As economic uncertainty permeates today’s climate, employee financial stress is increasingly common. Many workers may be anxious and overwhelmed by their financial obligations, with the living costs constantly on the rise and wages failing to keep up.
In fact, BrightPlan’s 2022 Wellness Barometer survey found that 72% of employees feel stressed about their finances.
But what is the cost of employee financial stress?
For employers, economic hardships usually mean reduced efficiency, increased absenteeism and turnover rates. But for employees, the situation can be even more challenging.
To help ease the burden, employers should provide resources and support to their employees to help them manage and reduce their financial stress.
As Morgan Stanley’s survey results show, finances are the number one stressor among employees.
People tend to experience financial stress when they are afraid about their financial situation and future.
One could argue that according to Abraham Maslow’s “Hierarchy of Needs,” some basic human needs like food, shelter, or clothing could not be continually obtained without financial security. And that’s not even factoring in quality and accessibility.
Thus, it becomes instantly obvious why finances are top of mind for most of us.
According to Ramsey Solution’s 2022 SmartDollar Employee Benefits study, 55% of workers worry about their finances daily.
For some employees, it’s work-related financial stress that can come from changes in workloads or shifts in business strategy, which in turn can lead to pay cuts or reductions in benefits packages.
These types of workplace stress can harm the work environment.
When employees are financially stressed, it may affect their productivity.
PWC’s 2022 Employee Financial Wellness survey results show that 76% of workers say financial stress negatively impacts productivity levels. In fact, more than half of financially stressed employees spend three or more hours at work weekly dealing with their finances.
Financial burdens don’t only affect the quantity but also the quality of work. There is a negative correlation between financial stress and employee performance.
According to a report by Salary Finance, economic stress is nine times more likely to affect the quality of work. Additionally, workers under such pressure are ten times more likely to be unable to finish their daily tasks.
The signs of employee financial stress in the workplace can vary from person to person and may manifest differently depending on the circumstances.
When addressing employee financial stress, HR managers and employers must identify struggling employees by recognizing the signs of financial stress in the workplace and offering adequate support.
Employees experiencing economic burdens are more likely to be absent from work. Data from CIPD’s report on employee financial wellbeing shows that individuals under high financial pressure lose 6.2 work days compared to 3.8 days among those who aren’t as financially stressed.
Even when workers are physically present, financial worries can impact their ability to perform at total capacity.
Findings from a SoFi at Work study show that 76% of employees are distracted because of their finances. They spend 14.3 hours each week dealing with monetary issues.
When employees have no other alternative to deal with their financial problems, they may look for options in the workplace, such as asking for paycheck advances from their employers or withdrawing money from their 401(k) if they meet the criteria for hardship withdrawals.
Data from PWC’s 2021 survey shows that workers experiencing financial hardships are twice as likely to use payday loans or advances or take a loan or distribution from their retirement accounts.
Employees who don’t have enough retirement savings or are in debt might decide to continue working past retirement age. According to the SoFi at Work study, 34% of workers plan to postpone retirement. Hence, instead of retiring when they are 59, they will retire six years later once they turn 65.
Constantly worrying about finances can also take a toll on workers’ health.
34% of responders in PWC’s 2022 survey say that economic burden severely impacts their mental health, and 23% report an impact on their physical health.
The year before, 57% of individuals said they avoided addressing a medical issue due to high costs. Thus, it’s no surprise that a close correlation exists between high employee financial stress and poor employee health.
Even though employee financial stress is a concern for workers at all income levels, it also affects employers and organizations in general.
The impact of money worries among employees isn’t only projected at the workplace. Its presence affects all aspects of their lives as well.
According to the SoFi at Work study, 69% of employees plan to miss out or delay life milestones to deal with financial troubles. Thus, 21% plan to skip their wedding or travel plans and 20% will delay buying a house.
Besides employees, employers are also suffering the consequences of financial hardships.
Employee financial stress accounts for higher turnover rates as, according to the SoFi at Work study, 20% of financially stressed workers plan to leave their job for a better-paying one.
On top of that, the stress adds up to even more lost time at work.
Findings from the study indicate that employees spend 9.2 hours weekly dealing with their financial worries during working hours, resulting in reduced employee performance and productivity.
The cost of employee financial stress can be far-reaching and have long-term implications for organizations if not adequately addressed.
From lost productivity and reduced performance to poor mental and physical health – the impact of employee financial stress comes at a high cost.
80% of employers say financial stress costs nearly half a trillion dollars annually since it harms workers’ efficiency.
Apart from covering the cost of lost productivity, companies must also deal with increased healthcare spending. The Consumer Financial Protection Bureau reports that financial stress increases healthcare costs by approximately $400 per worker annually.
However, the actual cost of economic tension among employees isn’t only monetary.
Employee financial stress can harm morale, chipping away at the enthusiasm and motivation of the workforce. According to Salary Finance’s report, workers burdened by financial worries are nine times more likely to have poor relationships with their colleagues and two times more likely to seek a new job.
Not only does this cost employers 13-18% of salary cost, but it also weakens company culture.
Employers are still at the forefront of helping employees achieve financial wellness in the workplace. In fact, as the Bank of America’s report shows, 97% of employers felt responsible towards their employees’ financial wellness.
Since financial worries can have severe implications in the workplace, organizations must take proactive steps to address the issue.
In 2022, 79% of companies were already offering or actively implementing financial wellness initiatives, as results from EBRI’s survey show.
There are many reasons why financial wellness should be an employer’s responsibility.
In today’s competitive job market, 84% of organizations say that offering financial wellness tools help with employee retention, and 81% cite that it helps attract top talent.
Moreover, according to the data from the Bank of America’s report, almost all employers agree that workers have higher job satisfaction when they offer resources that build a culture of wellbeing.,.
However, the role of financial wellness doesn’t stop at attracting and retaining quality employees.
Financial wellness programs help workers deal with their financial issues. As a result, they are more satisfied with their work and more productive and efficient at their jobs.
Introducing a financial wellness program is one of the most effective solutions for reducing employee financial stress. It helps employees learn about their finances and develop action plans for improving them, focusing on financial education and financial literacy.
There is a great need for these programs as only 26% of SoFi at Work’s study respondents correctly answered the questions related to mortgages, interest rates, and investments.
Moreover, employees should have access to budgeting tools, retirement calculators, and debt management strategies, enabling them to make informed decisions about their money. Such resources are among the top five benefits that workers want from their companies.
Employers could offer incentives or bonuses based on completing tasks related to setting budgets or creating debt repayment plans. This could provide additional motivation for individuals who need extra support in this area.
Companies might also consider providing flexible benefit schemes with packages tailored toward specific requirements. This way, employees can choose options that best suit their needs without feeling overwhelmed by any additional financial burden.
Additionally, offering free financial coaching services or discounted membership packages would give workers access to expert advice when needed.
Finally, an emergency savings fund and retirement or 401(k) contributions can go a long way in helping employees worry less about their financial future. These two benefits are the most sought after by workers since 38% aren’t sure they can reach their retirement goals, as data from Bank of America’s report shows.
Disclosure: Some of the products featured in this blog post may come from our partners who compensate us. This might influence the selection of products we feature and their placement and presentation on the page. However, it does not impact our evaluations; our opinions are our own. The information provided in this post is for general informational purposes only and should not be considered as legal, tax, accounting, or investment advice. For advice on specific issues, please consult with a qualified professional.
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