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Employee Financial Stress: Is it your problem?
It is hard to escape the cause and effect relationships that affect our lives. This has always been obvious to me, especially in the context of the economy. Layers of cause and effect start with our standard of living being affected by our economic performance. This in turn is a layer that is affected by the performance of the business sector. It is no secret after all that economic growth depends heavily on the performance of businesses. Yet what is it that influences the performance of our businesses? What is the layer beneath the business sector that affects its performance?
People.
More specifically, the people within the businesses whose own success and productivity will determine how successful a business will become. This is a point that seems to be largely ignored recently and underrated outside of the circles of HR professionals and academics. This is not necessarily surprising as it is far easier for managers to analyse the mechanics of a business and how this affects economic growth, then delve into the black hole of how people and their psychology affect the performance (or lack of) of the business within which they are employed.
As difficult as it may be, we need to at least make an attempt at addressing this human factor if we want to truly increase our productivity as a business, and ultimately as an economy. New Zealand is not fairing well compared to other OECD countries and this is partly due to our levels of productivity being one of the lowest in the developed world. Addressing this by only focusing on the entity of a business will have a very limited impact if we ignore that it is the employees and their productivity that really hold the key to a more prosperous future for the business and eventually, the economy.
Once you decide to address the issue of employee productivity and what might be holding it back, you can easily become intimidated by the numerous factors that play a part. So it is much easier to pick one culprit and focus on finding a solution, before looking for the next one. In this case, the culprit is money – more specifically, financial stress (FS).
As a strong supporter of more open and collaborative relationships between industry and academia, I tapped into the research that has come out of universities in New Zealand and around the world to understand if FS was a problem in the workplace and for productivity.
Yes was the resounding answer. Many of the research projects resulted in findings clearly concluding that FS is a problem not just for employees, but also for the employer. It was found that FS has a negative impact on productivity, and is linked to health and absenteeism. Work time was used to deal with personal financial matters by 53.9 percent of employees, and while 61 percent are worried about how much money they owe, 20 percent were highly financially stressed. The research also debunked the myth that it is only a certain demographic that makes up these statistics. All ranks within the organisational hierarchy are affected, since it is generally known that the more we earn, the more we spend.
More worryingly, the research is three to four years old. In the current economic climate, the numbers would almost certainly be worse. So as an employer or an HR professional, does this information require you to do anything about it?
Well, without debating the numerous raison d'êtreof an organisation, we can all agree that without cashflow, no business can exist and nobody’s job is safe. We are all directly or indirectly accountable for the financial performance of the company we belong to. However, anyone familiar with the Service-Profit Chain would know that it is a commonly held view that financial performance is the effect or consequence of a number of other things that have to happen first. Things such as internal quality, employee engagement and productivity have to exist for a company to be profitable and without them, it is very difficult and certainly not sustainable.
Once we accept this cause and effect relationship in regards to profit, it becomes critical that we identify what factors affect profitability. From the research mentioned above, it was proven that FS had a negative impact on productivity, but the research went further and actually quantified this impact as being US$7,000 per annum for every employee under FS.
If we take a conservative approach and assume 20 percent of employees fall within that, being those considered by the research to be ‘highly’ financially stressed, then it becomes easy for any business to quantify the financial impact of FS on their bottom line.
A business with 200 employees can assume 40 are under FS. At US$7,000 each, that is about US$280,000 (or about NZ$560,000) on the bottom line. Some of our largest organisations employing 10,000 people are looking at somewhere around US$14 million or NZ$28 million being lost off their bottom line due to loss of productivity, absenteeism, and health problems.
Fortunately, the research is not all doom and gloom. The findings were that the most effective solution is to provide benefits or opportunities within the workplace for employees to improve their financial literacy. Improved financial literacy was shown to have a positive impact on productivity, effectively reversing the effect of FS. Doing this in-house, forming an alliance with a university, and outsourcing to a financial professional were presented as the three best ways to approach this, but the latter, outsourcing to a financial professional, was singled out as the most effective of the three.
For employers and HR professionals who always held the view that the financial issues of their employees are outside the scope of what an employee benefits package should cover, I would suggest that this research coupled with the current economic environment warrants some new thinking on this topic.
This is not supposed to be a panacea for business success, but a very viable solution to address better productivity in the workplace, which in itself has been recognised as being a big factor when it comes to profitability. And if the research is anything to go by, focusing on financial stress seems like a good place to start.
Financial stress has a negative impact on productivity, and is linked to health and absenteeism.
This article was written for HRINZ Publication by Sam Bejjani is General Manager of enableMe, Financial Personal Trainers.
HR Tool Kit:
- Business Case Studies for Workplace Productivity
- Department of Labour - WorkLife Balance Guide & Checklist
- Work place Wellness
Relevant Related Articles:
If you can't engage you can't retain
Achieving Business Results Through Employee Engagement
BPIR - Total Quality Management & Case Studies
Relevant Related Websites:
Department of Labour
HR Books:
CCH HR Manager
HR Value Proposition - Ulrich & Brockbank
Aspiring to Greatness - Above and beyond total quality managment - Dennis Pratt
HR Scorecard: Linking People, Strategy, and Performance - Brian E. Becker, Mark A. Huselid, Dave Ulrich
Strategy and Human Resource Managment - Peter Boxall and John Purcell
Leading Through Values - linking company culture with business strategy - Michael Henderson, Dougal Thompson, Shar Thompson
HRINZ Courses:
HR Business Performance
HR Strategic Human Resource Management
Know of a good tool, book or website, why not tell us about it by contacting researcher@hrinz.org.nz
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Disclaimer:
These examples are provided as generic examples that the employer may consider using and have been published in good faith for the general information of HRINZ Members of the Institute. HRINZ recommends employers seek independent advice before using these templates in the workplace.