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Improving financial literacy and boosting savings can reduce stress levels
Research from the Global Financial Literacy Excellence Center reveals that Americans are stressed about their family finances. This isn't a surprise. Countless studies and media reports have the same headlines, but the interesting takeaway from the GFLEC study is that it highlights the connection between stress, financial illiteracy, and lack of savings.
According to this report, Americans are stressed about their finances. But they aren't only stressed because they don't have money. They're stressed because they don't really understand money or how to use it. They're also stressed because they're not prepared for unexpected expenses, and when an emergency strikes, they engage in behaviors that make the situation worse.
By helping employees improve their financial literacy and prepare for emergencies, employers can reduce employee stress levels. Take a look at the data.
Offer products to improve their financial literacy
Out of nearly 20,000 respondents, 60% said they were financially anxious and 50% said they were financially stressed. However, when you break down the responses based on financial literacy, you see different numbers. Only 51% of financially literate respondents reported feeling financially anxious. That's about 10 points lower than the average. In contrast, 63% of people who were not financially literate said they were anxious.
To put these numbers into perspective, look at how income lines up with financial anxiety. Two-thirds (67%) of people who earn less than $25,000 report feeling financially anxious, and 58% of people who earn between $75,000 and $99,000 feel financially anxious. The people in the second category earn at least three to four times as much as the people in the first category, yet their rate of anxiety is just 9 points lower.
In contrast, the spread from the financially literate to the non-literate is 12 points. To put it another way, improving your financial literacy has a bigger impact on stress levels than raising your income.
Most employers aren't in a position to triple or quadruple their employees' salaries. But nearly every employer is in a position where they can offer financial wellness and literacy products to their employees.
Understand why they're stressed
Financially anxious people, regardless of income level, are more likely to have high levels of debt and low levels of assets. They're less likely to own homes or have retirement plans, and they're more likely to owe money on credit cards, auto loans, student loans, and the like.
This means they're losing money. By borrowing, they're spending high rates to use money. And because they're not investing, their money isn't bringing in any returns. Financially anxious people are also much more likely than the average person to have engaged in the following stressful behaviors in the last year:
Poor money management skills lead to the above decisions, and once someone makes one of these decisions, they get locked in a cycle that is almost impossible to reverse. Poor money management is expensive, but it's also time-consuming.
If someone has to take out a title loan to pay for an emergency, they have to jump through a lot of cumbersome hoops to get the loan. Then, they have to deal with extremely high fees – typically 25% of the loan, according to the Federal Trade Commission.
Help employees prepare for unexpected expenses
This creates a cycle of stress. To pay off their title loan, for instance, they may delay their mortgage payment. Then, to get back on track, they may skip a round of credit card payments. That leads to late fees and even higher debt volumes. That, in turn, leads to more stress.
The best way to mitigate this issue is to be prepared for an emergency. Unfortunately, however, most employees aren't prepared. But you can help.
The GFLEC study also looked at respondents' preparedness for emergencies. Nearly a third (31%) said they were not prepared for a $2,000 emergency. If faced with this type of expense, they would not be able to come up with the money within a month. About half (47%) said they didn't have enough money to cover three months' worth of expenses.
These numbers represent high levels of financial frailty. People in the first category aren't poised to deal with most financial emergencies. If they needed to pay for a significant expense, they'd have to use a credit card or borrow money. The more this happens, the more expensive and stressful the debt options become.
Someone may start to pay for unexpected expenses with credit cards, but once those are maxed out, they turn to their retirement accounts or friends and family. As those sources are exhausted, expensive debt products such as payday and title loans come into play.
People in the second category may be able to handle a small emergency, but they're not ready for a prolonged illness or a job loss. This can further increase their stress levels.
Offer employer-sponsored savings accounts
A savings account can help relieve the above issues, but unfortunately, most Americans don't save. Only 41% of Americans said they saved over the last year. Over a third (36%) spent everything they earned. Another 20% went into debt.
If your employees are spending everything or going into debt, they're likely to be stressed. A financial emergency will exacerbate their stress levels. This will distract them from work, lower their productivity, and hurt your bottom line.
To help your employees with their family finances and protect your organization, you need to find ways to boost financial literacy and improve savings. SecureSave can be a part of that process. Our employer-sponsored emergency savings accounts help prepare your employees for emergencies and reduce their stress levels. Contact SecureSave today to learn more.