Helping employees manage debt: Expand financial benefits & improve wellness

A study from Financial Health Network, "Helping Employees Manage Debt" looked at employees working at mid-to large-sized companies and revealed that nearly two-thirds reported unsecured debt. These employees mentioned the impacts of debt stress at work, lack of access to debt-related benefits, and a strong desire for employers to offer better tools and support. This session will reveal more survey findings, propose potential solutions for employees to expand benefits offerings beyond wealth management and financial planning and help companies take the next step in developing meaningful wellness programs for a more productive workforce. Moderated by the head of HR for a leading digital personal financial company, attendees will also understand perspectives from the person charged with employee experience and maintaining a "Best Place to Work" culture.

Transcription:

Announcer (00:08):

Please welcome to the stage Linda Luman, Executive Vice President, human Resources Freedom Financial Network.

Linda Luman (00:19):

Good morning everyone. We're so happy to be here today to share some insights and knowledge and learnings about employees and our employee benefits that we like to provide for our employees. First and foremost, with Freedom Financial Network, we're a digital personal finance company that it has such a strong mission to really help everyday people just really move forward on a path for better financial future. So very excited today to be here with all of you to share more information about how our employee benefits as we know are so important to our employees. We're all out as employers looking for the top talent and there's certainly it's very, very competitive day today, and we know that our employees are looking and expecting us to provide more than just what we have in the past. Basic medical, dental, vision, wellness, retirement, 401k, mental health. Now employees are saying, I'm part of this US problem of how we manage debt.

(01:28)

And so today we're going to learn a little bit more about that because in recent surveys we know that eight out of a 10 Americans are really burdened with unsecured debt. And we know that from these studies that that's eight out of 10 which we know includes our employees as well and we know that they're struggling. We also know that a recent study told us that on average, Americans carry about $38,000 worth of unsecured debt in addition to their mortgage. We know that recently the Federal Reserve shared with us that this is an all-time high debt is at an all-time high for us in this country well in excess of 15 trillion. And so when you translate that, our employees are consumers too. And so how does that impact them? We know they're part of this group of us in America and how can we provide for them not only just the typical wellness benefits but also financial wellness.

(02:30)

And so that's what we're going to learn today and explore more. But before that, I just want to share a little simple thing that we do at Freedom Financial Network. We have an employee program we call the Freedom Family Fund, and employees can contribute every paycheck a small amount, either that or their vacation time. We keep banks and when we have employees who are struggling with really significant life changes like a sick child in intensive care or they've lost a spouse, we can step in and help with some financial support and or time paid time off. So just one small way, but what we want to explore today is what that looks like for all of us in America and our employees and most importantly, identify these gaps in our benefit programs because we know attracting and retaining top talent is what helps our businesses grow and flourish. So I'm excited today to introduce to you two of our panelists. Tanya, would you like to just share with the audience and introduce youself?

Tanya Ladha (03:34):

Sure. Good morning everyone. Tanya Ladha, I'm a senior director with the Financial Health Network. We're a nonprofit based out of Chicago that does research consulting, and we run a network of financial health innovators ranging from large financial institutions to tech innovators, entrepreneurs, nonprofit. So we really consider ourselves an authority on financial health and we're working and collaboration with Freedom Financial to publish a study about employee debt and credit that I'll be talking about a little bit more in depth today.

Linda Luman (04:07):

Great. Well thank you Tanya. We're really interested in that. And then also joining us is Ed Chang from Freedom Financial Network. Ed, what will you introduce yourself?

Ed Chang (04:16):

Great. Hi, I'm Ed Chang. I'm Vice President at Freedom here for business development and strategic partnerships, and one of the partnerships that I manage is the one with Financial Health Network. And so we sponsored a report that we'll be talking about today.

Linda Luman (04:29):

Great. Well thanks Ed. Well first Tanya, let's start with a question. I know the Financial Health Network did this survey and this study. Can you kind of share with us what you learned through this study about employees and the offerings and sort of the situation that they're in?

Tanya Ladha (04:47):

As a little bit of background, we conducted a survey of over 1000 employees that worked in companies that had at least 500 employee sized workforce. And what we found is that the debt that they're carrying really does impact their wellbeing and their job performance. A third of all of those respondents that we surveyed mentioned that financial stress impacted their job performance often or very often over the last 12 months. So there is a real impact on productivity and focus as they think about how they can manage this debt that they're carrying. We also found that these debt loads have ripple effects into other decisions that they're making in their lives. So they're juggling debt, they are maybe missing other payments from debt obligations, sort of paying Peter to rubbing Peter to pay Paul type of thing. They are taking on additional debt to service the debt that they might already have, and in cases that directly impact the employer, oftentimes they're using their 401ks and doing some earlier hardship withdrawals to manage the debt. So there is a real impact on employee productivity and job performance for those that are managing unsecured debt.

Linda Luman (06:10):

That's so true. And we also know that that's just the day-to-day trying to manage it day to day. So Ed, share with us some of those sort of life, expect some of those life things that just happen to all of us that you can't predict and how does that impact employees and their life experience?

Ed Chang (06:29):

Yeah, absolutely. I mean, I think employees are consumers essentially. And so they're burdened by everyday life and everyday expenses. And when they think about longer term planning, it's around life events. Maybe it's a wedding, maybe it's college graduating college, buying a car, buying a home but they are burdened by both long and short term. So expenses there. But what we have found that is what's not commonly talked about is two things. One is the financial education. So there's been a lot of talk around financial wellness and financial education, and we still think that consumers really need more education, a better understanding of the products that are available to them, but also the pros and cons on how to evaluate those products because there's so many financial service with products out there that are hard to understand, especially as we look at the more recent innovations there.

(07:18)

And I think the second thing that we think about is hardships and how common hardships are so people can come into financial hardship very easily and very quickly. So we call it 75% of Americans are living paycheck to paycheck, but that's fine until they hit a financial hardship and financial hardships come in the form of lower income job loss, it could be divorce, it could be medical bills. And when that happens, it really takes them off kilter. And I think what the employees do is they bring that to work, they're spending time at work and it's reducing productivity. It also impacts retention. And so there's a lot of work around that stress.

Linda Luman (07:51):

And as an employer, it's often difficult to manage when your employees need time off, they need this time off, but yet at the same time you're trying to meet your business commitments. So this can have lasting effects not only on the employees and their lives, but how can we help support this more holistic view. But that's absolutely true, we've seen that. So Tanya, I'm going to switch it back over to you and go back to that survey, the financial health network survey that we did kind of frame for us what a typical employee looks like in terms of the secure debt that they're carrying.

Tanya Ladha (08:27):

So we found that 90%, which is almost all employees that responded to this survey, were carrying unsecured debt. 90% of them had credit card debt with a medium balance around 3000, about half of them had car loans outstanding. That medium balances averaged around 10,000. We found that 42% of respondents had debt in a greater amount than their annual income. This did include mortgages. We didn't break out how much of that was mortgage versus unsecured, but it is just under half of all employees carrying debt loads that are greater than their annual income. And so thinking about what those payments look like and what sort of amount of their income coming in is going directly to service some of that debt 50% of all respondents mentioned that this financial stress and the mental load of juggling these debts impacted their work performance in a way that equated to about one hour per week.

(09:32)

And when you think hear that one hour per week, it doesn't sound like too much, especially after this panel on the four day work week, right? Like 32 hours a week, that's eight hours missing. But if you think about one hour per week freedom Financial and Financial Health Network annualized that number to think about what the equivalent would be. And for, like I said, the respondents were mostly a companies with about 500 employees. So if you think about an employee who's getting paid about $50,000 a year, when you an annualize that number, it comes out to about $150,000 a year or the equivalent of three fte. Another way to think about that is a few sort of compound that hour a week at the end of the year, it's about a week of time that's spent really sort of distracted by the unsecured debt that your employee is carrying. So there are real impacts to how employees are managing this load on their job performance.

Linda Luman (10:31):

And I think we can also understand that if you are so stressed and under anxiety, you're also going to start showing some of those symptoms of mental health that we all see as employers, especially over the past two years through the pandemic.

Tanya Ladha (10:46):

We've very connected!

Linda Luman (10:47):

Worked really hard to put in really solid mental health services for employees, but knowing that there's also additional things that we can do to help lessen all of this anxiety and stress. Thanks. That's great. That's great. So Ed, you've seen employee programs and how we put together our portfolio of benefits for employees. Help us understand some of those gaps and what are some of the things that you've seen that have worked well for employers that are really trying to support this very holistic view?

Ed Chang (11:22):

So I think we talked to a lot of our partners and member organizations that we partner with and I think there has been a lot of innovation over the last four or five years around benefits and especially benefits for financial wellness. So that's great to see, but I think there's still a long way to go. So most companies have your traditional benefits like the 401k or they have insurance and then they've added new benefits such as early wage access, tuition reimbursement, make commuter benefits, parental leave benefits that all you are positively in benefiting the consumer. But I think there still is a gap, especially when it comes to unsecured debt that we talk about here today because I think a lot of employers still don't understand the breadth of available services and the nuances around unsecured debt and then therefore applying that to the employee base. In the survey we found that like 68% of the employees are actually looking toward the employers to actually provide those benefits because they feel like the employer has somehow benefited or vetted that product. And so they're more likely to take it if the employer has promoted it within the benefits package.

Linda Luman (12:24):

And also ed, don't you think that when you think about those traditional ways like 4 0 1 [inaudible] wealth management, they tend to be so future focused. They are. And I think the survey also indicated that employees are struggling today, correct? That's right,

Ed Chang (12:41):

That's right. Yeah, I mean I think benefits in the past has really focused on longer range retirement planning and I think the benefit and the innovation that needs to happen is more shorter term and more addressing what a near term everyday needs of people. Because if you can't even manage your cash flow month to month, it's very hard to think about saving for your retirement that's 20 years off or 30 years off into the future. So I mean there's elements of the survey that we've found that looking at debt specifically it list about 13 debt related benefits that you could add to your benefits package. And probably many employers have one or two of them or none. I mean we found that 20% of the people in the survey had access to zero out of the 13 benefits, which is pretty incredible because 13 benefits could include things like having emergency savings, account emergency grant funds that you talked about, Linda. And then we thought the survey also found that 40% of employees would take a benefit if it was offered to them. And so they are definitely seeking those benefits but they're, the access to those benefits are just not there. And so I think it's incumbent upon the employers to a certain extent to actually learn about those benefits, the nuances of them and provide them to their employees.

Linda Luman (13:48):

Right, because Tanya, as you mentioned, that loss of productivity, that distraction, we all work so hard on engagement and making sure that our employees are really focused on work, we're trying to help them advance in their careers and then to be distracted not only plays a toll on the employee but also on the company. On the company. I think if you could help us understand as an employer, what are some of the steps that we could take? What are some things, and if I'm just speaking an employer that doesn't have a huge budget to go out and say I can just have every single benefit in my portfolio. I have to be very judicious about how I budget that, the utilization, I have to look at a lot of the demographics. So as an employer, what are some of the things that I could look at that would be simple to start attacking, start building my plan for that?

Ed Chang (14:45):

Yeah, absolutely. So you can definitely survey your employees. So that's a start there. You can look at other pure companies and what they're offering. You can talk to your benefits brokers and see what the, they're offering into their benefits packages and new things available to them. I think looking at the benefits package you have now and seeing what kind of adoption rate, because I think there's a broad sense of adoption. I'll point to EAP providers. I mean typically that is a standard product within the benefits package and yet the adoption levels are quite low for those or for some of the data that I've seen at least what I think is new that the employers could do is think about the nuances around the different types of benefits. So I'll mention the debt again because we're talking about debt today, those 13 related benefits that are debt related that could help someone out of debt or at least manage their debt that we've talked about in the report. And so that's a lot of different ones that consumers and employers are just not aware of. So I think it's talking to and learning about those with your benefits broker. And I think what else they could do, they could.

(15:44)

I think what we found in the survey, another point we found in the survey is 48% of the people out there weren't really knowledgeable about what the services are out there. And so they need to be more educated about it. I think financial education's another piece of it, a benefit that you should add financial literacy because consumers just are not knowledgeable about how to even evaluate certain products. And I think about some of the new products that are out there, buy now, pay later, these are point of service products and so therefore the consumer needs to make a very quick decision about what could be a credit product but is not a credit product. And so I think helping that consumer understand that and your employee understand that is really important.

Linda Luman (16:17):

So I know one of the things that we have done at Freedom Financial is we, as part of our onboarding, we select a half a day and do a whole course on finance fundamentals. And this is just how to understand credit, how to understand debt. Now we do this because our employees help our consumers and clients that come in, but it is so interesting to hear from our employees tell us, I went home and shared this and my parents didn't even know this, my parents didn't know how to read a credit report. My parents didn't know the differences between different credit cards or different ways, more responsible ways it did we find that in the study as well that there was this lack of understanding?

Ed Chang (16:59):

Yeah, absolutely. There's a lack of understanding I think because think about ways in which people learn about financial education, they learn it from their parents. Some schools are starting to offer it now, but then they're brought into this vast array of all these financial services are available to somebody. And when you think about people who are most vulnerable, the lower and middle moderate income individuals and which is a large part of our employee base, and it can be a large part of yours as well, those people have a harder time to really understand. They might be facing language barriers, they might be facing other areas around education. So you find that the people who have grown up higher educated, more affluent, have better education around finances. But those are the people that are great. We do need to help them. But I think it's the people who don't have that background that we need to help the most and can be the most helped by the benefits provided by the employers.

Linda Luman (17:47):

Right. Well that's very helpful I think in terms of how employers can look at this. And again, we're all trying to build such competitive, holistic solutions in terms of our benefit programs to help support our employees. Tanya, I'm just going to ask you a question from the survey that was done, the financial health network survey were there any other kind of key components that you think that would be interesting to us as we think about how we can provide this type of support to our employees?

Tanya Ladha (18:21):

So we spent a little bit of time talking about the impact on productivity, the impact on employee wellbeing and the negative. So I think there's a flip side to that that's really important. Also in our survey, we found that nearly two thirds of respondents would be more likely to stay at an employer that offered a debt related benefit. And I just want to echo Ed here. We really kept a broad definition of what we meant by that. So it is a financial counseling resource, literacy resource personalized counseling student debt like assistance repayment, offering emergency grants, loans that can be paid back through payroll. So it, it's a pretty broad swath in really trying to get it debt from multiple angles. But we did find that two thirds explicitly said that they would be more loyal to an employer that offered one of these benefits. And like Ed said earlier, 20% of them didn't have access to any of these benefits.

(19:23)

So as employers think about workforce stability I think that it's really important to think about offering the benefits that their employees are seeking. Another employer related aspect to this is that we found that 40% of respondents had trouble paying their bills at least once, if not more often in the last 12 months. So it does beg the question as we think about this unsecured debt, is it simply a result of not having enough income to meet basic needs? So I know there's a very robust national conversation right now happening about rising costs and inflation and there is a corresponding increase in wages. But I think employers really need to take a hard look at their compensation efforts and ensure that they're providing salaries that meet basic needs. So I think there's some interesting implications underneath some of the raw data points that employers would be wise to really consider.

Linda Luman (20:24):

Right. And that's so critical because if we're seeing productivity loss that can help, that's a big piece of our company's revenue and that's ways to maybe offset if we were looking at compensation and how do we measure up to our local geographic areas. And we all participate in salary surveys and local surveys, but certainly understanding that we have to look at it from our employees perspective as well. As you look around the rising cost of housing and transportation and healthcare everywhere, it's just really challenging for employers right now.

Tanya Ladha (21:06):

And I'll add and one more thing I just want to piggyback off of Ed, something you had said earlier around just the array of product services resources that are out there. I think it's important to also recognize that a lot of the employees that we're talking about, there is a mental bandwidth issue and there is a little bit of a choice overload issue. So really determining the best fit for one's needs. It is in many ways we're talking in the aggregate, but it is a very personal sort of circumstantial situation. So I think as employers really balance the limited resources that they have, both budgetary and personnel offering benefits in a way that increases engagement and provides some guidance on use would be a really effective way to use those limited resources because there's a bandwidth issue for folks that are juggling very complicated, busy lives,

Linda Luman (22:12):

Complicated.

Ed Chang (22:12):

And as employers think about their benefits package and I mentioned surveying the employees and figuring out what good talk to your benefits brokers. I mean I think they also need to realize we've found with talking to our partners that a lot of employees are sometimes uneasy or hesitant to talk to their employer about their debt issues. Imagine coming to you. And some of 'em have sort of security clearance issues where if you have a high amount of debt that really could exclude you from portions of your job. And so I think that's something to keep in mind is that somebody who's carrying let's say $25,000, $30,000 of debt is likely very hesitant to go their employer and say, I have this problem, please help me with that. Because it could have other imagine if they work in the finance or accounting division of that employer. So I think being sensitive to that is important. If people are not clamoring or asking, know that there's the big problem out there based on our research as well, other research that's out there and try to address that.

Linda Luman (23:01):

So right. And I think this was all really compounded by the pandemic and so we found many and we have many employees that we saw that were moving along very successfully and the pandemic hit them even more so than the typical people that we all of us. Can you maybe share with us a little bit about your thoughts on how the pandemic has really impacted those that are carrying unsecured debt?

Ed Chang (23:32):

Yeah, I mean I think it's been difficult for many people. I mean I think the pandemic has exposed the most vulnerable in our population. I mentioned the low and moderate income individuals, especially around lower income job loss potentially. And being able to do that I think what you saw is the stimulus packages and the forbearance that government put in place did help for a certain amount of time. But as we think about this year and next year, those stimulus packages and those forbearances are ending or have ended already. And so we think that there'll be a lot more consumer financial stress that's going to be in the market this year and next year. And hopefully the employers will be a big solution or part of the solution for making it easier for employees.

Linda Luman (24:14):

Right. I think at this point maybe we could see if anyone in the audience has any questions that we could that Tanya or Ed or myself could answer

Audience 1 (24:30):

Towards the end. You really got point Diane from, and so I have four hour operation systems and have adopted the $15 minimum just across the going board going in place. But it's still a stigma. And you were just getting touching that about there's still a whole body of individuals who come to work from, for the employer employee contract, they do not see their employer as an opportunity to help them through this debt management because there's such a stigma. What we're learning is that the individual who manages the household funds has also kept the debt quiet for quite better term and not sharing it with the other spouse. And so there's a stigma of embarrassment cause they haven't told the household that they're underwater. So then they're working really hard here at the university and they're still underwater and they don't say anything. I think we do a great job in saying we can help, we can help, we can help, we can help. But I'm still looking for how to, what's the opportunity or where else can I go to message that we have a benefit and here's who we support as apps. Cause I was hoping the bandwidth that this is way too much

Linda Luman (26:12):

Time now, right?

Audience 1 (26:14):

So here are the three that we support is what we, we've stated, but we still can't get our what I consider our 25,000 to 50,000 salary range band who are under water to adopt or uptake this benefit. I'm just what would you recommend? I guess because the stigma is real, I'm just validating that we struggle with that. We have help and once they get in, they're excited that they're in I

Tanya Ladha (26:48):

With

Audience 1 (26:49):

University Michigan Credit Union and different things and we help them. But stigma in certain cultural sense and SES sense impacted.

Tanya Ladha (27:05):

Yeah, we probably both have thoughts on this. I appreciate the question Diane. I would say part of the question is sort of a behavioral design one. And I think that there's ways to leverage onboarding or maybe however the tenure of the employee might be. Like what moments already exist where there's HR engagement required, but on onboarding there's things that you can do for example, default into a portion of the paycheck going to a fund that has discretionary use. So make it an opt out. So they actively have to opt out of it and it's make sure they're aware of it. But there's ways that you can default folks into a fund that doesn't have to be labeled debt related. To your point about the stigma, it can be just relate. It could be like a slush fund or discretionary income or some kind of other title. If there is that stigma concern there are ways to normalize and default people into benefits that they can then access. Should there be sort of unexpected expense or a way to prevent further debt? We're running out of time a little bit. So debt. Yeah,

Ed Chang (28:28):

I mean even in your question, it makes me think about some things that the financial stress from debt actually impacts physical health and mental health. It impacts across the board and it's a number one concern about most consumers in general. I mean, to your question on how you could help mean one is a point of messaging. So I think continuing to message the fact that you have services out there that address financial stress in general. And when more specifically other things I think you can also talk to and maybe provide surveys around groups of people and talk about that topic specifically. Mm-hmm. Around financial stress, around debt. Again. And I think building trust and anonymity. So having the employee understand that even when you come to the employer and say you have this problem, it's not going to affect other elements of their job hopefully from that perspective. So building trust with the employee in sort of a circle of confidence, if you will. So I think is all positive ways to do that.

Linda Luman (29:25):

Yeah, I agree. I think that the stigma is there and the more that we can do as employers to help frame that up, that they're not alone. That this is life in America and that we are here to help support them. Again, it's a challenge and we have to find ways to do that within our scope of bandwidth and resources. And we also just to let you all know, we have a copy of the Financial Health Network study that was recently done available for all of you there where you're sitting. So again, take a look at that. There's some great information, insight. We really appreciate all of you being here and participating with us. Thank you Ed, for joining us and Tanya as well and sharing all your insight and experience on this. And again, if you have any further questions and you'd like to meet with any of us up here we have Nicole and also Tom from Freedom Financial Network that would be happy to share their experiences with you as well. So thank you so much for attending, we appreciate it. Thank you. Thank you.