The $400 problem: Improving employee financial wellness

The COVID-19 pandemic put many existing societal challenges under a microscope, and perhaps one of the biggest facing employees around the globe is financial insecurity.

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“The ultimate financial goal for everyone is opportunity—when you can feel better than OK, you can plan for your future and you have hope for economic mobility,” said Melissa Gopnik, senior vice president at financial security nonprofit Commonwealth on Wednesday at the virtual Health & Benefits Leadership Conference.

A lack of mobility is often referred to as the “$400 problem,” where an individual doesn’t have enough saved to cover an emergency expense like a car failure or sudden healthcare problem.

While employers might be inclined to think this is only a problem for people who are unemployed, research says otherwise, Gopnik warned. “These are very likely to be people working for you.”

Related: Why employers are thinking more about financial wellness

And these financial challenges aren’t something employees leave at home when they go to work. Rather, financial insecurities impact the day-to-day productivity of employees, Gopnik said, pointing to recent Mercer research that found as much as 5% of payroll could be accounted as unproductive time.

We all know that employees who are financially insecure can’t be as productive, she said. When you’re worrying about putting food on the table or about the health of a loved one, you just can’t be as focused at work.

“Imagine if you could use employee benefits [to] reduce that lost productivity,” she said.

HR and benefits leaders are in a unique position right now to support these employees with little upfront cost to the company, Gopnik noted. She said “2020 was a year of disruption in so many aspects of our lives that, in some ways, we have limitless opportunities for what 2021 can bring.”

She pointed to a number of solutions employers can consider to help put employees in a more financially stable situation.

“Today, right now, people working for you are hurting,” she noted. “I think it’s important, where we can, to provide ‘pain killers’ to help them handle their problems today.”

Some practical solutions include programs like loans and access to earned wages, although both can come with their own problems. Loans, for example, may provide immediate financial relief, but many low-income families can’t access high-quality products and are usually subject to high-interest rates or payday loans.

Vermont-based Rhino Foods, however, partnered with its bank to offer employees high-quality, small-dollar loans, and the program was a huge success, Gopnik said. Employees loved it and it improved engagement and productivity; meanwhile, the bank was happy because employees were able to pay the loans back through payroll deductions.

Earned wage access has also been a source for many employees to meet their immediate financial needs.

“With the rise of gig platforms, that’s become a norm,” Gopnik said, “and some in HR say the two-week payroll cycle will go the way of the dodo.”

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But it’s a fairly new benefit and there just haven’t been that many independent studies around the impact of long-term financial security, she noted. For instance, through earned wage access, you could simply go from living paycheck to paycheck to paycheck to tomorrow.

An emergency savings program is another plan that employers can easily put into place to help employees get on track to financial security, she said.

Also see: Financial wellness programs during coronavirus

Gopnick shared three design fundamentals to keep in mind when planning an emergency savings benefit:

  • Find a place to save
  • Make the program easy and empowering
  • Keep employees engaged

Overall, one of the biggest hurdles to helping employees save is finding a good savings vehicle.

“This is an area often overlooked,” she noted. “Lower-income employees often don’t have a place to save; 40% of lower-income (employees) don’t have savings accounts with a financial institution.”

This underscores the need for the employer to find high-quality products, she said. “If you need $500 to open a savings account, it defeats the whole purpose of trying to save.”

The good news, she said, is most existing vendors can help you. For example, look to the financial institution you bank with and see if it can offer a low- to no-fee savings account to your employees. Payroll and retirement vendors are also another option.

And once you have a program in place, “you want it to be easy and empowering,” she said.

“Becoming financially secure requires both real financial things—like money—but also believing financial security is attainable,” she said.

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All sessions will be available through June 11. Click here to view this entire session.

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