How to Reduce Turnover, Boost Productiv-ity, and Attract Top Talent by Easing Employee Money Worries
Employee financial stress has reached a decade-high, with less than half (42%) of U.S. workers rating their financial health as good or excellent, according to a recent Bank of America study. With high inflation, lackluster raises, mounting student debt burdens and household debt now topping $17.5 trillion, money worries are increasingly distracting employees and impacting businesses.
The toll is substantial. A 2023 PwC survey found that nearly 45% of financially insecure employees admit their money concerns distract them on the job. A much smaller portion of those feeling financially stable envision a promising future with their current employer. Compounding matters, cash-strapped workers are twice as likely to look for new employment.
Alleviating this financial stress is critical for keeping workers focused, engaged, and in their roles long-term. However, recent efforts by employers haven't eased the burden for most employees.
Pay Failing to Keep Pace
Experts agree the primary drivers of financial strain are high inflation coupled with compensation that hasn't kept up. Despite some recent progress, over half of workers still feel their paychecks aren’t keeping up with the rising cost of living, according to a survey by the American Staffing Association.
One workforce expert cautioned that while inflation is slowing, prices and interest rates won't instantly plummet, meaning financial challenges will linger.
Government data indicates inflation cooled to 3.1% annually in January after peaking at over 9% last summer. However, the impacts linger, with the latest Consumer Price Index showing Americans are spending over 11% of disposable income on food — the highest percentage since 1991.
Meanwhile, raises haven't kept pace for years. Nearly 60% of employees felt their salaries lagged inflation in 2022, up from 41% in 2021, per PwC's findings. 2024 salary budgets remain modest despite a slight reprieve.
The Costs of Financial Insecurity
When money problems distract and demoralize staff, the consequences for employers are severe. Attrition looms as a major risk, with low-income cohorts and younger generations bearing the brunt of financial pressures.
Roughly one-third of those 18-29 have student loans, according to the Education Data Initiative nonprofit. While six-figure earners also feel the sting, low-wage workers remain disproportionately impacted after years of stagnant pay.
One skeptical economist argued that personal finance education initiatives miss the mark, saying most workers simply need higher pay to make ends meet. This economist suggested that lower-income individuals are already skilled at budgeting by necessity.
The costs extend beyond turnover. Financially stressed employees are less productive, provide worse customer service, and have higher absenteeism and healthcare costs. Employers bear these and other detrimental impacts on benefit programs such as increased loan requests against retirement plans.
A Comprehensive Solution
To boost productivity, retain talent, and maintain a competitive edge in recruitment, experts advise a multi- pronged approach to ease worker financial insecurity:
Compensation
Regularly benchmarking and adjusting pay remains foundational. One pay equity strategist stated employers should prioritize keeping pay increases strong and making market adjustments to deter turnover.
Financial Wellness Benefits
Over half of employers now offer financial education, tools, and counseling. Early adopters focused on budgeting classes and credit monitoring, while newer offerings include:
- Emergency savings accounts (matched by some employers)
- Access to earnings on-demand before payday
- Low-interest loan options
- Student loan repayment assistance
- One-on-one financial coaching
Benefits Integration
Seamlessly bundling and marketing these financial wellness perks is key for driving utilization, according to experts. Accordingly, it's critical to ensure employees understand what tools are available.
Targeted Outreach
Segmenting communication by demographics like gender, income level, debt burdens, and caregiving status can boost engagement. For instance, share loan assistance and surrogacy/adoption cost info in parents' resource groups.
Personalized Guidance
Analyzing data like early 401(k) withdrawals and wage garnishments allows employers to customize offerings rather than create blanket solutions. As one financial leader put it, having robust data allows employers to support employees in targeted ways that build trust.
Leading the Way
Many major employers have pioneered comprehensive financial wellness initiatives tying together education, counseling, savings tools, and more:
When Reid Health noticed staff tapping retirement funds during the pandemic, the healthcare system launched low-interest loan access, on-demand pay, and budgeting classes. According to their benefits manager, this aims to boost productivity, happiness, and retention by improving financial wellness.
UPS found a third of staff struggled with high credit card balances and payments. The company revamped an existing payroll-deducted savings plan, automatically enrolling employees while allowing them to self-direct contributions. UPS began matching funds, driving $10 million in new annual savings.
Engineering firm Kimley-Horn began allowing retirement match dollars to apply toward student debt repayment instead of only toward 401(k) contributions, providing versatility. The firm believes this benefit will also be an effective recruiting and retention tool.
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