The financial stress put on employees during the pandemic took a toll on more than just their bank accounts — it impacted their physical and emotional well-being too. With 2022 around the corner, one expert is anticipating that the economic strain will only get worse in the coming months.
Sixty-three percent of employees say their financial stress has increased since the start of the pandemic, according to PwC data. A major source for many is student loan debt payments, which after a pandemic moratorium, will resume at the end of January.
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“The good thing about moratoriums is that you get some breathing room,” says Dan Macklin, CEO of financial benefits provider Salary Finance. “But as those things are taken away, generally human beings are not very good at budgeting and understanding what that might mean for them in two months’ time.”
Macklin recently connected with Employee Benefit News to discuss his thoughts on the financial stress employees are currently experiencing and why he thinks it will only get worse come February.
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Is the end of the student loan forbearance period the reason you expect employees’ financial stress to accelerate in February?
Yes. Forty-million Americans have student debt, and the vast majority of them have not been paying anything since April 2020. It was a great thing for most of those people who had that taken away for an extended period of time, especially if they'd lost their job. But as it comes back in February, these are monthly repayments in the hundreds, if not thousands of dollars in most cases. So it's an extremely large piece of those individuals’ budgets and it's just going to be a shock to many people. I honestly don't think most people even know that it's coming back or how to work out if they can afford it. Many millions of people are just in the dark.
What can employers do to help employees deal with the student loan burden?
Employers need to be aware that their employees want help and guidance on this. Many individuals who have student debt, don't really know how it works. They don't know what interest rates they're paying, and some don't even know who their debts are with because the student loan services change all the time. So employers have a huge role to play in helping their employees gain an understanding of their situation.
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That doesn't mean employers stick their nose in and dictate employees should be doing this and employees should be doing that. It just means helping employees cut through all the information that's out there and give them real, trusted, truthful, factual information about what their options are. Student loans are just one category, but it goes more broadly into other areas of finance. There definitely is an increasing appetite from employers to understand this and to help their employees in this way.
What other areas of financial security do employees want help managing?
Employers need to make sure people realize that borrowing money at ridiculously high interest rates is not a great thing. Most people do get that, so more importantly, it’s about giving employees a realistic alternative to prevent them from going to payday lenders that charge ridiculous amounts of money and then don't report to the credit agencies. So an employee can pay back their payday loan at ridiculous effective rates, but then when they need money next week or next month, their credit score is still as bad as it was previously, and they are left with those same few bad options.
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Employers are understanding that these options are not great for them as well as the employees — in terms of productivity and performance. Employers are understanding that if they can offer better alternatives that reduce those interest rates, that help improve credit scores and get people out of a financial mess, employees will welcome that assistance.
What are some of those better alternatives?
Encourage every employee to have a savings account and to put money in it, so at the very least every employee has $400 or $500 in savings. Instead of just sticking all the money every pay period into what is normally a checking account, give employees the option and lightly encourage them to put 90% of their pay into a checking account, and 10% into a separate savings account. Having that discipline to put your money in two different places has proven to be an amazing advantage, for example when their car breaks down, because they have the money to do it and they don’t have to go down that aisle of finding a loan.
Do you think employers have typically done a good job helping employees navigate their financial stress?
Historically, I don't believe that they've done a great job. In the past, the market standard was pay a salary, provide a 401(k) option and provide healthcare. For a number of years, perhaps decades, that was okay — but today’s employees need more than that and increasingly they are demanding more than that.
What do you think the biggest lesson relating to employees' financial stress was to come out of 2021?
People don't operate as individuals — they have families behind them. So even for an employer who was lucky enough not to lay anybody off or have furloughs, their people were still feeling financial stress because inevitably, a spouse, or a child, or a parent was going through something. The trends that we saw pre-pandemic — the increasing cost of senior care and child care — these things were always there and the pandemic added additional weights on people's shoulders. My main takeaway from 2021 is that people are so interconnected with their family members and oftentimes employers are quite blind to that.
