Employers must partner with employees to fight financial stress
Companies can save money by helping employees combat financial stress.
According to Financial Finesse’s “Workplace Financial Wellness: ROI Special Report,” the authors found that “employees who suffer from overwhelming financial stress or struggle to maintain financial stability tend to incur both immediate and future financial costs for their employer in the form of absenteeism, garnishments, payroll taxes and delayed retirement.”
The report studied the effects of one Fortune 100 company’s financial wellness program from 2009 to 2014 and found that as employee financial health improves, an employer’s costs go down. Financial Finesse did not identify the Fortune 100 company.
Data for the report was gleaned from Financial Finesse’s online financial wellness assessment that is taken anonymously by employees of companies that implement Financial Finesse’s comprehensive financial wellness program. More than 5,500 workers were included in this study.
In the report, employees were ranked on a scale of 1 to 10 on how financially well they were. They took a short survey to assess how well they did at budgeting, contributing to a retirement account and their debt load. Most respondents were somewhere in the 4 to 6 range, meaning they were either struggling at financial wellness or stabilizing their finances.
Employees who have the lowest level of financial wellness take more unplanned days off than those with a higher level of financial wellness, the report found.
“There is a linear relationship between absenteeism and improvements in an employee’s financial wellness score,” says Cynthia Meyer, resident financial planner at Financial Finesse. “As the employee’s financial wellness improves, we see a direct correlation in the reduction in absenteeism.”
Financial stress can affect a person’s health in a myriad of ways, so they get sick and need to take leave. Financial issues, such as unpaid parking tickets or worries over keeping the lights on can also cause financial stress. This either translates into more days off from work or employees who are distracted by their woes at work and therefore are less productive.
If an employee is having financial difficulties and other entities begin garnishing their wages, that not only costs an employee much-needed cash flow but it costs the employer money as well, to the tune of $300 to process each garnishment, says Linda Robertson, director of planner operations at Financial Finesse.
“Over half (54%) of the population studied had a financial wellness score of 4 to 6,” the report found. To improve those scores by at least 1 percentage point, employees established an emergency fund, calculated the need for and/or purchased life insurance or paid off their credit card balances in full.
Employees who had a financial wellness score of 0 to 2 cost their employer an average of $198 per year. Those with a score of 3 to 4 cost their employer about $94 per year. Those scoring in the 5 to 6 range didn’t cost employers anything and those with higher financial wellness scores actually saved their employers money, Financial Finesse found.
Companies with 50,000 employees could save nearly $2.2 million in absenteeism costs just by moving employee financial wellness scores from a 4 to a 5. If they moved from a 4 to a 6, the savings was nearly $4.3 million, according to Financial Finesse.
Financial Finesse said in its report that employers can help their workforce improve their financial wellness scores by offering education on topics such as personal finance basics, retirement planning and investment planning. Another option is to offer one-on-one counseling to help them get unstuck, says Meyer.
For employees who wanted to improve their financial wellness score from 5 to 6, many developed a master asset allocation strategy, rebalanced their investment accounts or took a risk tolerance assessment.
“Not surprisingly, there was a 61% increase in the percentage that feels confident in their investment allocation,” the report found.
Meyer adds that there is a “strong positive linear correlation between improvements in employee financial wellness and increased referral rates into a 401(k) and other retirement plans, particularly for millennial employees. If you can help them in their 20s improve their overall financial wellness, they are going to have a significant bump up in their retirement nest egg over time.”
People who improve their financial wellness score from a 4 to a 5 can increase their retirement savings by more than 12% over the life of their 401(k), she said. And if they can move from a 4 to a 6, that is almost a 28% improvement in lifetime savings.
Employees who are financially stable and have enough saved up in their retirement accounts should be able to retire on time, which benefits them and their employers.
“According to our own past research, the cost of delayed retirement is $10,000 to $50,000 per employee who wants to retire but is not able to,” Meyer says. That’s because of higher health care costs and lower productivity at work.