Study reveals true cause of employee financial stress
Having enough money is key to alleviating financial stress, but even more important is knowing how to manage the money you do have.
Financial stress is an especially hot topic right now, largely due to the pandemic and skyrocketing student loan debt.
It’s important for employers to understand that the root cause of financial stress is not COVID-19 or even debt itself, according to a 2021 study by the FINRA Investor Education Foundation and Global Financial Literacy Excellence Center.
The real cause of financial stress is low levels of financial literacy that translate into poor financial behaviors, the study reveals.
Data collected from the study’s focus groups found that although financial stress has worsened, the pandemic exacerbated the problem rather than created it.
In trying to pinpoint the cause of financial stress, the research found a myriad of issues, including lack of income, family circumstances and social pressures.
But financial literacy is at the center of it all.
The study examined financial stress among those who could correctly answer questions about interest rates, inflation and risk diversification, which placed them in the “financially literate” research category:
- 51 percent (vs. 63 percent who could not answer the questions) felt stressed when thinking about personal finances
- 38 percent (vs. 55 percent) felt stressed when talking about personal finances
Higher financial stress leads to poor financial decision-making, something that past studies have linked to poor financial literacy.
- Those with high financial stress are more likely to have credit card debt and other consumer loans, to overdraw their checking account, to be late on payments, to withdraw funds from retirement accounts, and to take out high-interest loans.
- This population is less likely to own their own home, invest money or have emergency savings and retirement accounts.
Although the study found that having enough money was important to alleviating financial stress, even more important is knowing how to manage the money you do have. People lacking money management skills not only made poor decisions in the present, they failed to plan for the future.
Financial wellness can help
People stressed about finances bring that stress to work, costing U.S. businesses about $2800 per year per employee, according to Salary Finance.
Employees want help: A 2020 study by John Hancock found that 86 percent of financially stressed employees expect their employers to provide financial wellness programs.
By offering a holistic financial wellness program, employers can help employees experiencing financial stress in three key ways:
- Improving financial knowledge: Financial wellness programs can teach employees about financial matters that are specific to their situation. Because of the link between financial stress, financial literacy, and financial behaviors, it is important to help educate employees about financial topics and provide them with the tools needed to create healthy financial habits. Internal data from a financial wellness study by Enrich found that after using the financial wellness program for one year, 28 percent more employees pay off their credit cards each month and 15 percent more contribute to their retirement plan.
- Saving for emergencies: Studies show that even having a small savings can decrease financial stress. Financial wellness can help employees learn to save money and employers can provide automation to make saving money easier. Enrich data shows that those with emergency savings increased by 27 percent.
- Reducing anxiety and stress: Holistic financial wellness programs are proven to decrease financial stress. In 2019, an Enrich study showed that financial wellness program users experienced a 23 percent average reduction in financial stress over a 12-month period.
Offering a financial wellness benefit is a win-win. Employers win by reducing the high cost of financial stress, which is proven to cause higher absenteeism, increased healthcare costs, lower productivity, delayed retirement and higher turnover. Employees benefit from a better quality of life, the ability to retire on time, higher workplace satisfaction and more. All of this is why more employers than ever before are offering employee financial wellness programs.
