Recessions Can Cause Financial Stress to Skyrocket – How Financial Wellness Can Help

In January, the state of the world economy looked stable and somewhat promising with a 3.3 percent predicted growth rate for 2020.¹

Economists were optimistic. They pointed to increased consumer spending, the resolution of Brexit and the new trade agreement between the U.S. and China.

As we all know, the world has changed substantially since then. Strong companies with focused, dedicated employees will be crucial to the economy bouncing back.

That’s why it is important to keep employees financially well by providing them with the needed tools and education to weather this economic landscape.

Recessions Cause Employee Stress

Although it is too soon to know exactly how this recession will affect your employees, we can look at what was learned after the 2008 recession.

In 2013, a poll showed and increase in stress indicators. 92 percent of employees felt their workplaces were more stressful than they had been before the recession.

Here’s why:

• Staff cutbacks
• Reduced training
• Reduced employee development initiatives
• Reduced career advancement
• Heavier workloads

Of course, beyond the job itself, employees dealt with increased financial stress as they worry about monthly bills, debt, investments, and savings. Unfortunately, stress causes problems for employees that come to the job.

Employee Financial Stress Indicators

In order to help employees become and stay financially well, employers first need to spot the stress indicators that show their employees are experiencing financial stress. Here are a few to consider:

Early Withdrawals from Retirement Accounts

As employees panic over the economy, lose income due to mandatory company shutdowns, and/or feel the reduction in pay due to lower bonuses and commissions, they may turn to the only real source of savings they have – their retirement savings.

However, these withdrawals come at a cost for both employers and employees:

• For employees, the costs come in the form of penalties, taxes, and reduced retirement funds. For those younger than 59½, retirement savings withdrawals may accrue a 10 percent penalty. Additionally, the amount withdrawn is treated as regular income and incurs income tax. Finally, according to a study by MassMutual², hardship withdrawals decrease savings by as much as 14 percent.
• Employers may also face a financial burden. First, plan leakage costs the employer through higher per-account fees. However, the biggest cost is that employees are more likely to work beyond normal retirement. A recent study shows that delaying retirement costs a company $50,000 per person per year.³

Less Satisfied with Their Current Employment

During a recession, employees are concerned with their level of pay and whether they will be able to meet monthly bills.

As such, they are far more likely to seek employment that feels more secure or offers better benefits, leaving the employer with the cost of finding a new employee. The National Association of Colleges and Employers found that it costs an average of $7,645 for every new hire.⁴

Increased Health Problems

When stressed, employees are far more likely to deal with poorer health from stomach problems to heart disease to mental health issues. They are more likely to catch the common cold because stress lowers the body’s immune response.

Unfortunately, financially stressed individuals are also more likely to delay seeing a doctor due to the cost, thus making illnesses even more costly and difficult to treat.

Increased health problems lead to higher costs for the employer, too, including higher health care costs, workplace accidents, and increased absenteeism. Absenteeism, alone, costs employers in the U.S. $226 billion a year.

Increased Distraction on the Job

Increased distraction, sometimes called presenteeism, keeps employees from doing their job at full capacity.

One survey found that over a third of employees were distracted at work due to finances and nearly half of those spent 3 or more hours weekly dealing with financial concerns while on the job.⁵

Presenteeism is even more costly to employers than absenteeism, with distracted employees costing US companies $1,5 billion each year.⁶

Help Mitigate Employee Stress

Although a recession is not something an employer can control, there are things employers can do to help reduce the stress of their employees.

For instance, staying in communication with your employees to let them know about new expectations and upcoming cutbacks will help employees feel more confident in what to expect for their financial future.

Of course, one of the best ways to help with financial stress is to deal directly with their financial issues. This can be accomplished by:

Maintaining Employee Benefits

Financial stress increases when employers decrease benefits. Although benefits have a cost, the costs from presenteeism, absenteeism, and burnout will be substantially higher.

Offer a Financial Wellness Program

Financially-stressed employees need education on financial topics.

During a recession, helping them learn how to get and/or stay financially well even during the hard times will decrease stress, leading to better outcomes for both employee and employer.

The Enrich platform has been shown to lower financial stress by 23% on average.

The program offers courses such as creating a financial plan, budgeting, investing, repaying student loans, and using credit cards responsibly as well as tools such as a money personality test, a retirement analyzer, and the ability to talk with live advisors.

Such courses and tools are essential for helping employees get and stay financially well, especially during a recession.

1 - https://www.imf.org/en/Publications/WEO/Issues/2020/01/20/weo-update-january2020

2 - https://www.massmutual.com/about-us/news-and-press-releases/press-releases/2017/12/21/14/30/massmutual-projects-the-impact-of-behaviors-that-delay-retirement-for-401k-savers

3 - https://www.prudential.com/wps/wcm/connect/0ff715c8-1962-408d-8085-f36b99090b97/Why_Employers_Should_Care_About_the_Cost_of_Delayed_Retirements.pdf

4 - https://www.naceweb.org/talent-acquisition/trends-and-predictions/cost-per-hire-varies-by-way-employers-calculate-budget/

5 - https://www.pwc.com/us/en/industries/private-company-services/library/financial-well-being-retirement-survey.html

6 - https://www.ehstoday.com/safety-leadership/article/21918281/presenteeism-costs-business-10-times-more-than-absenteeism