Inflation may be showing signs of improvement lately, slightly cooling year over year over the last few months. But the effect that unrelenting high costs are having on employees is not abating.
Persistent inflation has pushed more Americans to live paycheck to paycheck, cut back on expenses, dip into their savings and stop contributing to their retirement accounts. And it's also becoming a continuing drain on employees' mental health, according to new reports.
"We don't feel a sense of control over this inflation," said Paula Allen, global leader of research and total well-being at Telus Health, a Vancouver, British Columbia-based health care firm. "This financial risk impacts our mental health: Are we going to pay for groceries? Do we need to cut back on health expenses? It's not a small thing. It erodes our emergency savings as well, which is a big thing—having that cushion is a big, big thing for mental well-being."
More than one-third (36 percent) of employees are concerned about inflation, and 14 percent are concerned about a recession, according to data from Telus Health, which compiles a monthly mental health index to gauge how employees are feeling. Its latest index surveyed 5,000 U.S. workers.
Unsurprisingly, those making less money and those with less savings are faring worse, Telus reports: Working Americans with lower household income are more likely to be concerned about their mental health and well-being and to lack confidence in their problem-solving abilities under pressure. And those without emergency savings have a mental health score nearly 18 points below the national average; conversely, Americans with emergency savings have a mental health score six points higher than the national average.
Meanwhile, according to the latest data from the Principal Financial Well-Being Index, compiled by the Des Moines, Iowa-based insurance and financial firm, 67 percent of employees are feeling the impact of recession concerns on their mental health. The index also shows members of Generation Z and Millennials are more likely than workers in other generations to be impacted by these concerns.
"Inflation is the No. 1 [financial] concern for employees," said Kara Hoogensen, senior vice president of specialty benefits, U.S. Insurance Solutions, at Principal. "That's followed by a potential recession, the cost of health care, personal mental health and well-being, and feeling burnt out at their current job. Nearly one-third of workers say they're stressed over day-to-day finances."
Mental, Financial Health Linked
Indeed, the cost of living has soared over the past year, hitting employees hard. The cost of living has been elevated for months and reached a more than 40-year high in June with a whopping 9.1 percent increase year over year, according to the U.S. Bureau of Labor Statistics' (BLS') Consumer Price Index (CPI).
And while the most recent BLS report showed inflation is slowing year over year—the CPI for all items rose 6.4 percent for the 12 months ending in January—it remains higher than the Federal Reserve's target rate of 2 percent. Meanwhile, wage growth still significantly trails inflation.
Inflation has also caused employees to cut back on many expenses—even needed ones—which is a significant factor in mental health issues, experts said.
The most recent mental health index from Telus Health, released Feb. 23, revealed that 13 percent of U.S. workers said inflation is causing them to cut back on health-related expenses, such as out-of-pocket health care services, gym memberships and eyeglasses. An additional 4 percent have cut back on prescription medicines. Jointly, these cuts represent more than 34 million, or one in six, workers and their family members.
On average, the Telus index found that U.S. employees who reduced their spending on prescription medications due to inflation have a mental health score of 52.8 out of 100—which is 19 points below the national average. Individuals who say inflation caused them to reduce spending on general health-related expenses scored 58.1, nearly 14 points below the national average. Anything under 80 is considered below optimal levels of mental health.
"The current economic environment is leading many employees to feel pressure to prioritize finances over their health and well-being," said Michael Dingle, chief operating officer at Telus Health. "This is an impossible choice, as one is not mutually exclusive from the other. In fact, financial well-being is a fundamental contributor to overall health."
A Call to Action for Employers
In general, employees' mental health remains a significant problem and hasn't improved that much since the start of the pandemic. In addition to inflation and financial pressures, the ongoing pandemic, a series of mass shootings and other stressors have proved to be extremely problematic.
"Three years ago, when the pandemic began, the rug was pulled out from under us. We lost a sense of control, and that greatly affects our mental health. Nothing really has turned around since," Allen said. "What you see now is likely not going to change without some significant interventions."
The situation should be a call to action for employers, who should offer a suite of well-being services—including mental, physical and financial wellness services—while training managers on mental health initiatives, being flexible and offering a suite of other financial benefits, Allen said. Empathy, communication and understanding are also important parts of the equation.
"It's time for us to invest much more in mental health, and not just in terms of lip service," Allen said. "It's way past stigma at this point. It's around how we live our lives, how we connect with others, how we utilize counseling—all of those things need to be a fair bit different than they were before. And employer support is vital to this."
Ongoing and frequent communication from employers is also paramount. That strategy was embraced by many employers at the start of the pandemic, but it has gone by the wayside in recent months.
Hoogensen said employers would benefit from effectively communicating about what benefits are offered and how they can be used as the first—and most crucial—step to increase utilization.
"Even businesses with an employee assistance program (EAP) may not realize the well-being resources they can access through its services. Awareness of mental health and well-being resources through an EAP is a top challenge in helping employees access the tools they need," she said. "Remind your staff throughout the year of all the available support—not only during benefits enrollment. Employees will have different ways they prefer to reach out: Some may want to quietly explore their own path through referral to a website or phone number, while others may value more public discussion in the workplace."