By Mrs. Shay Cook, CEO & Founder of Crusaders for Change, LLC (C4C) Accredited Financial Counselor® & Financial Fitness Coach®
The cost of living continues to rise in America, and Americans are feeling the pressure. A recent survey by the Bank of America Institute found that in Q3 2024, almost half of the respondents perceived themselves as living ‘paycheck to paycheck’, leaving many feeling financially insecure. Why is that concerning to business owners? This constant financial stress can significantly impact employee productivity, engagement, and overall well-being.
Employee financial well-being is no longer just a nice-to-have, it's a critical factor in an organization's overall success. When employees are financially secure, they are more engaged, productive, and less likely to experience burnout. Conversely, financial stress can have a significantly negative impact on the workplace, leading to decreased productivity, increased absenteeism, and even employee turnover.
But there are things that you, as an employer, can do to ease employee financial stress and decrease the rates of absenteeism, as part of an employee financial wellness program. In this blog, we’ll explore how employees can apply key principles of financial risk management, commonly used in businesses, to their personal finances. By understanding and mitigating these risks, employees can improve their financial stability, reduce stress, and enhance their overall quality of life.
How does an employee’s financial stress impact business owners and organizations?
Reduced Productivity: Financial worries can be a major distraction, hindering an employee's ability to focus on their work tasks. Studies have shown a direct correlation between financial stress and decreased productivity, including difficulty concentrating, reduced attention to detail, and increased errors.
Increased Absenteeism and Presenteeism: Employees facing financial challenges may be more likely to miss work due to stress-related illnesses or the need to address financial matters. Furthermore, even when present at work, financial stress can lead to "presenteeism," where employees are physically present but mentally preoccupied with financial worries, resulting in decreased output and engagement. The cost of unplanned absenteeism is estimated to exceed a staggering $600 billion a year, with an average cost of $4,080 per full-time employee and $2,040 per part-time worker.
Diminished Morale and Engagement: Constant financial anxiety can negatively impact employee morale and engagement. When employees are constantly worried about their finances, it can lead to decreased job satisfaction, increased cynicism, and burnout. According to Quantum Workplace Research in 2024, more than 1 in 3 employees are consistently experiencing burnout.
Increased Risk of Employee Theft: While not always the case, financial hardship can sometimes lead to desperate measures, including employee theft. On average, employee theft costs US businesses approximately $50 billion each year.
How can employees apply company risk management principles to their personal finances?
Interestingly, many of the principles used in corporate financial risk management can be effectively applied to an individual's personal finances, and vice versa. By encouraging employees to adopt these principles, organizations can not only improve employee well-being but also enhance their own risk management practices by fostering a culture of financial literacy and responsibility within the workplace. We want our employees to be healthy, and to learn to keep the organization healthy and mitigate risks there, too!
Let’s review some of the principles of financial risk management.
Risk Identification:
Personal Financial Assessment: Just as companies conduct thorough assessments of their financial risks, employees can conduct a personal financial assessment. This involves an overall look at the finances as well as identifying potential financial risks such as job loss, unexpected medical expenses, market volatility (impact on investments), and unforeseen life events. At Crusaders for Change, we conduct a full personal financial assessment, one-on-one with employees. It’s a great first step when starting a personal financial wellness journey with a financial counselor.
Budgeting and Spending Analysis: Analyzing personal spending habits can reveal areas of potential financial risk, such as excessive debt, overspending in certain categories, or inadequate savings. In the Crusaders for Change Employee Financial Wellness Program, we offer both engaging group workshops and personalized financial counseling that helps employees analyze their spending and create a budget.
Risk Assessment:
Prioritize Risks: Determine the likelihood and potential impact of identified financial risks. For example, the risk of job loss may be higher for employees in certain industries or with less job security, or the risk of an unexpected health event may rise with advancing age.
Assess Risk Tolerance: Determine your personal risk tolerance for different financial situations. Do you have an emergency savings? Could you cover rent or mortgage payments for two or more months if you were out of work due to illness? Are you comfortable with some level of investment risk, or do you prefer more conservative strategies?
Risk Mitigation:
Emergency Fund: Building an emergency fund (3-6 months of living expenses) is crucial to mitigate the risk of unexpected financial shocks.
Debt Management: Create a plan to reduce and eliminate high-interest debt.
Diversification: Diversify investments across different asset classes to reduce overall portfolio risk.
Insurance and Benefits Coverage: Review insurance and benefits coverage. Ensure adequate insurance coverage, including health, life, disability, and property insurance.
Continuous Learning: Stay informed about personal finance topics and seek guidance from financial professionals.
Risk Monitoring:
Regularly review your financial situation: Track your progress toward financial goals, monitor your spending, and adjust your plan as needed.
Stay informed about market trends and economic conditions: Do you know how to stay up-to-date about economic news and adjust your financial strategies accordingly? Do you work with a professional who will help you learn about investing and strategies? Are retirement and investing accounts a part of your employee benefits? There are many resources (many are free!) available to American employees in regard to investing and learning about investment risks and monitoring.
Review and update your insurance coverage: Ensure your insurance coverage remains adequate to meet your changing needs–whether it is a new age milestone, a growing family, or new medical concerns.
By encouraging employees to apply these principles to their personal finances, organizations can demonstrate a commitment to employee well-being and foster a culture of financial responsibility within the workplace.
This not only benefits employees by improving their financial health, financial literacy, and reducing stress, but it also creates a more engaged, productive, and resilient workforce.
Ready to cultivate a more financially secure and empowered workforce?
Crusaders for Change specializes in developing and implementing comprehensive financial wellness programs tailored to the unique needs of your organization. Our programs empower employees with the knowledge and tools they need to build a strong financial foundation, ultimately leading to a more engaged, productive, and successful workforce.
Comentarios