According to the 2019 World Happiness Report, 34% of U.S. employees are without savings. Considering that 78% live paycheck to paycheck, this may not come as a surprise. What is surprising, however, is that one out of four of those without savings earn more than $160,000 per year.
Financial stress is not just a “poor person’s problem.” Not only is it impacting society’s higher earners, but it is also having an impact on the companies where they work. Various reports cite businesses lose between $400 and $500 billion a year due to employee financial stress.
According to the Financial Health Institute, financial stress is defined as a condition that is the result of financial and/or economic events that create anxiety, worry, or a sense of scarcity, and is accompanied by a physiological stress response. Typically, as financial stress increases, a person’s state of financial health decreases, creating a damaging effect on physical health, as well.
The impact of financial stress on an individual’s life is far-reaching and permeates their career. Mounting bills and anxiety about their future can lead to depression, bouts of anger and debilitating anxiety. Individuals carry these raw emotions to work and these paralyzing feelings can impact their focus, performance, and productivity on the job. In fact, that lost productivity amounts to 2.5% of the U.S. GDP.
When employees are stressed about money, the impact on the companies they work for is widespread. If an individual is challenged with making ends meet, they are inclined to believe that making more money will solve the problem. Whether that is or is not the case, they are likely to start hunting for higher-paying jobs and potentially leave their current employer. The cost of replacing an employee, training a new staff member, and all the other costs related to turnover is incredibly high for companies. Off-the-shelf estimates set the cost of an entry-level position turning over at 50 percent of salary; mid-level at 125 percent of salary; and senior executive over 200 percent of salary.
A second impact on the company occurs when the employee chooses to stay with the company but is distracted by their crushing financial stress. Reports suggest that financially stressed employees spend 2-5 hours during their workweek to deal with their finances.
A third common impact is the amount of sick time that employees take as a result of the physical effect that financial stress can have on a person’s health. Stress and anxiety can increase the risk of a heart attack and/or weaken the immune system, forcing an employee to take more sick leave often due to tangible physical ailments. All of these impacts- not to mention the employee’s decreased ability to focus during the workday– will adversely affect a company’s overall environment leading to a negative impact on the bottom line.
During their working years, most individuals will end up spending over 30% of their time at the company for which they work. Therefore, it is in the company’s best interest to create a supportive environment where employees feel safe and secure in their ability to thrive. Not only is this morally the right thing to do, but it will also boost your bottom line. Helping employees better manage their finances will reduce stress, boost morale, and increase company loyalty.
Here are three ways businesses can help their employees thrive and, as a result, boost their bottom line:
You should also encourage them to automate a transfer of a percentage of their paycheck to a savings account. Cash flow is a challenge for individuals, just like it can be for businesses. A direct deposit expedites their access to cash and setting up an automatic transfer to their savings eliminates the difficult task of mustering up the willpower to put money aside.
Employees that purchase items on behalf of the company and later send in reimbursement requests, are often placed in a tight cash position. Due to embarrassment, they will likely not bring this up to the company. Therefore, make it a policy to minimize (if not eliminate) the need for employees to cover company costs using their personal funds.
Learning how to plan for one’s financial future and working through other aspects of money management is an incredible way to alleviate financial stress. Gift your employees with a digital resource and financial coaching services to help them get on the path to improved financial health.
FinFit gives employees the resources to make better financial decisions with educational resources that help them to more efficiently manage their money; access to certified financial coaches; and early wage access through WageNow for pay cycles that more accurately align with their priorities. Contact us to learn more!