- Employee financial stability dropped almost 10 percentage points in 2022; more than half of the country’s workers are living paycheck to paycheck.
- As companies continue struggling with turnover and absurdly high quit rates, the businesses that are willing to go the extra mile for their employees will experience better retention.
- Here are some actionable tips that employers can take to help their employees prepare for economic downturns and unexpected expenses.
Throughout 2022, the trend of workers demanding respect, whether through hybrid work accommodations or leveraging the Great Resignation’s influence for better pay, continued to prove that the future of work lies with happy, healthy, and economically safe employees.
But what constitutes “economically safe?”
According to Betterment’s 2022 Financial Wellness Barometer, 64% of respondents claim that financial wellness isn’t about saving for the future or planning for unsuspected situations. Rather, financial wellness to these individuals is having the ability to pay bills and being able to buy what is needed to live.
The recent Workplace Wellness Survey by the Employee Benefit Research Institute) blames inflation for workers’ poor financial health, as 80% of respondents said that debt and an inability to plan for the future is “a problem.”
While the financial troubles are clear, the solutions aren’t always as straightforward when a company can’t afford to give raises. Without simply increasing wages, what course of action can employers take to prepare their employees for economic downturns and unexpected expenses?
Fortunately, there are plenty of ways to support financial wellness within the workforce by providing tools to teach how to save money, plan for unexpected expenses, and reduce personal debt — without relying on increased wages.
How can you save money when you’re living paycheck to paycheck?
According to CNBC, 64% of Americans are living paycheck to paycheck.
This means that 64% of Americans feel unable to save money because they get a paycheck, spend the capital they’ve accrued over the past weeks on paying bills and surviving, and then, they’re out of money until the next time they get paid.
This is a stark reminder of how different working environments prioritize financial wellness, and the lasting effects of inflation.
There are undoubtedly countless Americans that are truly unable to save money, but many of these workers are employed in food service or retail industries, two industries that aren’t lauded for their treatment of employees.
If only particular industries were affected by financial instability, it would be easy to lay the blame directly on those industries’ doorstep and claim that financial wellness is a problem, but only for the employees of certain businesses.
Unfortunately, this just isn’t the case.
Considering that, for the first time ever, more than 50% of American workers earning six-figure salaries are stretched too thin, it stands to reason that what employees need more than anything is a lesson on financial literacy.
Short-term solution, long-term problem
As conversations about worker financial wellness continue, some employers have already started utilizing solutions that seem innovative and helpful, but in reality, only serve to keep workers financially illiterate.
One of these solutions that some employers, like Walmart and McDonald’s, have started offering is earned wage access, also called EWA.
Earned wage access is simple. It’s a system that allows employees to access their pay before payday.
If an employee has worked 25 hours that week, they can use the app to access their payment for those 25 hours.
Now, this might sound like a smart idea, but realistically, earned wage access completely ignores the underlying issue that is causing workers to struggle: financial illiteracy.
Sure, being able to access the money you’re owed as soon as you finish working might come in handy when unexpected expenses arise, but having easy access to money doesn’t teach anyone anything.
Compare earned wage access to the financial wellness benefits offered by larger corporations and you’ll quickly see how EWA falls flat.
Other financial wellness benefits like student loan repayment assistance, financial education resources, retirement savings plans, and health savings accounts do more than merely provide employees with access to capital. They teach employees how to budget, plan, and prepare for anything.
Essentially, short-term solutions like earned wage access, paycheck advances, and even employee hardship funds are designed to act as short-term, band-aid solutions that neglect to tackle the overarching issue of financial illiteracy.
Remember, financial wellness can’t truly be attained until an individual is financially literate.
Strengthening your employees’ financial literacy
As companies continue struggling with turnover and absurdly high quit rates, the businesses that are willing to go the extra mile for their employees will experience better retention, lower quit rates, and higher brand loyalty from their workers.
So what can companies do?
First, you need to understand the difference between financial wellness and financial literacy.
Financial wellness can most easily be described as an individual’s health and mental well-being in regard to their finances. This means that if you’re making enough money, you can hypothetically experience financial wellness without becoming financially literate.
Financial literacy, on the other hand, refers to the skills, knowledge, and information that individuals need to make well-informed and well-thought-out decisions about their finances.
So, instead of offering financial wellness solutions that might help your employees feel less stressed or worried at the moment, you should be providing financial literacy programs that are designed to prepare your employees for the future, regardless of the wider economic situation.
There’s no one-size-fits-all approach to improving your employees’ financial wellness in 2023, but there are a few key tips you can use to create robust and helpful initiatives for your employees, without simply increasing salaries.
- Financial education resources
- Offer retirement savings plans
- Debt management resources
- Foster a culture of financial responsibility
Financial education resources
A recurring issue for countless employees struggling with financial wellness and financial literacy is a simple lack of information and resources.
Employers can provide financial education resources like financial planning workshops or webinars, provide access to budgeting tools and financial calculators, and make a point to share educational articles and podcasts with your team.
Naturally, this will require employees to take a little initiative, but it’s a cost-efficient way to give employees access to tools they can use to prepare for the future.
Offer retirement savings plans
From the same Betterment survey, 35% of respondents claimed that their employers only started offering a 401k in 2022.
Setting up a 401k for your employees is straightforward, and unless you’re providing a matching plan for your employees, it’s capital-efficient as well.
In addition to 401ks, you might consider pension plans, IRAs, or SEPs to allow your employees to contribute to their retirement savings with various tax advantages in place.
Now, if you’re unable to create a 401k for your employee with matching contributions, you can still explain to your employees the benefits and the tax-write-offs associated with using their 401k so that the plans don’t go unused.
Debt management resources
Debt is taking a serious toll on American workers, with 80% of the EBRI survey respondents claiming that their level of debt is reaching unmanageability, providing a way for employees to break free of that debt is paramount.
Employers can do this through the use of more specific financial counseling services, debt consolidation programs, or in some cases, employee loan programs.
Financial counseling services, offered either virtually or physically, offer a way for employees to understand managing debt, build personal savings, and budget the money they have access to.
Debt consolidation programs, while a bit more complicated, are possibly the largest benefit you can provide for your employees.
Instead of worrying about half a dozen loan payments and other debts, a debt consolidation program allows employees to combine several different debts into one, easy-to-manage loan with a significantly lower interest rate.
Understandably, providing debt consolidation programs helps employees simplify their debt payment process and will ostensibly reduce the amount of interest they pay over time.
Employee loan programs are another kind of debt management resource.
These loan programs are designed to allow employees to borrow money from their employer at a low-interest rate. Essentially, these employee loan programs are in-house, lower-interest payday loans.
Keep in mind, employee loan programs, while great in a pinch, are no substitute for financial literacy.
Foster a culture of financial responsibility
The single most important solution for promoting financial wellness for employees is developing a culture that supports it.
If you foster a culture of financial responsibility and encourage honest and open discussion amongst your employees, your employees won’t feel like asking about the above resources is something to be ashamed of.
Whether it’s simply promoting the importance of saving, encouraging your employees to set attainable financial goals, or recognizing any employees that demonstrated an understanding of financial literacy, fostering a culture of financial responsibility results in employees that aren’t just willing to use the resources you’ve provided, they’re excited to do it.
Using these tips, you can cultivate a working environment wherein your employees aren’t just scraping by, waiting for each new paycheck to hit.
You can lead a horse to water
Short of raising salaries to keep up with inflation, these tips are a good start to encouraging financial wellness. But, you can’t help employees that aren’t willing to help themselves.
Focus on providing a variety of financial literacy initiatives and financial wellness options to help employees get the most out of the money they’re making.