“The vast majority of employers do not have a good grasp on research data, such as the number of workers that are in financial distress and how that impacts overall productivity.” — Kristie Howard
U.S. businesses across the board have to deal with multiple problems stemming from employee stress over personal finance issues. In many cases, workers are more worried about their personal bottom lines than are concerned with the company’s bottom line. Stressing over personal finances is a major contributor to a company’s production and revenue loss.
A recent Society for Human Resource Management (SHRM) study found that 70 percent of those working in human resource offices stated that they believed personal finance problems experienced by employees negatively impacted their performance.1 Forty percent of the employees themselves admitted to facing tougher challenges today than at the beginning of the 2007 recession.
Another issue concerns employee requests for hardship withdrawals, or loans from 401(k) and IRA programs. One study conducted by the Pension Research Council notes that estimates of aggregate premature withdrawals — so-called account “leakage” — from all tax-deferred accounts, including both 401(k)s and IRAs, range from 30 to 45 percent of annual total contributions, depending on the economic environment (Argento, Bryant and Sabelhaus, 2013).2 Turning to retirement savings for help in present financial difficulties can become a bad and costly recurring habit. Loans taken out against retirement plans tend to cause a loss of savings since most plans prohibit making any additional contributions until the entirety of the loan is repaid.
This is yet another area in which financial education programs can help people more efficiently utilize present income to avoid such loans against their futures. In order to solve the financial literacy and low retirement savings problems, employers need to make certain conscious decisions. Ignoring the problem will only continue to cut into the bottom lines of companies, while addressing these issues will boost revenues and improve companies overall through a more satisfied workforce.
First of all, employers need to accept the fact that the poor financial literacy of their employees affects productivity. It has been shown that problems with personal finances cause stress, which in turn produces poor job focus, decision-making, and performance.
Not only do employers need to acknowledge the stress problem, but they need to realize that financial stress impacts the overall health of their employees. Both physical and mental problems can occur due to prolonged periods of worry over personal financial matters. These health issues can lead to poor production, lost work time, and accidents from distractions. Poor employee health stemming from worry over financial matters can produce higher healthcare costs for the company. An employees’ requiring doctor visits, psychological counseling, medications, and various treatments can boost company costs, which erode their bottom lines.
It is more cost-effective for a company to offer financial education programs and educate their employees than it is for them to continue to pay the cost of stressed out and unhealthy employees.
1 Society for Human Resource Management. Available from www.shrm.org
2 Pension Research Council (2014). Borrowing from the Future: 401(k) Plan Loans and Loan Defaults. Available from: www.asppa.org/Portals/2/PDFs/White%20Papers/WP2014-01.pdf
Mark Singer, CFP®, AIF® is the President and Co-Founder of Financial Literacy Toolbox. Mark is a leader in the world of financial education. Mark is the author of three books, a frequent speaker at events, and is the creator of The Financial Literacy Toolbox, a virtual resource center to help financial advisors, wellness providers, and institutional retirement services firms change the conversation about financial wellness.
