In the past year, the conditions for American workers—both hourly and salaried—have been increasingly challenging. For those who have been able to retain their jobs, their hours may have been reduced, temporarily or permanently, and of course those who have lost their jobs face a shrinking economy with many fewer opportunities than in the past. Essential workers include those in the food supply chain, delivery workers, grocery workers, and anyone directly or tangentially related to healthcare, including custodial and hospital support staff. These workers have been asked to do more in increasingly dangerous conditions, all while managing the same threats we all face during the pandemic.
While the numbers for the physical health ramifications of COVID-19 are everywhere—we all see the weekly and aggregate death tolls—other stresses of mental, behavioral, and financial health have been less apparent, but incredibly costly. The economic fallout from the pandemic has affected countless workers, many of whom lack the savings or credit scores to viably find their way out of financial hardship.
In part one of this blog series, we discussed how this poor financial health can manifest itself physically, which can lead to health problems ranging from increased stress and lack of sleep, to mental health issues like anxiety, to strains on personal relationships. We also discussed how these financial stressors can impact employers; a financially struggling workforce can cause employee churn, poor productivity, interoffice conflicts and more. In short, a financially healthy workforce is a happy and productive workforce, and it is incumbent on the employer to do all they can to help employees build back financial health to create an environment for workers to thrive.
What Options Exist for Employees Struggling With Financial Health Issues?
For employees struggling with financial health issues including a lack of savings, low credit scores, or no safety net cash on hand for emergencies, the options available are either extremely difficult, or predatory.
The extremely difficult option involves slowly building back healthy credit over time. Having a long-term credit history that shows consistent on-time payments across multiple channels (credit cards, utility bills, student and auto loans, etc.) is essential to financial health. In a world where credit scores are used in employment considerations, apartment leases, home and auto loans and more, poor credit history can be a major impediment to living a comfortable life. Unfortunately it’s a vicious cycle: having a bad credit history can bar those who are looking to build their credit back from accessing the services they need to do so. So many of our essential workers lack a strong credit history and are simply left out of mainstream financial products and services.
Which leads us to predatory loans, which most often manifest as payday loans. Workers without a safety net that need money in a hurry may turn to payday loans in order to get an advance on a paycheck. This immediate cash in hand, however, comes with an immense number of strings attached. For example, according to one Pew Research study, the average person who takes out payday loans takes out eight loans of $375 per year, and pays an interest of $520 on those loans. This vicious cycle does nothing for long-term financial health, and instead preys upon those who need assistance in a hurry at the expense of building back healthy credit.
What makes sense instead of a payday loan? Access to loans that are repaid in small installments over time, so that a person can actually get out of the payday debt trap. Another lifeline would include reporting these payments to credit bureaus, helping borrowers build credit as they pay off the amount they needed to make ends meet.
How Can Employers Encourage Financial Health for Their Workers?
One of the major issues with payday loans is that the companies that offer them have no investment in their borrower’s financial future. It’s quite the opposite; the more their borrowers are struggling, the better these predatory companies fare. For employers, however, it’s an incentive to promote financial health for employees. By creating a more financially stable employee, employers can create a happier and more productive workforce and help build a stronger company culture by proving to employees that they’re invested in both their short and long-term success. Most employers already provide access to retirement savings accounts and insurance policies that help employees in catastrophic situations that may occur in the future. What about short-term help with current challenges that we face on a daily basis?
One way in which employers can promote financial health is through low-interest loan programs offered as a benefit to employees. Under these benefit programs, workers can take out what would be the equivalent of a payday loan directly from the benefit provider, and pay the loan back with money directly tied to their paychecks. Because these loans are tied to payment cycles, there’s little risk of missing a payment. And, because these loans are directly reported to credit ratings bureaus, workers can build credit scores in a safe, structured way.
Employers can also offer programs that provide both financial education to employees as well as affordable loans. The only way to beat the cycle of living paycheck to paycheck, which is the reality for 78 percent of our population, is to provide the tools to move beyond their current situation. Larger loans that are repaid in small installments over reasonable time periods can provide transformational capital to those who really need it.
Financial health is an issue many workers grapple with every day, with ramifications that have been made even more stark during the COVID-19 pandemic. Employers can throw their employees a valuable liferaft in these trying times by offering safe loans that not only provide a short-term cash infusion, but strive to build back a worker’s financial health in the long run. A financially healthy workforce is a happy one.