What Happens When Employees Experience Financial Emergencies
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What Happens When Employees Experience Financial Emergencies?

Let’s face it: most of us simply don't save enough money.

According to Bankrate, a whopping 78 percent of American workers are living paycheck to paycheck, and that includes some people making over $100,000 per year.1

Financial advisors often recommend having enough emergency savings to cover at least three months of expenses. But the unfortunate reality is that the majority of Americans couldn't cover a $1,000 emergency expense, and 44 percent couldn't even cover $400.2

So when financial shocks inevitably occur, it's safe to assume that many of your employees would find themselves in a precarious situation—risking great cost to not only their own well-being but also to your organization.

Financial emergencies can happen to anyone, anytime.

Over half of American workers between the ages of 20 and 58 live in a household that has experienced a financial shock in the past year.3 And these shocks are typically costly—a median of $2,000 for the most expensive occurrences.

Among the most expensive financial shocks are medical emergencies, which are now the leading cause of bankruptcy in the U.S. While many workers don't have $1,000 to cover an unexpected expense, the national average for health insurance deductibles is over $1,500.4

Unfortunately, when employees experience a financial shock, the math often just doesn't work. And the consequences can be severe.

What do employees do during a financial emergency?

Without sufficient emergency savings, many employees are forced to resort to desperate measures when financial shocks occur. The options range from bad to worse, posing serious threats to employees' financial well-being and future financial stability.

Here are some of the most common measures taken:

Delay necessary medical care

Over half of Americans delay medical treatment – prescription drugs, routine check-ups, surgical procedures, etc. – due to the cost.5 When that happens, health conditions worsen, leading to even higher costs in the long-term for both the employee and the employer.

Miss or make late bill payments

Six out of 10 Americans say they're anxious about their bills, and nearly half are late when paying them.6 Late or missed payments can lead to hefty late fees, higher interest rates and overdraft penalties as well as negative impacts credit scores. The financial hole gets deep quickly.

Rack up credit card debt

The average American household with credit card debt carries nearly $7,000 in balances from month to month, with an average APR of over 19 percent. Consequently, nearly 10 percent of Americans who have credit card debt don’t think they will ever be completely rid of it.7,8

Borrow from a retirement account

Over a given five-year period, a whopping 40 percent of 401(k) participants will borrow from their accounts.9 For those people, that means additional fees, loss of investment gains and double-taxation. It also likely means a delayed retirement for employees, which can be quite costly for employers. This blog post provides some great information to share with your employees on the drawbacks to 401(k) loans.

Financial insecurity leads to poor productivity and lower retention rates.

In addition to the moral and ethical reasons for employers to help employees improve their financial well-being, there are plenty of reasons that impact the bottom line.

Finances are the greatest source of stress for employees, and this stress affects their job performance. Nearly 80 percent of employees who report high financial stress say they're distracted by stress at work.10 That distraction translates into approximately $7,000 per employee per year in lost productivity.11

Financial security is also a significant factor when it comes to employee satisfaction. Employers who foster a culture of financial wellness in the workplace will find themselves in a better position to attract and retain talent. In fact, three out of four employees say that financial wellness benefits are important for an employer to offer, while 60 percent say they’d be more likely to stay at a job if their employer offered financial wellness benefits that help them better manage their finances.12

Learn more about driving financial wellness within your organization.

As a benefits professional, you're in a unique position to help your company's employees prepare for the unexpected—by offering programs that help them proactively prepare for financial shocks and protect from desperate decisions that could jeopardize their financial futures.

Read more about the financial issues facing your employees and what you can do to address them in How Employers Can Solve the American Savings Dilemma from Kashable, a certified Benefitfocus BenefitsPlace® supplier.

Interested in expanding your benefits offering with solutions to help drive financial wellness within your organization? Request a consultation with one of our BenefitsPlace Advisors today!

 

1. https://www.bankrate.com/banking/savings/financial-security-0118/

2. https://www.federalreserve.gov/newsevents/pressreleases/other20170519a.htm

3. https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2015/10/the-role-of-emergency-savings-in-family-financial-security-how-do-families

4. https://www.kff.org/health-costs/report/2018-employer-health-benefits-survey/

5. https://www.fool.com/retirement/2018/11/03/54-of-americans-delay-medical-care-because-of-cost.aspx

6. https://www.businesswire.com/news/home/20181129005267/en/10-Americans-Anxious-Bills-Late-Paying-Study

7. https://www.nerdwallet.com/blog/average-credit-card-debt-household/

8. https://wallethub.com/edu/credit-card-landscape-report/24927/

9. https://www.nber.org/papers/w21102

10. https://finance.yahoo.com/news/morgan-stanley-study-finds-financial-140000257.html

11. https://pfeef.org/

12. https://finance.yahoo.com/news/morgan-stanley-study-finds-financial-140000257.html