Businesses Losing $500 Billion Due to Employees’ Financial Stress

Last Updated: December 16, 2021

New research shows businesses are losing billions every year thanks to employee financial stress, even in well-paid white-collar roles. Employers have a role to play in the solution.

American businesses are collectively losing $500 billion per year thanks to employee financial stress, according to a recent surveyOpens a new window  of more than 10,000 Americans who were asked about their financial stress and its impact on work performance. The survey found that financially stressed employees are not able to check their worries at the door; they typically spend over three hours per week dealing with personal finances at work and lose nearly one month of productive work time (23-31 days per year) over financial concerns. The lost productivity represents between 11 and 14 percent of payroll expenses per employee, per year, costing businesses who do not provide financial wellness programs billions of dollars – approximately 2.5 percent of the US GDP. 

This trend particularly impacts businesses on the west coast, in the Rocky Mountains and Appalachia, and south of the Mason-Dixon line. According to the survey, employees in Colorado suffer the highest level of stress (54 percent) in the nation. Even in Hawaii, the least-stressed state in the country, more than one-third of employees (34 percent) are silently suffering from financial stress. Nationally, the average is 48 percent – nearly one in two. Employees suffering from financial stress also suffer from increased mental health risks: they are more than three times more likely to suffer from anxiety attacks and four times more likely to suffer from depression and suicidal thoughts. Women are especially impacted; the majority of women (56 percent) are worried about finances and nearly two-thirds (63 percent) feel they do not earn enough to save.

Income is Not an Indicator of Financial Stress

It’s tempting to think that the solution to financial stress endemic lies in raising wages. There may be a strong correlation between poverty and financial stress, but if low wages were completely to blame we would expect to see financial stress decrease as income increases. 

This is only true to a point; after employees achieve managerial rank stress begins to increase again. Forty percent of Americans earning more than $100,000 per year are financially unstable, with less than three months’ savings. In addition, of the 34 percent of Americans living paycheck to paycheck, one in four of these earns over $160,000. The most-stressed individuals in an organization are typically the highest and lowest-ranked, going against the cultural narrative that the solution to financial problems is to earn more money. People simply don’t expect a high-earning, professionally successful and competent individual to be financially underwater, barring extraordinary circumstances. While the data proves that income is not always correlated with financial wellness, income level can mask money worries that impact nearly half of all employees.

Employers Are the Solution

Fortunately, newly available financial technologies have created opportunities for employers to step up in support of employees. According to the survey, 79 percent of employees trust their employers with their financial information and 68 percent feel their employer cares about them and their wellness. This creates a favorable environment for employers to offer salary-linked loans as an employee benefit, helping keep employees out of the debt spiral. Salary-linked loans are low-interest loans arranged through employers, where lenders automatically deduct repayment amounts from paychecks. More than 70 percent of such loans are used to consolidate existing debt under a better interest rate.

Salary-linked loan fintechs are able to provide lower interest rates primarily due to the method of repayment. The biggest cost for typical lenders is borrowers not paying their loans back. When loans are repaid through salary deduction, lenders have a much lower risk of default, as repayment happens automatically. Offering a salary-linked loan benefit through the employer also means the lender deals less with application fraud, which is an expensive and relatively common issue for traditional lenders. Additionally, partnerships with employers reduce marketing costs associated with new customer acquisition. These savings can then be passed through to the employee applying for a loan.

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Another piece of keeping interest rates low comes down to technology, economies of scale, and intelligent validation throughout the borrowing process. Performing these processes in-house often requires substantial administrative overhead and liability on behalf of the employer. Salary-linked lending platforms can integrate with an employer’s existing payroll process to enable this previously unfeasible process to be within the realm of possibility. While employers may not be equipped to establish relationships with credit lenders or take the entire process in-house, partnerships with salary-linked lending platforms can be an attractive, cost-free alternative. Even those employers with existing employee loan systems can reduce liability and administrative overhead through intelligent outsourcing.

By offering financial wellness benefits to help employees at all income levels manage their debt, employers can help reduce employees’ financial stress. This not only has a huge impact on employees’ overall wellness but also has the potential to create massive business gains in the form of added employee productivity. A recent Harvard studyOpens a new window  found that employers who offer financial benefits such as salary-linked loans reduces employee turnover and increases company loyalty. Myths around the relationship between income and financial wellness have so far held employers and society back from maximizing the benefits of a stress-free workforce, but this new data reveals opportunities for enterprising HR professionals to drive better awareness and change within their organizations.

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Dan Macklin
Dan Macklin

Chief Executive Officer, Salary Finance

Dan Macklin is the US CEO of Salary Finance, the leading global provider of financial education and salary linked savings and loans for employees. Salary Finance currently works with more than 150 employers with a total reach of 1.5 million employees to reduce debt and create a pathway to savings. Prior to Salary Finance Dan co-founded SoFi, currently valued at over $4 billion, and has served as a board member, angel investor, and advisor to more than a dozen early-stage companies. He is a graduate of and guest lecturer at Stanford University, and was one of Inc.com’s 25 Inspiring Entrepreneurs to Watch in 2017.
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