Financial Wellness
By Elizabeth Halkos
The new American dream might not be what you think it is. We used to consider the American Dream as the ‘really good life’ – the beautiful home with the white picket fence, the 2.5 kids, the golden retriever, the awesome SUV in the driveway, a swimming pool in the backyard and no real money worries. But those days are long gone.
Today’s employees crave a new type of American dream. Rather than it being the ‘really good life,’ it’s simply being able to achieve financial flexibility by finding ways to make the money they do have go further. Employers are in a critical position to help employees realize this new dream, and at the same time, increase both loyalty and productivity. Brokers have a key role in this mission as well.
What is Financial Flexibility?
There’s financial stress, financial wellness, financial literacy, financial education, financial planning…so what in the world is financial flexibility?
Financial flexibility is the ability to manage expenses and make everyday life affordable. It is the financial stage beyond living paycheck-to-paycheck. It means being smart about how we use our monthly income and finding ways to make our money do more so that we are able to pay bills on time, take a vacation, have an emergency fund for unexpected expenses and perhaps splurge on something small occasionally. Financial flexibility is the stage between living paycheck-to-paycheck and financial security (a level relatively few employees ever achieve).
Why Do Most Employees Need Financial Flexibility?
In spite of the fact that Americans recovered from the Great Recession a decade ago, that our economy is thriving, and the unemployment rate is the lowest it has been in many years, most employees are still living paycheck-to-paycheck today. That’s because employees are essentially making the same amount of money they did during the pre-recession ‘good days’ many years ago.
It’s important to think about what living paycheck-to-paycheck really means. It is struggling to make minimum monthly payments on mortgage and rent payments; on car payments; on credit cards and loans; on student loans…or other financial matters. It’s not having enough emergency savings for unexpected expenses that come up – like medical expenses, a car needing repair, a refrigerator that needs replacing. And it’s the financial stress that employees experience every day because, basically, they are ‘just getting by.’
But the problem is bigger than that, because employees bring that financial stress to work with them. Employees are spending time at work on financial issues rather than doing the job their employers are paying them to do. When employees bring their financial stress to work, it results in low productivity, absenteeism and, in many cases, higher healthcare costs.
Nearly half (47%) of employees report that they are stressed dealing with their financial situation, and 41% say that their stress level related to financial issues has increased over the last 12 months, according to PwC’s 2018 Employee Financial Wellness Survey.
Why? Because nearly 80% of American workers report that they’re living paycheck-to-paycheck. And here’s a shocker– it’s not merely those earning low wages who are struggling. Nearly 10% of Americans with salaries of $100,000 or more live paycheck-to-paycheck as well.
The problem is that employees’ money just doesn’t do as much as it used to. The typical American worker today earns $44,500 a year, not much more than what the typical worker earned 40 years ago, adjusted for inflation.
So, what are employees doing when they can’t cover their expenses with their paychecks? They are using a number of methods that cost them more than the actual money value. They are using their credit cards and building mounting debt because they can’t afford to pay it down. Many employees are withdrawing from their retirement savings plans to pay expenses and, unfortunately, these funds usually don’t get replaced. They are also using high risk credit options that often come with hidden costs and associated fees that take a financially fragile situation and make it worse, such as rent-to-own contracts and payday/title loans.
Aiming for more financial flexibility can help employees get on sounder financial footing. By following a monthly budget, being wise shoppers and taking advantage of employer-offered financial wellness tools and voluntary benefits available through their employer, they can begin to achieve financial flexibility.
Financial Stress and the Employer
Personal finance issues are a distraction at work for 25% of employees. And 43% of those who are distracted by their finances at work say that they spend three hours or more at work each week thinking about or dealing with issues related to their personal finances.
Add that up. That’s 150 hours per year of lost productivity per employee for almost 11% of a company’s workforce who are sidetracked from doing their work because they focused instead on their finances.
Employees’ financial stress impacts their employers several ways, including:
- Increased absenteeism
Financial stresses have resulted in a 34% increase in absenteeism and
Tardiness. Additionally, stressed employees miss almost twice as many days
(3.5) each year compared to their unstressed counterparts.
- Lower productivity
Even when some employees are present, they aren’t working at full capacity. With financially-stressed employees spending time at work dealing with their finances, productivity suffers and that affects the employers’ bottom line.
- Higher health care costs
Playing a significant role in heart disease, migraines, obesity and accelerated aging, stress can also manifest itself physically. Unfortunately, 1 in 5 people put off or consider skipping health care visits due to the cost. This can result in higher health care costs for employers later if employees don’t schedule preventive care or, worse yet, ignore symptoms of conditions that become serious over time.
Brokers’ Role in Employee Financial Stress
There’s a role for employers in helping their workers do more with their money and achieve financial flexibility. Here’s where the brokers come in. Financial education benefits are great to help employees with budgeting and debt reduction needs, but employers also need to adopt voluntary benefits that provide employees the opportunity to have some financial flexibility.
Brokers should bring this type of voluntary benefits to the attention of their clients. Voluntary benefits that help get employees on the road to financial flexibility include:
- Low interest installment loans and credit;
- Student loan repayment benefit programs.
- Automated savings programs that encourage employees to save money each month from their paycheck;
- Bill payment programs that empower employees with debt paydown strategies and the ability to make recurring bill payments on-time each month through payroll deduction; and
- Employee purchase programs that allow workers to purchase consumer products and services through payroll deduction when they are unable or prefer not to use cash or credit.
Financial security isn’t the American dream for employees because having a bottomless bank account just isn’t going to happen. Financial flexibility is the new normal. It’s the new version of the traditional American dream. Brokers and employers alike have a role in helping today’s workforce achieve this type of financial flexibility.
Elizabeth Halkos is chief operating officer at Purchasing Power.