Forty percent of employers report that their employees’ personal financial challenges have impacted their job performance, according to the 2018 study on financial education in today’s workforce by the International Foundation of Employee Benefit Plans (IFEBP) in Brookfield, Wis.
The greatest impact of financial challenges on employees was stress (79 percent), followed by inability to focus on work, physical health, absenteeism/tardiness, and morale.
Studies have also shown that it works the other way around, too.
Workers who have a strong sense of financial well-being are likely to feel less stressed and more creative, Gallup reported. They’re also less likely to leave for another job.
The tie between employee financial well-being and job performance is undeniable. Yet only one in four responding organizations in the IFEBP study reported having a budget for financial education.
Among the organizations that reported having financial education initiatives or a program in place, roughly 60 percent said they’ve been successful — and only 6 percent said they weren’t.
Here are three ways you can help to alleviate employee financial stress — and boost job performance.
Debt Management Plans
The average American owes roughly $29,800 in personal debt, excluding their mortgages, according to Northwestern Mutual’s 2019 Planning & Progress Study. For some, there is no clear end in sight either.
Roughly 15 percent of Americans believe they’ll be in debt for the rest of their lives.
– Northwestern Mutual’s 2019 Planning & Progress Study
That debt takes a heavy toll on employee financial well-being, as well as their mental and physical health. The same study found that nearly half of Americans said their debt causes them to feel anxiety at least on a monthly basis — and 20 percent reported that it’s caused them to feel physically ill.
As part of your well-being program, consider connecting employees with financial consultants who can help them create personalized debt management plans. Based on that plan, the consultant may also be able to help them determine when their debt might be paid off.
Seeing the light at the end of the tunnel is often enough to help people get started — and stay motivated to keep going.
Emergency Planning
Roughly 17 percent of adults can’t pay all of their current month’s bills in full, according to the Report on the Economic Well-Being of U.S. Households in 2018. Another 12 percent couldn’t pay their bills if they had an unexpected $400 expense to pay on top of it.
As a result, one unexpected emergency could create a great deal of employee financial stress and hardship.
One way you might help employees save for the unexpected?
A health savings account (HSA) and a flexible spending account (FSA) may be options, as both allow people to save for medical costs and have tax-saving advantages. There are also key differences between these two types of accounts.
You can deposit a certain amount of untaxed dollars into your HSA each year, which can be used toward qualifying medical expenses. Employees may only contribute to an HSA if they have a High Deductible Health Plan (HDHP). For the 2020 plan year, the minimum deductible for an HDHP is $1,400 for an individual and $2,800 for a family, according to healthcare.gov. Best of all, funds that aren’t spent each year roll over to the next year — and an HSA may earn interest, which is also not taxed.
FSAs must be set up through an employer. They can help to pay for many out-of-pocket medical expenses — such as insurance copayments and deductibles, qualified prescription drugs, insulin, and medical devices — with tax-free dollars. If money is leftover at the end of each year, employers may offer one of two options (not both): grant employees 2.5 more months to spend the money on qualifying medical expenses or carry over up to $500 to the next plan year.
If your employees need help saving for non-medical costs, they might consider automatically transferring a fixed amount of their paycheck from their checking account to their savings account each month.
How much should your employees save for a rainy day? It depends on their lifestyle, monthly costs, income, and dependents. Three to six months has often be used as a general guideline, but financial expert Suze Orman recommends squirreling away at least eight-to-12-months’ worth of living expenses.
Retirement
There are still a number of people who have nothing saved for retirement. You might assume that these are people in their 20s and 30s who have decades of work ahead of them. However, among non-retirees in their 60s, 13 percent do not have any retirement savings, according to the “Report on the Economic Well-Being of U.S. Households in 2018.”
To help employees get the ball rolling, consider matching contributions to 401(k) plans, as a way to incentivize employees to contribute. The Consumer Financial Protection Bureau (CFPB) recommends supporting automatic contribution escalation to retirement accounts, which automatically increases employee contribution rates over time. In some cases, this has helped to raise average participation rates from 67 percent to more than 85 percent, reported the CFPB.
Financial Coaching
If you offer a well-being program — like nearly half of U.S. worksites — make sure it takes employee financial well-being into consideration.
Aduro offers an integrated approach to financial well-being. We help people set financial goals, while also helping them identify and cope with recurring and self-defeating money issues that might be standing in their way. Then our financial well-being coaches help them to overcome those barriers to move toward financial freedom and stability.
No matter what financial resources you offer, make sure that employees know about them. Plan communication efforts throughout the year to help mitigate employee financial stress — and boost their total well-being.