There are hidden costs associated with various high-risk credit options, but advisers can offer affordable alternatives.
Richard Carrano, CEO of Purchasing Power, recommends that brokers and advisers initiate a conversation with their employer clients about establishing a financial wellness platform amid growing pressure from senior leadership to take decisive action on this topic.
Apart from credit cards that often feature a steep annual percentage rate for unpaid balances, one popular trap involves rent-to-own scenarios. With service fees and taxes tacked onto a monthly principal, the amount renters pay can top three times the retail value of an item before satisfying the terms for ownership. There also are so-called payday or title loans whose high percentage rates and fees are accompanied by extremely short repayment schedules, as well as banking overdrafts that range from $15 to $35 per transaction.
Many working Americans are vulnerable to these costly credit schemes. Consider, for instance, a Bankrate survey suggesting that nearly six in 10 Americans lack enough savings to cover a $500 or $1,000 unplanned expense.
Fretting about one’s financial future “is easily recognizable as a detractor to employee engagement that could manifest as absenteeism and other more material concepts,” Carrano says. But Carrano also notes that with companies being more data-driven, it’s now easier than ever to actually measure the value of employee engagement. When examining financial literacy, he says the hope is that employees will be able to apply any newfound knowledge in their daily life.
Purchasing Power touts employee purchase programs as an antidote to costly credit options. They can be used toward the purchase of appliances, electronics or other big-ticket items through automatic paycheck deductions over a 12-month period. The approach involves no credit check or hidden fees and offers zero interest, as well as a free financial wellness platform to help with budgeting, credit reports and personal coaching.
The program’s emphasis on transparency, affordability and flexibility serves as a bridge to traditional financial products such as a typical prime credit card or auto loan for consumers who have been mired in high-risk credit options, Carrano says.
While credit caveats are critical, they raise broader concerns for industry producers. “We need to be addressing the root of the problem rather than the symptom of it,” says Liz Davidson, founder and CEO of Financial Finesse, which offers a best practices guide to financial wellness. To wit: many people simply aren’t managing their money very well in a consumption-oriented society that values instant gratification.
She suggests the need for programs “that help employees better manage their comp and benefits so that they have an emergency fund, are able to improve their credit score, reduce debt and ultimately afford what they buy.”
The best education and guidance tends to be personalized and features some level of accountability to address specific triggers and issues from a behavioral perspective, according to Davidson. Such efforts also can be bolstered by employee assistance programs and credit unions to help break destructive patterns, she adds. She’s seeing more employers merge their physical and financial wellness programs, recognizing people who are healthier in all aspects of their life will perform better and be more engaged at work.
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