Four hundred dollars.
That’s the dollar amount that is out of reach for a significant number of employees in a world where financial stress is commonplace.
It’s where an emergency, such as car repairs or a broken water heater, means choosing between fixing those items or paying the rent, perhaps.
It’s an oft-quoted stat, illustrating how ill-prepared many individuals and families are to deal with shocks and unforeseen events. Thus: short-term lending, massive debt and a financial black hole that gets deeper and deeper.
In the latest Data Drivers, the question arose: Should employers care when their workers are in financial distress?
David Kilby, FinFit president, told Karen Webster that employers have – or should have – a vested interest in how their employees are coping with financial reality.
The company – which provides both financial education and short-term lending programs to more than 100,000 employers, who in turn offer them to their employees – was born of Kilby’s personal experience.
“One of one of my own employees happened to be working in a remote location … She had a financial challenge where she couldn’t afford a prescription for her daughter … She did not have the appropriate resources in order to solve the challenge, nor was the marketplace providing solutions,” he noted. “Ultimately, she solved the challenge by stealing money from the business.”
Said Kilby, “I as an employer should have taken on a responsibility to have helped out my employee during that challenge. I wasn’t there for her that day, but I was going to be there for the rest of the employees. The next day or so, we started developing financial wellness as an internal employee benefit.”
Data Point One: 85 Percent
This is the percentage of Americans who are anxious about their financial lives. Perhaps, as Webster noted, they might be overextended during the holidays, buying presents for loved ones. Or maybe they’re facing the massive financial event of buying a house.
How to separate the episodic from full-on stress?
“Chronic stress is what we talk about here, and it is the unhealthy stress of constantly having to worry about what the next day brings,” said Kilby. “It’s estimated through various studies that close to 50 percent of employees in the workforce today would not be able to meet a $400 financial need without having to borrow money or sell an asset that they own today.
“That is a relatively small dollar amount,” he added, “and this doesn’t just apply to the poverty levels or the lower-income earners. This is across the gamut, [although] less at higher levels of income.”
Asked Webster, is the aforementioned 50 percent in such straits because people do not understand how to save money?
Countered Kilby: Financial wellness is not predicated on savings alone.
“We look at our financial wellness platform as development in four distinct areas: spend, save, plan and borrow,” he noted. “Those are the four arenas, and we all probably remember one of our parents or a great uncle who always used to say, ‘It’s not how much you make, it’s how much you keep.’”
Data Point Two: 46 Percent
This is the percentage of those burdened by financial stress who say they spend three hours or more per week dealing with those issues.
The cost is $300 billion to the U.S. business system in wasted productivity, said Kilby. “That’s a pretty healthy investment that the businesses of the United States are expensing instead of investing a very small amount of that in dealing with these financially stressed employees.”
FinFit, he said, provides the appropriate resources – the credit services, the solutions, the education, the motivation and the planning – under what he called a “cloak of privacy,” so that workers recognize whatever they’re sharing with benefits is not going back to their employer.
“In addition, we report that information back to the employers so they can get a macro view of their employees across the organization and the status of their financial health,” he told Webster. “This helps the employer recognize that their investment is meaningful and is measurable, and are seeing the appropriate performance improvements.”
As for the company’s extension of short-term credit: “We recognize that there’s today’s financial crisis. And then there’s tomorrow’s financial planning.” The company has established a lending relationship with an FDIC-insured bank.
“What happens is our systems are integrated with thousands of employers’ payroll systems across the United States. So let’s say the employee had a particular emergency for $350, but it happened to be at 1:00 in the morning. Our systems would communicate that information digitally back to the particular employee … The vast majority of information necessary to be able to take out events is connected with the employee’s relationship with the employer.” The bank issues funds into the employee’s account, and “what started as a problem at 1 a.m. is solved by 1:10 am,” he said. Payback typically occurs over a five-month period, as the employers’ payroll systems are integrated with FinFit’s own platform. Payments, as they occur, get reported to the credit bureaus and help improve FICO scores.
Kilby noted that employees cannot have access to FinFit’s lending activities until they submit to the education offerings. He noted that almost half of the queried employee base had used payday or high-cost loans in the past. Sixty percent of those same employees indicated in our survey that since joining the FinFit platform, they no longer use such financial products.
“Eighty-four percent of the employees said that they set out to solve a financial crisis and refocus on work. Seventy percent increased their personal savings. Sixty percent haven’t used a high-interest lender since starting FinFit,” he told Webster.
Data Point Three: 2x
Workers with high financial stress are also unhealthy and certainly unhappy. They are twice as likely to report poor health and four times as likely than their peers to experience depression or other related ailments.
“We look at healthcare costs as one of the biggest challenges in the employer-employee dynamic today,” said Kilby. “Employers investing in this space is not just about making happy, healthy employees – it’s also a good economic investment.”