At a time when employees have been dealing with high inflation and economic volatility for several years, many have been forced to rely on short-term financial fixes at the expense of long-term financial stability. This could mean siphoning money out of their savings, early 401(k) withdrawals, or even taking out payday loans. Payday loans are the most harmful of all these emergency measures, as they saddle borrowers with massive interest rates that can raise the risk of default or trap them in a debt cycle.
There’s no reason employees should be forced to mortgage their futures to handle unforeseen financial circumstances like home repairs or medical bills. HR teams should explore benefits that help employees navigate these circumstances without taking unnecessary financial risks. For example, PTO conversion plans allow employees to use the value of their well-deserved time off for other financial priorities, from retirement contributions to immediate cash withdrawals.
By giving employees greater flexibility and support, PTO conversion plans can help them through financial difficulties without onerous burdens like high-interest debt that can put them in a precarious financial position for years. Plenty of “service” providers, like payday lenders, are willing to exploit employees’ financial distress. HR teams should offer a counterweight to these forms of exploitation with benefits that help employees when needed and position them for future financial health.
Addressing an Urgent Need
Although the United States is one of the wealthiest countries in the world, just 44% of Americans say they could cover a $1,000 emergency with their savings. In August, the personal savings rate was 4.8%—significantly lower than before the COVID-19 pandemic. Americans have also amassed $1.14 trillion in credit card debt—a figure that is steadily rising while delinquency rates are above their historical average.
It’s no wonder that payday lenders are eager to exploit the financial struggles that millions of Americans face. For many of these Americans, the need to put food on the table or pay for a child’s medical bills far outweighs the risk of paying an exorbitant interest rate for an on-demand cash advance. While some states have laws to prevent predatory lending, many states—such as Texas, Utah, and Nevada—have few restrictions, and they allow payday lenders to charge more than 500% APR. In Idaho, lenders can charge 652 percent.
Every year, 12 million Americans take out payday loans and spend $9 billion on fees. On top of the immense annual cost of payday loan interest, many borrowers damage their credit when they can’t repay the loans. There will continue to be a significant market for these loans, as people will always confront unexpected expenses, and many won’t receive the support they need from employers. HR teams can improve this status quo by providing employees with another source of funds when needed.
Working Toward Long-Term Financial Security
When employees are forced to rely on last-resort financial measures like payday lending, they aren’t just putting themselves in financial peril but also compromising their other plans and goals. Employees who take out payday loans aren’t just burdening themselves with extremely high-interest debt—they’re failing to invest and save for the future. According to a recent survey, 53% of Americans feel behind on retirement planning and savings, while just 54% have a retirement account.
When millions can’t scrape $1,000 together in an emergency, it’s no wonder they aren’t saving enough for retirement. A key goal for HR teams should be ensuring the long-term financial stability of employees. Fifty-seven percent of employees say finances are the top cause of stress in their lives, and economic stress harms their well-being across a broad range of variables—from sleep to mental health. Financially stressed employees are also less engaged and energized at work, leading to cultural problems, lower productivity levels, and even turnover.
Financial stress can be all-consuming for employees, distracting them at work, damaging relationships with colleagues, and increasing (often already high) stress levels. When HR teams provide employees with flexible benefits that meet their urgent financial needs and help them plan for the future, they will mitigate these negative consequences. Over 60% of employees believe their companies have a responsibility to help them improve their financial wellness, and HR teams should show them that they’re receiving this message.
Turning Unused Benefits into Financial Wellness
PTO is one of the most common benefits but is also among the most underused. A remarkable 78% of employees don’t take advantage of all their time off—63% say this is due to the pressure to meet deadlines, while nearly half say they feel nervous when asking for vacation time. Because many states require companies to pay out the full value of unused PTO when an employee leaves, this status quo creates significant financial liabilities.
At a time when many employees desperately need financial assistance, it makes no sense for their primary benefit to be one that they don’t fully leverage. HR teams can use flexible benefits like convertible PTO to close this gap. Convertible PTO allows employees to allocate the value of their unused time off to other financial priorities: retirement contributions, student loan payments, health savings accounts, and a wide range of resources that will help them secure long-term financial stability. Unlike payday loans, credit cards, and other short-term financial “fixes,” these resources don’t incur interest or fees, increase employees’ debt burdens, put their credit at risk, or trap them in a stressful cycle of borrowing and repayment.
Convertible PTO isn’t just a way for employees to receive the full value of their vacation time; it also encourages them to adopt healthier financial habits. Considering the millions of employees in such a difficult financial position that they’re willing to take out payday loans with massive interest rates, it’s clear that HR teams should help them orient toward more responsible financial practices.
Rob Whalen is co-founder and CEO of BNFT.