Unexpected expenses are a fact of life. Whether it's the washing machine suddenly breaking down or the car needing new tires, surprise bills hit us all. For those who are financially fragile - living from paycheck to paycheck and with little or no savings and credit - these expenses can be difficult to cover. All this uncertainty about paying the bills is adding up to stress. A study from PricewaterhouseCoopers reported that 52 percent of employees are stressed out about dealing with their financial situation.
It appears to be hardest on the younger workers, with 64 percent of millennials saying they are stressed by their finances. Alok Deshpande, the founder of SmartPath Financial Education, warns that 30 percent of employees are less productive than their peers because of acute financial issues like bad debt. So, when the washing machine breaks down or the car needs new tires - and your employees don't have the cash to handle it - what options do they have?
There are many different financing options available to pay for both expected and unexpected expenses, but many of them can lead to a debt spiral and getting out of it can be difficult. Paying cash for a major purchase helps to avoid exorbitant fees and prevent credit dings from missed payments, but cash may not always be readily available. That's why it's so important for employees to be 'credit educated' - to understand hidden costs and fees associated with high-risk credit options and avoid making financial mistakes that can hound them months, even years, later.
Buying items on sub-prime credit or through high-interest vehicles like payday or title loans can be risky propositions, particularly if a person already has a low credit score. Ideally, understanding the options can help ensure employees make the best choice to meet their short-term needs without compromising long-term finances. Those options include:
- Credit cards. Chances are, even with a shaky financial history, consumers can find a creditor willing to offer a line of credit in exchange for a steep annual percentage rate that accrues each month. Furthermore, if the borrower is unable to repay more than the monthly minimum, he or she could end up carrying that debt for years before it's fully paid down.
- Rent to own. With rent-to-own products, consumers pay a monthly principal amount plus service fees and taxes for a period of time, up to completing the rental agreement and owning the item outright. While the monthly rate makes items like appliances and furniture immediately accessible, be wary of the long-term cost. Renters can end up paying as much as three times the retail value of an item before satisfying the terms of ownership.
- Payday/Title loans. Essentially, these loans function as a loan against a future paycheck or a personally-owned vehicle. They often come with high percentage rates and fees, as well as extremely short repayment schedules. They should only be relied upon if the borrower is certain he can cover the entire loan and associated fees by the designated due date.
Employee purchase programs. Many employers offer an employee purchase program, which allows an employee to buy items through automatic paycheck deductions over a 12-month period.
There's no credit check, zero interest and no hidden fees. The employee can manage his budget more easily through these programs, as the payments never rise or change.
What Employees' Financial Stress Costs Employers
Stress over money and credit debt takes both a mental and physical toll on workers, impacting health-related costs and significantly reducing productivity. Employees' financial problems become the employer's problems as well. These include:
- Absenteeism. Financially-stressed employees use more sick leave and are absent from work more often.
- Presenteeism. Although employees are physically at work, they spend time on activities unrelated to their jobs, such as talking to creditors.
- Health Concerns. Unhealthy workers produce lower quantity and quality of work and bring higher health costs both to the patient and the employer. Distress over financial matters can contribute to irritability, anger, fatigue, and sleeplessness.
- Work Conflicts. Tardiness, incomplete work tasks, and accidents result when workers' personal issues interfere with their job performance.
What Employers Can Do
Most employers understand that wellness programs can improve employees' health and may even help the employer's bottom line. But not all employers realize this same concept carries over to their employees' financial health as well. Employees who are financially sound and without significant financial worries at home are happier and more focused on the job. Financial wellness, and the workplace that fosters it, can go a long way toward providing solutions that increase productivity and peace of mind.
One of the ways employers can help their workers achieve financial wellness is to provide a comprehensive financial wellness package that includes access to information about budgeting, educational webinars and, for those employees who need it the most, an employee purchase program. Employers are already aware of how voluntary benefits help drive business goals.
A comprehensive financial wellness benefit is an influential recruitment and retention tool. A solid financial wellness program is comprised of a core financial education program, budgeting tools, free credit reports and alternative credit reporting. Resources can include:
- Personalized assessment and financial education
- Free traditional credit reports; alternative credit reports to get approved for financial products
- Personalized action plans; free one-on-one coaching; incentives for engagement; budgeting app/website
Progressive companies recognize the potential upside for addressing financial stress. They offer financial education and financial wellness programs at work in an attempt to help employees change their money behaviors and increase their financial literacy, including on-site money management and financial planning seminars.
Others are providing no-cost and no-liability voluntary benefits that include employee purchasing programs. Employees experience a better financial well-being and are less stressed. For employers, the result is productive workers who are engaged and empowered and an increased bottom line.
About the Author
Elizabeth Halkos is chief operating officer at Purchasing Power, a voluntary benefit provider of an employee purchase program. She has over 15 years of experience in client relationship development, sales, marketing and product strategy.