A recent report by Oliver Wynman in conjunction with Experian1 found that 22% of the American population had subprime credit scores, and further, another 19% were unscorable or invisible – meaning they had no credit score at all.
That means that four out of ten Americans (including your employees) experience the financial stress brought on by their inability to take advantage of credit opportunities and exposure to high-interest rates.
Those with poor credit find it difficult to:
- Qualify for car and home loans
- Get a competitive interest rate on loans and credit cards
- Afford quality auto, renter’s, and homeowner’s insurance
- Find a rental property
- Set up utilities, including the internet, due to larger required deposits
- Save for emergencies, schooling, and retirement
Low credit scores also affect an employee’s happiness. A recent study by the Harvard Business School found that those with lower credit scores were less optimistic about their future2.
Unfortunately, this kind of financial stress affects their ability to be a good employee.
Low Credit Affects Work Performance
Employees with financial stress at home bring that financial stress to work. This leads to such behaviors as:
- Poor work performance
- Lowered company loyalty
- Putting off medical care – leading to higher healthcare costs for employers
- On-the-job accidents
- Poor interoffice relationships
Absenteeism alone costs American companies a bundle – $225.8 billion annually, or $1,685 per employee3.
A study by Fidelity4 found that a leading cause of absenteeism is poor financial wellness. Employees with high debt had twice the absenteeism rates of someone without high debt.
Financial Wellbeing Increases Credit Scores
A recent Consumer Financial Protection Bureau5 report found a strong relationship between financial wellness and higher credit scores. Additionally, they discovered a correlation between higher credit scores and engagement with financial engagement tools.
Specifically, the study found that those with longer-standing credit cards had a higher financial wellness rating.
Those with a lower financial wellness rating used their credit cards more frequently, had too many accounts, and had collections in the past two years.
However, those who engaged with financial wellness tools (such as a credit simulator or those who looked at their credit score variables) increased their credit score.
If, as the Harvard Business School study found, higher credit scores predict employee happiness, and such happiness has an effect on the bottom line of a company, what does this mean for companies? The answer is clear – offer financial wellness benefits that help employees increase their credit score.
Increasing Employee Financial Wellness
Access to financial wellness programs helps employees develop good financial habits that lead to better financial health. This, in turn, leads to happier employees who have the emotional reserves to enjoy their work and do a good job on behalf of the company.
A holistic financial wellness program can help employees learn to budget, pay down debt, make use of appropriate credit, and save for the future.
Internal data from one major Enrich user6 shows that after using the financial wellness program for 15 months:
- Checking account overdrafts decreased by 40.7%
- Average savings balance increased by 55%, an increase of $1,657
- 28% more employees pay off their credit cards each month
Such changes to financial habits helped these users increase credit scores by an average of 25.51 points. Such an increase could take a near-prime individual (representing about one-third of all subprime credit scores7) to the prime score level.
Additionally, adding financial wellness can help employees who have no credit score develop one. Financial education can help them learn what is needed to create a score including choosing appropriate credit, using credit wisely, and making timely payments.
As your employees increase their credit scores, leaving the subprime and “no-score” status, they will feel less financial stress. This, in turn, will lead to a better bottom line for your company.
1 - https://images.go.experian.com/Web/ExperianInformationSolutionsInc/%7B63ec9888-37ea-405c-b39d-7492de9143ce%7D_FINALExperian_report_14_01.pdf
2 - https://www.hbs.edu/ris/Publication%20Files/18-112_384ca03b-4ac3-4d37-80bd-45d5fd3cb3b1.pdf
3 - https://www.cdcfoundation.org/pr/2015/worker-illness-and-injury-costs-us-employers-225-billion-annually
4 - https://s2.q4cdn.com/997146844/files/doc_news/Fidelity-Research-Finds-The-Top-Two-Sources-Of-Stress-For-American-Workers-Are-Their-Job-And-Finances-2018.pdf
5 - https://files.consumerfinance.gov/f/documents/cfpb_credit-karma_report_2019-08.pdf
6 - https://www.enrich.org/financial-wellness-behavior-change-data-study
7 - https://www.fool.com/the-ascent/credit-cards/articles/how-many-americans-have-good-credit/