Over the past several years, employees have faced a level of economic volatility that some haven’t seen for decades and many have never experienced in their working lives. First, there was the massive job displacement and economic chaos caused by the COVID-19 pandemic. Then came surging inflation, which triggered a stock market plunge and a corresponding collapse in the value of 401(k)s and other retirement accounts. Now companies and employees are bracing for a sustained economic contraction.
In an era of relentless economic turbulence, employees are increasingly anxious about their finances. This is a significant driver of the high quit rate that has put HR teams in talent-retention mode over the past year, and it will continue to cause turnover in 2023.
However, this period will also create opportunities for HR teams that recognize the importance of providing more robust financial support and guidance to their workforces. This could take the form of budgeting and retirement advice, flexible benefits, and many other initiatives designed to improve employees’ financial knowledge and wellness.
Companies are better off when their employees are in a strong financial position, as this will lead to a healthier workplace culture, improve talent retention, and facilitate engagement. The last thing companies want is for employees to be distracted by their personal financial woes, which is why HR teams need to focus on providing the financial support their workforces need.
Employees Face Daunting Financial Challenges
As inflation stabilizes and the labor market remains strong, these positive headlines are masking the dangerous financial position many employees find themselves in today.
For example, the personal savings rate hit its lowest level in over a decade in September 2022, but it has since risen as consumers become more wary about spending after rapidly cutting through the savings they amassed during the COVID-19 pandemic. The Fed interest rate will remain high for the foreseeable future, making it more difficult for employees to afford a home and causing a painful correction in the real estate market. Companies and employees are also preparing for a likely recession this year.
Meanwhile, household debt hit $16.51 trillion in the third quarter of 2022, while the 15% year-over-year increase in credit card debt was the largest spike in over 20 years. Employees are taking other drastic measures to firm up their short-term financial positions. According to Vanguard, the proportion of employees taking hardship withdrawals from their 401(k) plans hit an all-time high in 2022. This means employees are subjecting themselves to penalties and sacrificing future stock market gains for immediate liquidity.
Although there’s been some good economic news lately, it’s crucial for HR teams to recognize employees are still under immense financial pressure.
Employees Are Asking for Financial Guidance and Support
At a time when many working Americans are in a precarious financial position—and 2023 will likely be characterized by significant economic volatility—it’s no surprise that employees are asking for assistance. A 2022 survey found that 55% of employees worry about their finances every day, while 60% feel behind on retirement goals. Almost three-quarters of employees would like their employers to offer more resources to help them manage their finances, but just 25% say they have access to financial wellness benefits.
This huge discrepancy is bound to cause tension between employees and their companies—perhaps even turnover. A recent survey from TalentLMS found that just 5% of employees say they’ve met their financial goals, while 78% want their companies to provide support amid high inflation, a major culprit employees blame for their struggle to achieve financial stability. Employees are asking for financial guidance, and they’re particularly interested in retirement planning, covering emergency expenses, paying for student loans, and managing healthcare costs.
HR teams are responsible for reminding employees they’re valued partners and their success is the company’s success. During a period of economic anxiety, the best way to do this is to prioritize employees’ financial well-being with practical guidance and tangible forms of support, such as investment programs and flexible benefits.
A Concrete Commitment to Employees’ Financial Wellness
While employees are asking for financial guidance from their companies on issues such as retirement planning, preparing for emergencies, and buying a home, they’re also interested in concrete forms of assistance like flexible benefits, health savings accounts, reimbursements for child care, life insurance plans, larger 401(k) matches, and much more. These programs will show employees their company is prepared to invest in its human capital, which will make them more likely to stick around, especially when economic conditions deteriorate.
When considering ways to improve the financial health of their workforces, HR teams must remember that each employee has a unique set of challenges and goals. Flexible benefits can help employees address their individual financial needs; for example, convertible paid time off (PTO) provides the option to repurpose the value of unused vacation days for other priorities such as student loan payments or retirement contributions. HR teams can also create personalized financial coaching and wellness plans. Companywide programs and group financial literacy seminars are helpful, but employees will benefit the most from consultations with financial experts who understand their individual concerns.
It’s never been more important for employees to know companies are committed to their financial well-being. Not only are employees confronting powerful economic headwinds, but they’re also demanding flexibility from their companies and the ability to freely pursue their own financial aspirations. By ensuring the financial health of their employees, HR teams will not only put them in a stronger position to navigate 2023 but also give them a reason to stay with the company long term.
Rob Whalen is co-founder and CEO of PTO Exchange.