Finances, Student Loan Debt Putting a Strain on Employees | PLANSPONSOR – PLANSPONSOR

The COVID-19 pandemic has disrupted the lives of workers across the country, and a new survey suggests that finances are the top cause of employee stress—more than job, health and relationship stress combined.

This has added to the stress many employees were already feeling, such that 63% of full-time employees say their financial stress has increased since the start of the pandemic.

According to the PwC “2021 Employee Financial Wellness Survey,” many employees are experiencing deep financial strain. Younger employees are more likely to experience increased financial stress due to the pandemic, with 72% of Millennials, 68% of Generation Z, 62% of Gen X and 46% of Baby Boomers all reporting increased stress.

The survey of 1,600 full-time employed U.S. adults found that employees whose financial stress has increased due to the pandemic are four-times as likely to have experienced a decrease in overall household income or found it difficult to meet household expenses on time each month. They were also twice as likely to have used a payday loan or payday advance in the past year, or to have considered postponing their retirement.

There is a clear business case for supporting employee financial health, the survey says. Employee financial distress has intensified in the past year, during which time some employers took measures to cut costs, including making layoffs, reducing salaries, freezing raises and bonuses and cutting back on other rewards.

Employees whose financial stress has increased due to the pandemic are nearly four-times as likely to admit that their finances have been a distraction at work, the survey found. They are also more likely to be attracted to another company that cares more about their financial well-being and twice as likely to have avoided addressing a medical issue due to cost.

Overall, the survey found that household income has decreased for more than one in four U.S. employees. This is seen across income levels and many employees are concerned that their household income won’t return to the same level as before. Additionally, employees working remotely are more likely to report increased financial stress due to the pandemic than those in the office.

Many employees have witnessed firsthand the importance of having a financial cushion for unexpected events, yet the survey suggests they remain woefully underprepared. Less than half (47%) say they would be able to meet basic expenses if they were out of work for an extended period. Almost half (42%) find it difficult to meet household expenses on time each month.

Employees are carrying credit card balances longer and owe more on their cards than last year. Fallout from the pandemic has exacerbated these habits, the survey says. Meanwhile, student loan debt, housing/food costs and rising health insurance rates all contribute to employee insecurity. More employees have considered filing for bankruptcy protection than ever before in the 10-year history of the survey. Concerns about housing foreclosures have also increased.

Student Loan Debt Causing Financial Stress

Student debt has placed a significant burden on employees, specifically those who work in the public service and nonprofit sectors. Nearly six in 10 student loan holders are $50,000 or more in debt (57%) with one-fourth being over $100,000 in debt (24%), according to a TIAA survey. Prior to the pandemic, about three in 10 were in deferment, forbearance or in bad standing on their loans. Over one in five were in deferment or forbearance (22%) and nearly one in 10 was delinquent or in default (8%).

According to TIAA’s “2021 Nonprofit Student Debt Survey,” the CARES Act benefited four in five (80%) student loan holders through suspended loan payments or other student loan debt relief. Those who made less than $50,000 a year were less likely to have benefited (61%), compared to those making $50,000 to $99,000 a year (79%) and $100,000 a year or more (85%).

Student loan debt causes at least a little stress for nearly all (86%) nonprofit and public sector workers, TIAA says. Three in 10 have only negative feelings about their student loans (31%), with most feeling frustrated (75%), along with fearful (45%), hopeless (44%), angry (33%), ashamed (30%) and resigned (21%). Those with only negative feelings are significantly more likely to be 45 years old or older (50%).

Almost four in five respondents indicate they made decisions in their life or career plans based on their student loan debt, while almost half (49%) made a change in their life plan, such as delaying buying a house (35%), the survey finds. About a third (33%) considered switching careers to a higher paying job in the for-profit sector and over a fourth (27%) report staying in a nonprofit job to qualify for student loan debt relief programs.

Student debt remains a barrier to saving for retirement, but the CARES Act relief was helpful in supporting retirement savings goals. The survey suggests that nearly all student loan holders (87%) contribute to an employer-sponsored retirement plan because of the relief. On the other hand, over one in four (27%) say they reduced the amount they save for retirement because of their student loans, with one in eight (12%) saying they have not started saving for retirement for the same reasons.

Helping Employees

Despite the tough year, there were some positives to be found. Employees are saving more, with 58% of employees saving more than 10% of their income, according to PwC. Up from 62% last year, 72% have saved more than $1,000 to deal with an unexpected expense.

Employees need a trusted source of guidance customized for individuals at both ends of the spectrum—those who are saving more and those grappling with serious financial issues, PwC says. Employers have a unique opportunity to gain employees’ attention and offer practical guidance, capitalizing on employees’ desire to protect themselves from future emergencies.

With more than 50% of financially stressed employees embarrassed to ask for help with their finances, PwC suggests that employers need to ask about financial health in ways that preserve employee dignity and privacy. Employee financial assessments can pinpoint where people are struggling and enable organizations to focus and personalize resources for their most vulnerable populations.

The survey found that employees overwhelmingly want help with their finances. One-third rank a financial wellness benefit with access to unbiased coaches as the employer benefit they would most like to see added at their organization, and usage of employee financial wellness programs is at an all-time high.

To be competitive, PwC suggests, employers should provide financial wellness benefit offerings that continuously engage employees. These offerings can help with planning and prevention, as well as intervention, if issues are more severe and options more limited. Implementing such resources now may also help stave off pent up destructive financial behaviors as the pandemic subsides and consumer confidence improves, or when employees may have more opportunities for travel and other discretionary spending.

PwC says online tools can be particularly useful when it comes to educating employees and assisting them in tracking their spending and savings. Such tools can also help them better understand how they compare to their peers.