According to WalletHub, 77% of Americans made a financial resolution for 2020. The number one financial resolution for men was to save money, while women focused on paying off debt. It’s halfway through the year, and, like most New Year’s resolutions, very likely that resolutions went by the wayside. But not for the usual reasons. This year the culprit was a pandemic.
Even pre-pandemic, employers realized there were financially-stressed employees at their organizations. Employers likely assumed they “knew” the type of employee who is financially stressed: those who are living paycheck-to-paycheck, have practically no savings and can’t cope well with emergency expenses.
The real eye-opener though is the extent to which this occurs among employees that might not be in that category. The portrait of employee financial stress may not be typical because there are various causes of financial stress that affect employees on different levels. It doesn’t belong only among employees on the low end of the pay scale. In fact, it really doesn’t matter how much money an employee makes. Even those in the middle class can feel financially insecure and worry about money today.
The COVID-19 pandemic has cast a spell over employee financial stress beyond imagination. Layoffs and furloughs affected many workers, while others were virtually unaffected other than having to work from home. And although some employees continued to receive their usual compensation, spouses and partners have been impacted which then turned that household’s financial stress up several notches.
So, with or without the pandemic, it’s all based on one’s individual financial reality. Depending on an individual’s circumstances and habits, they can experience financial stress which negatively affects their productivity at work. That stress magnifies if the employee or someone in their household was affected by the pandemic.
Unexpected Expenses: Life Happens
A major cause of financial stress is simply because ‘life happens’ and there are unexpected expenses as a result. Even prior to the pandemic, employees struggled to pay unexpected expenses. A December 2019 nationwide survey conducted by The Harris Poll on behalf of Purchasing Power revealed that 83% of full-time employed Americans faced an unexpected expense in the last 12 months. According to the survey, those unexpected expenses were vehicle repairs/replacement (48%), medical expenses (35%), travel for things such as a funeral, sick relative or unexpected move (28%), replacing/upgrading major appliances that stopped working (28%) and home repairs (27%).
Unexpected expenses can send those living paycheck-to-paycheck further into debt. According to the survey, those who had unexpected expenses covered those costs with a credit card (41%); cash (37%); money that was earmarked for other household bills (24%); money from their emergency fund (23%); a payday, title or home equity loan that they specifically took out for this unexpected expense (16%); by selling something (15%); by borrowing from friends or family (15%); or by borrowing from their retirement savings (12%).
Financial stress can amplify quickly when employees miss a paycheck. Half of working adults (51%) report that they would need to access savings to cover necessities if they missed more than one paycheck. Most American workers (71%) say they would manage this missed paycheck by cutting spending on non-essential items. But other methods workers would employ to handle a gap in income could have serious long-term ramifications. Almost half of households (46%) in this situation would turn to credit cards, while a similar share would borrow from friends or family. Nearly one-fifth would rely on a payday, auto or other short-term loan which can carry interest rates upwards of 600% and can easily sink borrowers into an inescapable debt cycle and wreak havoc on their credit score.
Financially-stressed employees regularly find themselves trying to catch up, but it never happens. They often end up deeper in debt because they qualify only for sub-prime credit or no credit at all. The level of credit available to your employees varies significantly and can be a major source of financial stress. Some workers have no credit options at all. Others don’t have many credit options, but are able to secure some subprime credit that carries a high APR which quickly adds up. The average consumer with subprime pays $200,000 more for credit over the course of a lifetime. And then there are those who have prime credit, better financing options and interest rates, but still can be pushing their balance maximums to the limit and be overextended. Although all three of these financial cases are very different, their situations still create financial stress.
All of these financial issues and stresses have been in place along with a thriving economy and low unemployment. Until COVID-19, that is, which has seriously affected most employees since earlier this year. There’s no question that COVID-19 has thrown a curve ball into our entire lives and our financial circumstances.
The “new normal” from the effect the pandemic is having on jobs and the economy has created even more financial stress. Employees are worried more than ever about money. In fact, Americans are more worried about unexpected expenses (79 percent) and paying their bills (68 percent) than they were about catching COVID-19 (63 percent).
What Employers Can Do
Financial stress is critical for employers to address, not only because it is top-of-mind with employees and has become magnified this year due to the pandemic, but because of the effect employees’ financial stress has on the company itself. Employers today realize that their employees worry about money while at work and that it has its consequences in terms of productivity.
Employees are seeking options for meeting their short-term financial needs without compromising their long-term finances. In addition to financial wellness and education benefits, employers can help by offering voluntary benefits that address employees’ short-term financial needs. Voluntary benefits like employee purchase programs, emergency savings accounts and student loan debt repayment support are continuing and growing trends in workplaces. Other offerings that are becoming more readily available are instant pay benefits, payroll advances, low-interest installment loans and automated, payroll-deducted savings accounts that help employees living paycheck-to-paycheck with unexpected expenses without resorting to high cost debt.
Do You Recognize These Three Faces of Financial Stress?
To take a look at three financially-stressed employees’ financial behavior, how they look at their financial situation, and see what financial choices they make based on those available to them., read this Workspan Magazine article by Purchasing Power’s Michael Wilbert, online here.
These are workers at every company and most employers won’t recognize some of them.