Addressing employee financial stress with voluntary benefits

Stress equals cost to companies, productivity

By Elizabeth Halkos

Ms. Halkos is Chief Marketing Officer Purchasing Power.

Offering a truly competitive benefits package today means dealing not only with employees’ physical health but their financial health as well.  When employees are dealing with financial stress, it affects both their health and their productivity.

There is a significant cost to businesses when employees are financially stressed. So there is tremendous benefit to the employer who takes a proactive stance by helping employees learn to manage their finances. Companies who help their employees better manage their finances can cut healthcare costs, boost productivity, reduce absenteeism and build employee engagement.

One step companies can take to alleviate employees’ financial distress is to offer a non-traditional voluntary benefit with wide appeal, an employee purchase program. Employee purchase programs allow employees to order products and services and make payments through the convenience of payroll deduction using a disciplined budgeting plan.  Producers who introduce employee purchase programs to companies as a voluntary benefit option are helping employers with their bottom line and, in the process, are increasing their own revenue with recurring passive income.

The Cause of Employees’ Financial Stress

Although the economy has improved somewhat over the past few years, many employees are still very much burdened by day-to-day financial concerns. The hangover effect from the recession and slow economic growth continue to erode employees’ overall financial wellness and retirement confidence, according to PwC’s 2012 Financial Wellness Survey.

The survey further reports that cash flow and debt management issues top employees’ financial concerns with worries about not having sufficient emergency savings for unexpected expenses (54 percent) and not being able to retire on time (37 percent). Almost half (49 percent) of respondents find it difficult to meet their household expenses on time, and it is reflected in the continuation of employees using credit cards to pay for monthly necessities they couldn’t afford otherwise (24 percent). Not surprisingly, employees’ financial stress remains high: overall, 61 percent of employees find dealing with their financial situation stressful, and more than half (56 percent) report that their stress level related to financial issues has increased over the past 12 months.

With financial stress remaining high, it’s no surprise that, according to the same PwC survey, one-third of employees admit personal financial issues have been a distraction at work and 97 percent of those employees say they spend time at work either thinking about it or dealing with those issues.

These stress levels and distractions at work affect employees’ health and productivity.  Human resources professionals report that employees’ personal financial challenges have a “large impact” on their work performance.  Among the factors cited are absenteeism and tardiness; ability to focus on work; overall stress level; productivity level; morale; health; and relationships with other employees, according to the Society for Human Resource Management.

The Demographics of Financial Stress

There is a gender gap in financial literacy – women are more affected.  According to Financial Finesse, statistics show women are three times as likely as men to face overwhelming financial stress.  When it comes to basic money management, only 43 percent of women report having an emergency fund to cover unexpected expenses compared to 63 percent of men. Likewise, 52 percent of women say they are comfortable with the amount of non-mortgage debt they have versus 71 percent of men.

The key demographic groups most vulnerable to financial stress are:

  • women
  • employees age 30 to 44
  • middle-income workers making $60,000 – $74,999 per year
  • single employees


Financial Stress is Unhealthy

Financial Finesse’s Financial Stress Research reports an estimated 60 percent of illness is directly or indirectly caused by financial stress, costing most large and medium-sized companies millions of dollars per year in healthcare expenses.

Financial stress can cause illness and unhealthy behaviors, resulting in more healthcare visits, claims and overall higher healthcare costs for both the employer and the employee. It is a leading cause of illnesses such as migraines, back pain, anxiety, depression, insomnia, ulcers, weight gain and heart attack.

There is a significant cost to businesses when employees are financially stressed. So there is tremendous benefit to the employer who takes a proactive stance by helping employees learn to manage their finances

A recent poll of AOL employees shows the toll that owing money takes on people – even on different parts of the body. Stomach ulcers occurred in 27 percent of people with high levels of financial stress as opposed to 8 percent with low levels. Migraine and other types of headaches occurred in 44 percent of people with high financial stress levels compared to 15 percent with low levels. Severe anxiety affected 29 percent of those with high stress levels versus 4 percent of those with low levels.

The American Psychological Association (APA) recognizes financial stress as the leading cause of unhealthy behaviors like smoking, weight gain, and alcohol and drug abuse. Other behaviors linked to financial stress are gambling and overextending credit balances. Each time employees turn to these temporary stress relievers, the APA concludes that the stress returns and often at even greater intensity.

Voluntary Employee Purchase Programs As a Solution

Employees want their employers to help. In fact, 49 percent of employees say that because of the economy, they are counting on their employer’s benefits programs to help with their financial needs.

Voluntary benefits – both traditional and non-traditional – are a great way for employers to expand their employee benefits package. Offering employee purchase programs as a voluntary benefit can help employees ease fiscal stress and aid them in getting back on a firmer financial footing.

Through employee purchase programs, workers can acquire a variety of household items including computers, kitchen appliances, furniture, fitness equipment, electronics and educational services through payroll deduction. The best employee purchase programs are viable, cost-effective alternatives to other consumer purchase plans, such as employer discounts, layaway, rent-to-own and even credit cards, which often come with high interest rates and late payment fees. With employee purchase programs, workers can buy products they need in a disciplined manner using a 12-month payment plan through automatic payroll deductions with no late fees or ballooning interest, making budgeting easy. Employee purchase programs give employees access to items they need when cash and credit aren’t available, thus helping to reduce financial stress.

Bill Cheeks, personal finance expert and ABBA Associates president, recommends employee purchase programs as an advantageous way for employees to obtain needed household items in a disciplined buying manner when cash is not an option.

He provides this example: when an employee is looking to purchase a $900 computer, the best way would be to save up and pay cash – but that may not be a feasible way to do it, so it’s important to find a responsible purchasing solution.  If the worker purchases that computer through an employee purchase program by payroll deduction over 12 months, the cost would be $1,050 – the cost is fixed, predictable and is paid off with equal installments in one year. Next, he illustrates what the cost would be using a variable cost financing option.

Making purchases on credit cards generally cost more, depending on how much is paid each month and what the interest rate is. So buying that same computer at a retail store for $900 and putting the full amount on a credit card with an interest rate of 19.99 percent, or using retail store financing (assuming the employee can qualify for it), will cost $1,204. However, he points out that many workers could get caught in the “minimum payment trap.” By paying only the minimum payment, it will take eight years to pay off and the total will be $1,636 – almost twice the cost of the computer.

“An employee purchase program as a voluntary benefit provides a way for hardworking employees to buy merchandise they need through an employee benefit at their place of employment. It gives employees access to name brand products with a disciplined way to pay through payroll deduction with no hidden fees like credit cards.” Cheeks explains.

Employee purchase programs are a tangible benefit with an immediate payoff. With the average American seeing decreasing credit limits, more stringent requirements for credit approval and increasing interest rates, it is difficult to purchase essential or life-enhancing household items, such as computers, home appliances, electronics and furniture, especially if one does not have the available cash.  Employee purchase programs help workers secure these types of products in a responsible way when they need them through an employer-sponsored payroll deduction program.

For producers, non-traditional voluntary benefits offer a way to help employers meet their HR goals.  More and more employers are introducing non-traditional voluntary benefits into their benefits packages.