By Charles Lattimer
It should come as no surprise that income is the No. 1 predictor of our health in America.
It’s well-researched and widely reported that the more money we make and save, the healthier we are physically, mentally and emotionally. This, of course, has a positive correlation on the overall stability of our families, communities and organizations at-large. It is, has been and will continue to be all about the money we make and what we choose to do with that money that counts.
Yet, even in the face of this age-old reality, so many Americans continue to be one unexpected expense away from peril. Harsh economic realities such as soaring inflation only exacerbate the issue, with over 6 out of 10 employees across America living paycheck to paycheck today, which is an increase of over 9 million Americans from the end of 2022. And, for the first time in history, the issue reaches deep into middle-class homes and touches both hourly and salaried workers. In December 2022, a Fortune article states almost 51% of those earning over $100,000 annually reported they, too, are living paycheck to paycheck.
What is not new, however, is the disproportionate impact on Black and Hispanic households. Financial Health Network’s FinHealth Spend Report 2022 states that the most financially vulnerable households “spent 14% of their incomes on interest and fees vs. 1% for the financially healthy.” This is one reason living paycheck to paycheck can be characterized as the most expensive job in America, but it isn’t the only one. Aside from undue fees and unreasonable interest rates, the ultimate consequence is stress.
Anxiety and panic, sleeplessness and feelings of isolation and loneliness are often associated with being stressed out, according to an APA study. And, unfortunately for employers, employees can’t simply “leave stress at the door.” The ever-present negative consequences of employee financial stress span from absenteeism to presenteeism to productivity loss to increased health care costs, all of which have a profound impact on businesses, too. According to The Employer’s Guide to Financial Wellness, financial stress results in approximately 11% to 14% of annual payroll costs in lost productivity and increased turnover.
65% of those studied by the American Psychological Association state that money is a significant source of stress, with 57% citing insufficient emergency savings as ‘having a major negative impact on their mental health.’
How Can We Help?
First, as employers, we must fully embrace the connection between emergency savings and financial stress, and new studies underscore this point. “Research shows that saving something—no matter how small—can gradually build a sense of optimism.” Further, the Consumer Financial Protection Bureau’s (CFPB) financial well-being scale reports that individuals with no emergency savings score an average of 40 while the overall population averages 51 out of 100. This score jumps to 61 for individuals that have at least one month of income saved. This clearly demonstrates that the smallest amount of savings, coupled with consistent savings behavior, presents an opportunity for businesses to dramatically decrease stress-related, negative outcomes in the workplace.
So, how can we help employees save for unexpected events such as medical expenses, home or car repairs, or natural disasters in the assurance that they can meet their basic needs and avoid reaching for high-interest credit cards during difficult times or, even worse, depleting their retirement savings?
Employer-Sponsored Emergency Savings Is the Answer
Human resources leaders and the C-suite need to prioritize emergency savings as a voluntary, yet vital, benefit for employees. Indeed, recently enacted federal legislation in the storied SECURE 2.0 Act represents a major opportunity for employer-supported financial wellness. But unfortunately, there is one glaring omission in the legislation: the SECURE 2.0 Act provides only $1,000 in short-term emergency liquidity options for employees with retirement accounts. Given U.S. Census Bureau figures showing only 41% of Americans contribute to a 401(k) or similar retirement savings plan, the gap in this provision ignores the short-term liquidity needs of the employees most likely to be living paycheck to paycheck.
Employers need to approach the issue with intention, working to solve the challenge through additional initiatives. It’s quite simple: Alternative liquidity options will be essential for enterprises to guarantee access to affordable short-term credit options for their employees for the assurance of a healthy and engaged workforce today, tomorrow and in the years to come. Once those short-term challenges are met, employers can then thoughtfully engage underserved employees with emergency savings and retirement solutions to ensure long-term financial stability.
That’s a job we can all take pride in.
Charles is a seasoned technology entrepreneur and innovator, with over 25 years of experience. He founded his first technology startup in graduate school at Virginia Tech back in the 1990s, which was acquired in 2000. He has pioneered technologies and business models in financial technology, payment systems, loyalty programming, funding models, online learning, management and profitability simulations and most recently financial wellness.
While on faculty at Virginia Tech, Charles founded and led Cooperative Leadership Institute (VTCLI) and co-authored one of the top-selling college management textbooks, “Management: A Balanced Approach for the 21st Century.”