In an old episode of Roseanne, Dan and Roseanne Conner are both out of work and virtually out of money. They are so low, in fact, that they are "unable" to pay their utility bill, and their power is shut off. Interestingly, though, during the same episode, their phone rings. (They have enough money to pay their phone bill.) At another point, Dan goes to the frig for a beer. (They have enough money to keep him stocked in alcohol.)
The show highlights a common problem among today's workforce - money struggles. More to the point, it shines a light on the lack of education among many members of the general public related to setting financial priorities.
However, the problem is not just limited to blue collar workers and other low wage earners. "An employee who made $60,000 a year as head of management information systems for a large organization came to me one day with three pages of numbers on a legal pad," recalls Bill Pomeroy, CFP, president of the Baton Rouge, LA-based EDSA Group, a financial education training organization. "He had taken out a loan on his 401(k), taken out a home equity loan, maxed out his credit cards, and had a $2,000 signature loan at the bank." Now, he needed another $1,800 to fix his vehicle's air conditioning system. "He then told me he had spent the last three days at work putting all these numbers together," continues Pomeroy. "I thought to myself, wouldn't his employer like to know how he's been spending his time at work? He was more concerned about his finances than he was about his job."
A survey conducted by the Los Angeles Times found that 27% of those responding admitted that their personal finances were shaky. Forty percent reported difficulty paying installment loans, car payments, and insurance premiums. (One wonders about the perceptions of the 13% who reported difficulty making these payments, yet did not admit to having shaky personal finances.) The survey further found that 57% of households with incomes below $20,000 had debt problems.
Employees, in a word, are struggling. "In focus groups we have conducted, employees report the two major stressor in their lives relate to time management and money management," states Karen Olson, director of marketing for Xylo Inc. (Bellevue, WA), which provides Web-based workplace programs to help employees manage time and money.
Lois Vitt, founding director of the Institute for Socio- Financial Studies (Middleburg, VA) adds another insight: "It's hard to say exactly what percentage of people experience financial struggles on a regular basis, but almost everyone has financial problems at one time or another."
Employees finding it difficult to make ends meet, either temporarily or on a regular basis, may find themselves borrowing on credit cards; maxing out their credit cards; failing to make loan installment payments, utility bills payments, credit card payments, and rent payments; bouncing checks; and/or seeking to draw pay advances to cover living expenses.
While these kinds of problems have been increasing in recent years in society in general, they are now making inroads into the workplace, in that more and more employees with financial problems are entering the workforce. "When unemployment rates were higher, employers tended to be careful when screening applicants, including credit checks," explains Jonathan Hefner, financial team manager for Ceridian LifeWorks (Eagan, MN), an EAP that featuresa specialty in financial counseling services. "They would often reject applicants who had poor credit histories. In recent years, though, with low unemployment, more employers have been hiring people with credit problems."
Implications for the Workplace
E. Thomas Garman, a former university professor and now distinguished scholar at InCharge Institute of America (Orlando, FL), a non-profit family of financial wellness companies, is a pioneer in the field of consumer finance problems, having begun his research 30 years ago. "About two-thirds of people with financial problems don't allow those problems to negatively affect their work," states Garman. In fact, such problems may cause many of these people to work even harder, put in overtime, etc., in order to try extricate themselves from their financial difficulties. "However, many of the one-third that do bring their problems to work can wreak real havoc." Garman's research has found that such problems can lead to reduced productivity, reduced physical health, increased absenteeism, and even increased accidents.
A survey conducted by the Consumer Credit Counseling Service (CCCS), a national non-profit organization, found that employees experiencing financial stress wasted 13% of their employers' time dealing with money matters on the job. "The Navy found that financial problems were the Number One cause in having a negative impact on deployment readiness," adds Vitt.
And, although there is no research to prove it, it stands to reason that at least part of the cause of employee theft at work relates to financial struggles.
Causes of Financial Struggles
Why do employees get into financial difficulties? While there are dozens of reasons, most fall into six categories:
1 - Life Emergencies. A large percentage of employees with financial struggles have, for the most part, done well enough over the years with their finances, but may experience a short-term problem that places strain on their ability to meet their financial obligations. Examples include large medical bills that are not covered by insurance, the loss of employment by a spouse, lawsuits filed against them, and, the "biggie" - divorce. "About 50% of the reason employees have money problems relates to divorce," reports Pomeroy. "One employer asked us to talk with all of their employees who were not participating in the 401(k) plan to find out why. All of them explained that they were struggling with debt. Half of these people explained that the reason for the debt was divorce."
2 - Lack of Education. As regards chronic money problems, most experts suggest that lack of financial education is a common cause. "People have not been taught how to manage their money appropriately," explains Irene Leech, Ph.D., associate professor at Virginia Polytechnic Institute and State University (Blacksburg), who specializes in consumer education.
3 - Attraction to Credit. "Adding to the problem is that fact that we have shifted from a nation of savers to a nation of debtors," states Leech. "Instead of setting aside extra money for savings, we are buying more and more on credit, so we end up with debt instead of savings. Years ago, credit was something you used in an emergency. Today, for millions of people, it is a habit."
The flood of solitications for credit cards received by millions of consumers each year also contributes to the problem. "Most people who 'shop and charge' do so because they really don't think through the consequences or plan properly. Then, they end up with more debt than they can handle," notes Vitt.
"I am amazed at the number of people using credit, and especially at a younger age," states Debby Vinyard, CFP, owner of Vinyard Financial Planning (Marion, IL). "My husband and I recently went on our first cruise after 20+ years of marriage. I was amazed at the number of college students on the cruise, most of whom had undoubtedly paid for it with credit cards."
The "2001 Parents, Youth and Money Survey," sponsored by the American Education Savings Council and the Employee Benefit Research Institute, found that only 38% of respondents pay off their credit cards completely each billing cycle. Fifty-five percent leave a balance due, with many only making the minimum payment required.
4 - Spending Mentality. A fourth cause of debt relates to the "consumer mentality," which leads many people to begin thinking of certain luxuries as necessities. The problem arises when their expenses exceed their incomes, but they cannot bear to give up certain luxuries or services that they feel are essential - cell phones, cable TV, satellite TV, Internet service, restaurants, video rentals, etc.
"For a lot of people, each time they get a new job or a promotion, instead of saving or investing the extra income, they spend more," observes Vinyard. "In addition, a lot of people tend to want to 'keep up with Joneses.'"
Almost 20% of respondents to the "2001 Parents, Youth and Money Survey" admitted that they have nothing or virtually nothing in any kind of retirement account, and very little if anything in a savings account.
5 - Lack of Motivation. Many people are simply lazy - lacking the motivation to spend the time required to create a budget, and lacking the self-discipline to stick with it.
For example, almost 20% of respondents to the "2001 Parents, Youth and Money Survey" admitted that they rarely or never created budgets for themselves, and many more who did admitted they did not stick with them.
6 - Spending Addiction. The final cause, and one that is often overlooked, relates to spending addictions. The financial problems associated with people who are addicted to alcohol or gambling are well-known. However, experts are now beginning to pay attention to a new kind of addict - the "shopping addict." This is a person who may or may not have sufficient financial education to know how to manage money, but finds himself or herself compelled to spend money. These people know deep inside that the purchases they are making will lead to financial difficulties, but they feel unable to control themselves.
"We worked with a single woman in her twenties who was earning $40,000 a year," reports Kristine Brennan, executive director of Continuum Employee Assistance (Lincoln, NE), whose agency counsels numerous employees with financial problems. "She was addicted to shopping and spending, particularly clothing. It was an immediate gratification for her. She knew that she needed to cut back on her spending, but she wasn't able to do it on her own."
"When we work with a client having financial problems, we begin with the premise that the problems are the result of emotional struggles," notes Ceridian LifeWorks' Hefner. "We find that, in many cases, the problems are linked to experiences and beliefs from the past. People come out of their families with beliefs about what money is or should be, then live out these beliefs, either consciously or subconsciously, as they become adults. These beliefs ultimately dictate whether they will be successful or not in their personal finances."
Perspective
Many employees would argue that the reason they experience financial problems is due to the fact that they don't earn enough. If employers were to ask them, "How can we best help you with your financial struggles?" the employees would likely answer, "Pay me more money!" Yet, with very few exceptions, the problem is not lack of income. It is the lack of properly managing the money they do earny. "I have been in business 15 years and seen many different people come through the door," states Vinyard. "One thing I have learned: It's not how much you earn; it's how much you keep."
She cites an example: "One of my very first clients was an 85- year-old man who had no inheritance, but had saved his money as a schoolteacher." (This would have been from the 1920s through the early 1960s, when teacher salaries were barely living wages.) "When he died a few years ago, he had over $800,000 in securities and cash," she reports. Conversely, Vinyard has seen professionals with six-figure incomes who say they need help making ends meet, because they are living paycheck to paycheck. "If you spent a day sitting in a bankruptcy court, you will be amazed at the number of supposedly successful, average-looking people who are there to file," she adds.
Addressing the Problems
What is the best way to help employees who are struggling with financial problems? There is no single "best way." Success comes from a comprehensive program that offers a number of options. Most of these fall into three categories:
1 - Financial Education. The most common, most popular, and possibly the most effective approach in terms of having a positive effect on the largest number of employees is to schedule seminars on basic financial education. "A lot of employers provide retirement education seminars, which are good, and which are important, but they are insufficient," suggests Garman. "You need to provide financial education to employees of all ages and on topics other than just retirement finances."
A SURVEY recently conducted by Xylo, Inc., "Financial Planning Resources in the Workplace," uncovered some interesting information. (See table below.)
| Services Offered | Services Wanted By Employees | Service Offered By Employers |
|---|---|---|
| Retirement Planning | 60% | 66% |
| Insurance Advice | 45% | 50% |
| Investment Advice | 43% | 42% |
| Tax Planning | 35% | 20% |
| Budgeting/Personal Finance | 35% | 18% |
| Debt Management | 30% | 18% |
In sum, advanced financial services (the top three) tend to be well-served by employers, while more basic services (especially the bottom two) are not as well-served as employees would like. The message: Employees are wanting information in these more basic areas. "I think these are underserved because the demand for these basic services has been more recent," explains Olson. "It takes employers time to catch up with the demand."
In scheduling financial education seminars, it is important to keep a few things in mind. First, it can be difficult to attract employees. The EDSA Group, for example, offers four types of financial seminars: one on retirement, one on investments, one on 401(k) plans, and one on basic money management. This fourth seminar is aimed at employees living paycheck to paycheck and covers things like budgeting, debt consolidation, etc. "This is the most difficult seminar to fill," admits Pomeroy. "It is very hard to get people to attend, because they are worried that their coworkers will find out they're having money problems."
Such seminars may be better off held off-site, so the only employees who know who is attending are other employees "in the same boat."
"People who have never had financial education frequently get into problems," explains Todd Taskey, CFP, president of Solutions Planning Group, Inc. (Bethesda, MD). "The problems become more serious over time, because, by mid-life, people feel dumb for not knowing this basic information. They are afraid to ask questions."
Response to Xylo's services tend to bear this out. "We offer financial information and tools on-line so employees can maintain their privacy," she states. "We also offer 'lunch and learn' seminars, which allow employees to ask questions directly to experts. We find that it tends to be the younger employees who show up to these and are not embarrassed about asking questions."
In addition, arrange for the program to be offered more than once. Often, employees who are having basic money management problems can't grasp a lot of new information all at once, and refresher courses may be needed. It is especially not a good idea to offer the program at the time new employees are hired, because they will already be overwhelmed with new information.
If your budget allows, follow up each seminar with the opportunity for participants to meet one-on-one with the financial planners or financial counselors who conduct the seminar. Research conducted by Garman found that the benefits of a single seminar, in and of itself, are usually minimal. "Once participants sit down one-on-one with financial planners, though, you really begin to see results," he states.
2 - Credit Counseling. Most communities have at least one resource that provides consumer credit counseling. The most well- known and popular are the offices of the Consumer Credit Counseling Service (CCCS), a national non-profit organization funded in large part by contributions from creditors, such as credit card companies. The agencies provide credit counseling to members of the public, helping them to consolidate debt, work with creditors to spread out payments, etc.
A survey conducted at Virginia Tech found that 73% of employees who received help from non-profit credit counseling services were able to make improvements in their personal finances, such as reducing debt, cutting living expenses, sticking to budgets, etc. While 88% had been dissatisfied with their financial situations prior to receiving counseling, only 59% were still dissatisfied after one year.
It is important to note, though, that such credit counseling services are only useful in helping employees better manage unsecured debt. "They won't help with mortgages, car loans, or other secured debt," notes Pomeroy.
3 - EAPS. Employers should also encourage employees struggling with financial problems to contact their EAP for assistance when appropriate. While some EAPs have in-house expertise in financial counseling, others do not. They may refer employees to community financial counseling services.
One EAP that "does it all" is Continuum Employee Assistance. "A lot of EAPs arrange for outside referrals for finance problems, but we find the problem to be so common that we have developed the expertise in-house," states Brennan. "However, if someone needs some really intense help, such as weekly meetings to manage finances or legal help for dealing with credits, we will provide referrals for this."
She cites a recent case where Continuum was able to provide assistance. "A woman and her husband came in. The husband had lost his job due to a downsizing, and his new job was paying quite a bit less. They had debt that they had never had before. House payments were past due, and they had a lot of credit card debt." Continuum helped them find ways to consolidate their bills, helped them make lifestyle adjustments to reduce expenses, and referred them to an attorney to consider options other than bankruptcy.
Continuum also provides individualized counseling for people with addictions that lead to financial problems. "For the single woman earning $40,000 a year, we provided some counseling to help her find other more healthy ways to get her emotional needs met," reports Brennan.
Following counseling sessions, Continuum also offers an accountability program, similar to the Weight Watchers concept, which arranges for employees to check in once a month on how they're doing and receive extra help if they continue to struggle.
"When we talk with clients having financial problems, we first try to identify basic beliefs," states Hefner. "Last month, for example, a man called and said he was having problems making his credit card and mortgage payments. He had been receiving calls from creditors threatening garnishment, foreclosure, and legal action." In talking with the man, Hefner found that his father had been an alcoholic who was not home very much. "Mom was the caretaker, took care of the finances, and covered for dad," he explains. "It turned out the client came out of that family situation believing that men don't know how to manage money - that they can't be trusted to provide for their families." Hefner arranged for the man to work with a mental health counselor to deal with the family issues. "I then began to coach him on how to reverse this financial belief in his own life. I provided him with information on how to start a budget and, in small steps, move his financial situation to a more solid footing." After addressing the immediate issues, Hefner then began to help the man develop some long-term financial stability strategies. "If you don't help people with the long-term issues, they'll just end up back where they started," he explains.
Pay Advances: Should employers get in the habit of loaning money to employees, such as pay advances, to help "tide them over" for periods of time? It's probably not a good idea. "All that does is 'feed the habit,'" explains Vinyard. "Eventually, they will just continue to get further in debt."
Results
According to Garman, most organizations that invest in programs and services to help employees who are struggling with finances are able to reap a three-to-one return for every dollar they invest. "It comes back to you in improved productivity and reduced absenteeism," he explains. "In one study, we found a group of employees spending an average of 27 hours a month dealing with money matters on the job - calling creditors, faxing things in and out, taking long lunches to take care of their personal business, and so on. One year later, after providing assistance to this group, the amount of time had dropped to 13 hours a month."
There were a number of signs that some employees (called "associates") at Home Depot (Atlanta, GA) were struggling with finances. "We found that only about 50% of our associates were participating in our direct deposit program," reports Layne Thome, director of associate services. "We also found that a large number of associates were cashing their checks at check cashing services and paying enormous fees, because they did not have their own checking accounts." A third indicator was a large number of associates taking loans against their 401(k) plans, as well as taking early withdrawal from their stock purchase plans. "Associates were selling their stock as soon as they purchased it at the end of the year," she adds.
Home Depot elected to launch a basic financial education program for its workforce. "We wanted to provide them with information that they could apply immediately and that could make differences in their lives," states Thome. The company partnered with the Fannie Mae Foundation and the Consumer Credit Counseling Service (CCCS) to develop the curriculum. "We have been developing the program for the last year and a half and plan to roll it out this summer," she reports.
The program will consist of four workbooks, each with a video component. Modules cover: developing a savings plan, understanding credit and your credit report, working with checking and savings accounts, and getting a loan. "Associates will be able to take the workbooks home, and use them privately with their families, and progress at their own pace," continues Thome.
As the workbooks were being developed, Home Depot ran some focus groups with associates to make sure they were written at the right level and that the information was clear. "Feedback to date has been overwhelmingly positive," she notes.
One challenge the company has found is that many associates believe making changes to live within their means will be too difficult. "We want them to understand that by doing small things, such as not eating out lunch every day and not buying sodas every day, they can realize large savings over time," states Thome.
One way the company has found to personalize messages like these has been to feature testimonials in the videos. "People who have participated in the CCCS program and who have made changes in their lives by creating budgets and getting out of debt discuss their experiences on the videos," she explains. "We hope our associates will identify with these people."
Home Depot is also dedicating an 800 number that associates can call to discuss financial questions with CCCS representatives.
As the program progresses, the company plans to add two more modules: retirement planning and home buying.
"Our goal is to reach at least 25% of our associates with our program," she concludes.