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The debt effect: where employees struggle the most with finances

Published by: LifeWorks,

Kevin checks his personal email on a break during the work day. His credit card company alerted him about a late payment… again. This is when he spirals — he submits the minimum payment, checks his bank account, transfers money from his savings to avoid an overdraft fee, then realizes his next paycheck won’t be coming in before rent is due.

Kevin is not alone. An alarming 57 percent of employees are very or somewhat stressed about their financial situation, according to a 2017 survey from Prudential.

One of the biggest stressors impacting most people is debt. Research published in a 2014 Urban Institute report found that approximately 35 percent of Americans have delinquent debt. Overdue debts average around $5,178, consisting of credit card balances, unpaid utilities, and medical bills.

What’s most concerning is the impact debt has on employee well-being — a 2013 report published in Clinical Psychology Review found that the likelihood of having a mental health problem is three times higher among people who have debt. The most common mental illnesses people in debt experienced were depression, anxiety, and psychotic disorders.

There’s even a link between suicide and debt. The Clinical Psychology Review report also found that people who commit suicide are eight times more likely to be in debt.

Improve employee well-being by helping your staff manage their biggest debt problems.

Student loans

It’s no secret that student loans are increasingly problematic in the United States. The national average student loan debt per graduate for the Class of 2016 was $17,126, according to research from The Student Loan Report. What’s more, more than 61 percent of U.S. students graduate with student loan debt.

This debt becomes a bigger issue for the nearly 40 percent of student loan borrowers who are either in default or more than 90 days past due on their student loan payments, as found in a January 2017 Demos report.

And while the cause of the growing student loan crisis can be attributed to a number of factors, including rising tuition costs and flatlining wages, you can help offer a solution. Consider providing student loan repayment assistance and tuition reimbursement for employees who are in school.

Aside from improving employee well-being, these benefits also help with recruiting and retention — an IonTuition study found that eight in 10 workers with student loans say they would like to work for a company that offers student loan repayment benefits.

You may also want to offer planning options for parents to help avoid future student debt by setting up 529 plans, also known as qualified tuition plans.

Credit card

Credit cards are not inherently bad, but they can be when employees lose control of their spending habits. ValuePenguin research found the median debt per American household is $2,300, while the average debt is $5,700.

Employees who can afford paying their full balance won’t seek out help, but you likely have many staff members who are just paying their minimums. This is the minimum payment trap: paying minimums causes interest to pile up. As a result, employees enter a cycle of making minimum payments without making much of a dent on the principal.

Additionally, some people might bury themselves into credit card debt following a major life change, like getting married, moving to a new home, or starting a family.

To prevent credit card debt stress from hurting employee well-being, include educational tools in your benefits package and EAP. Promote financial tools like debt management services and budgeting resources that employees can access confidentially.

Medical bills

This source of debt is the toughest to prevent. Despite proper self-care, employees experience tragedies. They get into car accidents, struggle with addiction, or suffer from chronic health conditions, such as hypertension. Unfortunately, major medical issues like cancer can arise, sending people into a mountain of debt.

According to a 2017 Kaiser Health Tracking poll, 45 percent of Americans said they’d have a difficult time paying an unexpected $500 medical bill. What’s more, 29 percent said they had problems paying for medical bills or were unable to within the past year.

Even when you provide health insurance, employees still face unmanageable medical bills. A January 2016 Kaiser survey found that more than 60 percent of insured Americans with medical bills blow through most or all of their savings.

While medical emergencies are hard to prevent, you can help employees prepare financially. Use your financial wellness program to teach employees how to save for emergencies by starting an emergency savings account.

Also, consider offering reimbursement accounts to help employees manage medical expenses. These kinds of accounts include health savings accounts (HSAs), health reimbursement arrangements (HRAs), healthcare reimbursement plans (HRPs), and and flexible spending accounts (FSAs).

Debt is not just an employee issue; it’s a workplace issue, too. Don’t let employee well-being suffer. Instead, educate your staff on proper financial wellness.

Make your employees feel loved