…through voluntary benefits
by Elizabeth HalkosMs. Halkos is chief operating officer at Purchasing Power. Visit www.purchasingpower.com
They may not realize it, but achieving financial flexibility is more reachable for most employees than the traditional “American Dream.” Gone are the days where most American workers longed for ‘really good life’ – the beautiful home with the white picket fence, the 2.5 kids, the golden retriever, the awesome SUV in the driveway, a swimming pool in the backyard and no real money worries.
These days, having financial flexibility – finding ways to make their money go further – is the New American Dream. Advisors can help employees move toward this goal by utilizing a portfolio of financial wellness voluntary benefits.
Defining Financial Flexibility
Our industry has many financial terms these days –financial stress, financial wellness, financial literacy, financial education, financial planning and more. Financial flexibility is a new term that describes a more reachable, somewhat short-term goal for easing their financial stress.
Financial flexibility is the ability to manage expenses and make everyday life affordable. It is the financial stage beyond living paycheck-to-paycheck. It means being smart about how we use our monthly income and finding ways to make our money do more so that we are able to pay bills on time, take a vacation, have an emergency fund for unexpected expenses and perhaps splurge on something small occasionally. Financial flexibility is the stage between living paycheck-to-paycheck and financial security (a level relatively few employees ever achieve).
Why Financial Flexibility?
It pretty much boils down to the fact that employees are essentially making the same amount of money they did during the pre-recession ‘good days’ many years ago. So, although our economy is thriving and the unemployment rate is the lowest it has been in many years, most employees are still living paycheck-to-paycheck today.
Employees who are living paycheck-to-paycheck struggle to make minimum monthly payments on mortgage and rent payments; on car payments; on credit cards and loans; on student loans…or other financial matters. They don’t have enough emergency savings for unexpected expenses that come up – like medical expenses, a car needing repair, a refrigerator that needs replacing. Essentially, they are just getting by and are financially stressed because they have no extra funds to handle anything other than the basics.
Nearly 80% of American workers report that they’re living paycheck-to-paycheck. But it’s not merely those earning low wages who are struggling. Nearly 10% of Americans with salaries of $100,000 or more live paycheck-to-paycheck as well.1
The problem is that employees’ money just doesn’t do as much as it used to. The typical American worker today earns $44,500 a year, not much more than what the typical worker earned 40 years ago, adjusted for inflation.2
When they can’t cover their expenses, most employees go down the wrong road. They use methods that cost them more than the actual money value to dig out. They use credit cards and build mounting debt because they can’t afford to pay it down. Many employees are withdrawing from their retirement savings plans to pay expenses and, unfortunately, these funds usually don’t get replaced. They are also using high-risk credit options that often come with hidden costs and associated fees that take a financially fragile situation and make it worse, such as rent-to-own contracts and payday/title loans.
Aiming for more financial flexibility can help employees get on sounder financial footing. By following a monthly budget, being wise shoppers and taking advantage of employer-offered financial wellness tools and voluntary benefits available through their employer, they can begin to achieve financial flexibility.
How Financial Stress Affects Employers
Employees bring their financial stress to work with them. They spend time at work on financial issues rather than doing the job their employers are paying them to do. When employees bring their financial stress to work, it results in low productivity, absenteeism and, in many cases, higher healthcare costs.
Nearly half (47%) of employees report that they are stressed dealing with their financial situation, and 41% say that their stress level related to financial issues has increased over the last 12 months, according to PwC’s 2018 Employee Financial Wellness Survey.
Personal finance issues are a distraction at work for 25% of employees. And 43% of those who are distracted by their finances at work say that they spend three hours or more at work each week thinking about or dealing with issues related to their personal finances.3
That amounts to 150 hours per year of lost productivity per employee for almost 11% of a company’s workforce who are sidetracked from doing their work because they focused instead on their finances.
There are many ways employees’ financial stress can impact their employers, including:
- Lower productivity
Even when some employees are present, they aren’t working at full capacity. With financially-stressed employees spending time at work dealing with their finances, productivity suffers and that affects the employers’ bottom line.
- Increased absenteeism
Financial stresses have resulted in a 34 percent increase in absenteeism and tardiness.4 Additionally, stressed employees miss almost twice as many days (3.5) each year compared to their unstressed counterparts.5
- Higher healthcare costs
Playing a significant role in heart disease, migraines, obesity and accelerated aging, stress can also manifest itself physically.6 Unfortunately, 1 in 5 people put off or consider skipping healthcare visits due to the cost.7 This can result in higher healthcare costs for employers later if employees don’t schedule preventive care or, worse yet, ignore symptoms of conditions that become serious over time.
Advisors and Employee Financial Stress
Employers and advisors alike can help workers do more with their money and achieve financial flexibility. While financial education benefits are great to help employees with budgeting and debt reduction needs, employers also need to adopt voluntary benefits that provide employees the opportunity to have some financial flexibility. And it’s the advisor’s role to keep their clients informed of available voluntary benefits.
The number and types of voluntary benefits in the market has virtually exploded over the past few years. Those dealing with financial wellness are no exception. Advisors should stay abreast of what’s available and bring this type of voluntary benefits to the attention of their clients.
Voluntary benefits that help get employees on the road to financial flexibility include:
- Low interest installment loans and credit;
- Student loan repayment benefit programs;
- Automated savings programs that encourage employees to save money each month from their paycheck;
- Bill payment programs that empower employees with debt paydown strategies and the ability to make recurring bill payments on-time each month through payroll deduction; and
- Employee purchase programs that allow workers to purchase consumer products and services through payroll deduction when they are unable or prefer not to use cash or credit.
Financial flexibility is the new normal for today’s employees. It’s the new version of the traditional American Dream. Advisors and employers alike have a role in helping today’s workforce achieve this type of financial flexibility. ◊
1 CNBC.com, “Shutdown Highlights that 4 in 5 U.S. Workers Life Paycheck to Paycheck,” Emmie Martin, Jan. 9, 2019.
2 The Guardian, “Almost 80% of US Workers Live from Paycheck to Paycheck. Here’s Why,” Robert Reich, July 29, 2018.
3 PwC, “Employee Financial Wellness Survey: 2018 Results,” May 2018.
4 IFEBP, Financial Education for Today’s Workforce: 2016 Survey Results.
5 Willis Towers Watson, 2015 Global Benefits Attitudes Study, March 2016.
6 Fast Company, “How Paying Off All My Debt Changed My Life,” March 3, 2016.
7 American Psychological Association, “Stress in America: Paying with Our Health,” Feb. 4, 2015.