Employee debt affects the workplace: Rolling out the right financial wellness solutions

Debt is like fat. It is easy to add and very difficult to take off. Being in debt may sound like a personal issue, something employees might feel the company was intrusive if it wanted to address. Companies know employees in difficult financial circumstances can do things damaging to the firm, like embezzling or selling confidential information. Addressing employee debt can lead to happier employees who will hang up when competitors come calling to hire them away.

Helping employees manage debt is one aspect of financial wellness. Here is the good news:  First, there is a need: A survey by Bank of America shows 62% of employees are stressed about finances. 91% of employers see higher employee satisfaction when they offer help in managing well-being.

Second, employees want this help. The Bank of America study found 80% of employees felt the company should be playing a role helping with financial wellness. In a study by Talent LMS, “Financial Wellness in the Workplace” 73% of employees who get it when available feel it makes them more safe and secure. The numbers make a good case:  Job satisfaction is at 83% for those receiving guidance vs. 63% for those who did not get it.

Related: Workers ‘overwhelmed’ by debt: The most valuable financial support employers can offer

The Bank of America study indicated credit card debt was a top concern. Of the top five priorities expressed by employees, paying off credit card debt was #2, following saving for retirement.

How can you deliver financial wellness education on the employee’s terms/? The study makes the case that online delivery is a preferred method, with 30% of those surveyed preferring a digital portal. 50% want benefit information delivered by e-mail and 52% would like a digital app to help manage finances.

How can employers help their employees save money and manage debt?

There is a need for debt management training as part of financial wellness education. There is general interest from employees. Digital delivery is preferable; however, some employees will prefer 1:1 counseling from a live person. How can the need be addressed? How can the employer help the employee solve their problem? This problem is not unique to the US. It is showing up in the UK too.

1. Paying competitively. This is obvious. If you are underpaying your employees relative to your competitors, they will get hired away. Training new employees is costly in terms of money and time. It is easy for a competitor to hire the people you trained if you are not paying them well. Let us assume you are paying competitive wages.
2. Provide opportunities to earn more. We are in a nationwide labor shortage. “Help wanted” signs are everywhere. Restaurants in your area might be closed for lunch or not serving dinner on certain weekdays because they cannot get the staff. Your firm likely faces the same problem. Offer additional hours and overtime for employees who want to work longer hours.
3. Promote from within. A simple way to pay down debt is to earn more money. Moving up the career ladder is the traditional path. The pandemic has created many job vacancies as experienced employees who were close to retirement age decided to leave the workforce. This is an opportunity to let the next generation move up.
4. Include financial wellness training. This could start with budgeting. There is a big need. According to Intuit, 65% of Americans do not know how much they spent in the previous month. The article points out the greatest offenders are Gen Z, followed by millennials.
5. Does your firm offer employee counseling? Some employees prefer to discuss their financial issues with a live person. In some cases, they prefer someone more anonymous than their manager. Employee Assistance Programs (EAP), referenced in the UK but also offered in the US are a broad-brush solution because they also can address and refer in areas like mental health and substance abuse.
6. Raise awareness of savings vehicles. Many firms offer 401(k) plans as a benefit; 64% of US private sector employees have access. Many companies offer Health Savings Accounts (HSA); and 49% of S&P 500 companies offer employee stock purchase plans (ESPP). Raise employee awareness of how they can build a nest egg.

What do employees need to know about credit card debt?

Let’s get back to the subject of fat and how it is similar to debt. You have heard, “A second on the lips, a lifetime on the hips.” Employees may not be aware of how easy debt accumulates and how they can get into problems. The education you provide should cover several major topics including the ones listed here.

1. Credit card interest rates are much higher than bank savings account rates. According to bank.rate.com, as of 3/23/23, you can find a money market interest rate paying 4.25%. That is pretty high considering where rates were a year ago. Meanwhile, according to wallethub.com, the average rate on existing credit card accounts is 19.07%. Banks and credit card companies are eager to lend you money because they make a lot of money in the process.
2. Don’t be late. You have heard the expression “A day late and a dollar short.” If a friend borrows money, you might be OK if they took longer than expected to pay it back or if they still owed you a bit. Credit card companies are not benevolent friends. If you are 60 days late in making your payment, you may get bumped up to the penalty rate. This might be up around 29.99%.
3. Credit card interest is not a tax-deductible expense. It might have been once, but not anymore. Taxation is complicated, but mortgage interest and Home Equity Line of Credit interest might be deductible, interest on consumer debt is not. Not only are you paying a bundle, you are not getting any tax benefits.
4. Honor thy credit rating. How much you owe and how quickly you pay is expressed in your credit rating. This number becomes very important when you want to buy your first house and need to borrow money by taking out a mortgage. Your credit rating will follow you for your entire life. After a while, no one really cares about your GPA from college. Borrowers will care about your credit rating.

What proactive steps can employees take to get out of debt?

You have heard the old expression, if you find yourself in a hole, the first thing to do is to stop digging. People with a debt problem need to change their habits. These three suggestions are easy to implement.

1. Get a charge card instead. American Express issues plenty of different cards, but the plain vanilla card is not technically a credit card. You make charges during the month; you get a bill and you pay them off before the due date. Put another way, your account is cleared every month.
2. Carry cash. Going out on a Friday night? Give yourself an allowance in cash. That’s the green stuff. Keep an eye on your spending. When your money runs low, stand up and go home. You get a better sense of what things cost when you pay with cash.
3. Use a debit card. It’s like a plastic check. You are spending your own money, the cash you have in the bank.

Many employees are concerned about their credit card debt. They have an interest in financial wellness education and feel their firm should be providing it. Helping employees in this area can lead to higher employee satisfaction and lower turnover.

Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book, “Captivating the Wealthy Investor” is available on Amazon.