August 2017.
"More than half of all workers have experienced a major financial event in the past two years, such as divorce, a significant medical experience, borrowing money from a friend or family member, or taking out a payday loan"—where workers borrow small amounts at high interest rates until their next payday—said Vincent Antonelli, senior consultant at Willis Towers Watson in New York City. "These factors, combined with growing debt and low wage growth, are leading to heightened worker angst."
Where to Begin?
Most people have little to no access to formal financial education in their communities, which leaves employers as the best, and often only, candidate to fill this gap. "If employers don't help their employees to deal with this, no one else will," said Meghan Murphy, a director with Fidelity Investments in Boston.
If employees' finances are in poor shape, simply urging them to save more will have little impact on their situations. For that reason, Murphy suggests offering a program that can help employees no matter where they are financially. For instance:
- Employees who are spending more than they earn could begin with education about budgeting and how to manage their day-to-day spending.
- Once they are able to budget effectively, they can tackle managing and paying down their debt and creating a savings plan.
- Employees who have accumulated assets can focus on investing and protecting their financial wellbeing with appropriate insurance coverage.
"By starting with a financial wellness assessment, employees can take steps to improve their score over time, such as by opening an emergency fund or paying down high-interest debt," said Murphy.
Some employers create a closer link between physical and financial wellness by offering reduced health insurance premiums to employees who take certain steps to improve their financial wellness, such as taking a financial wellness assessment or enrolling in financial wellness programs, she noted.
[SHRM members-only how-to guide: How to Design an Employee Benefits Program]
Identifying At-Risk Employees
To understand what problems employees may be facing, Murphy urged employers to look at relevant data. "Start by looking at the percentage of your employee population that has part of their pay garnished," she said.
Another indicator of potential financial problems is the frequency and number of loans and hardship withdrawals taken out from 401(k) plan accounts.
When identifying who could benefit from financial wellness programs, remember that these problems are not limited to lower paid employees. Fidelity's data shows that one-third of those earning more than $250,000 have credit card debt.
"It would be wrong to assume that financial wellness is not an issue for the highly compensated," Murphy said.
Inspiring Behavior Change
As employers increasingly recognize that financial wellness can boost productivity, the next step is to design a successful program, said Carla Dearing, CEO of SUM180, an online financial wellness service based in Louisville, Ky.
She warned against assuming that simply teaching employees "financial literacy" will help them improve their personal financial situations. "When it comes to complex, emotionally-driven issues, such as money, often there is a disconnect between knowing what to do, understanding how to do it and actually doing it," she said.
"Traditional financial plans are overwhelming in scope and packed with confusing financial jargon," she explained. "To prompt behavioral change, financial advice needs be personalized. An employee should be able to recognize, 'This feels right for me. I can do this.' By giving employees only their few most important next steps, in manageable bites that can be accomplished in a period of months, they are empowered to focus and act."
However, Shane Bartling, a senior consultant at Willis Towers Watson in San Francisco, cautioned about getting too personal. "While employees are eager for their employers to provide support and technology to help with financial management decisions, employees can be wary of personalized outreach," he said.
What's the nuance? "Workers are saying there is a distinct line between personalized tools where the interaction is controlled by the employee and personalized messages that can be unsettling," he noted.
Joanne Sammer is a New Jersey-based business and financial writer.
Related SHRM Articles:
Take a Team Approach to Financial Wellness, SHRM Online Benefits, October 2017
Interested in Introducing Financial Wellness Programs in the Workplace? Here's a Good Place to Start, The SHRM Blog, August 2017
Employers Sharply Increased Financial Well-Being Benefits in 2017, SHRM Online Benefits, June 2017
How to Build Financial Wellness into a More Holistic Wellness Program, The SHRM Blog, June 2017
Is 2017 the Year of Employee Financial Wellness Programs?, SHRM Online Benefits, January 2017
Financial Wellness Success Requires Proactive HR, SHRM Online Benefits, September 2016
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