Employee Financial Wellness Programs: Promising New Benefit for Frontline Workers?

Introduction

Buoyed by alarming survey findings, recent headlines abound declaring the urgency of companies to address financial stress among employees, lest it hobble performance. Headlines include “What’s on your employees’ minds? Financial stress and workplace performance,” “Financial stress costs employers thousands per employee,” and “Money worries creating workplace stress.”

The narrative behind these headlines is that employees are distracted by issues like credit card debt, student loans, and financial emergencies and thus are less mentally present and productive at work. Survey findings offer support for this narrative. Nearly 60% of employees said they have financial stress, ¹ 67% said it was stressful to deal with their financial situation, and 49% said it is difficult to pay for household expenses on time each month. ² Over a third of employees say they are not financially well or confident, rates that are higher among younger employees and women.^3,4

Evidence also supports the claim that employers pay a cost as employee financial stress has been linked to absenteeism.^5-9 Recent survey estimates of the proportion of employees who say they are distracted at work due to financial stress range from a quarter to a third.^10,11 Over a fifth (21%) of employees say that their financial worries harm their work productivity; 49% of those distracted by their financial problems spend three or more hours at work dealing with these worries. ¹²

Nationally representative survey studies offer clues about why employees are financially stressed. Nearly a fifth of all households spent more than their income, almost half lack savings enough to cover three months of usual expenses, and over a third at least sometimes make only the minimum payment on credit cards. Among those with student debt, 42% had at least one late payment in the prior year. ¹³ A quarter of US households are “just getting by” or “finding it difficult to get by,” 29% either cannot pay all their monthly bills or would be unable to do so if faced with an unexpected US$400 expense. ¹⁴

Financial challenges are especially pronounced among low- and moderate-income (LMI) households. Most (77%) low-income households lacked emergency savings, 74% had difficulty covering expenses, 36% had trouble paying medical bills, and a third of those with full-time jobs did additional work for pay. Furthermore, over half of low-income households had at least one late student loan payment in the prior year and less than 20% had a retirement account. ¹⁵ Two-thirds of LMI tax filers experienced at least one financial shock such as a hospitalization or major car repair in the past year, ¹⁶ and 67% had experienced one or more episodes of trouble meeting basic needs. ¹⁷

In response to concerns about employee financial stress, ¹⁸ a market for financial wellness benefits has emerged. Financial services and technology (“fin tech”) firms urge companies to offer these “next generation” benefits with the promise that doing so will boost employee productivity and tenure. Yet little research exists concerning the use and effectiveness of financial wellness benefits, particularly in relation to whether these benefits reduce employee absenteeism, productivity, or other outcomes that might be important to employers. ¹⁹

The purpose of this study is to help business executives and human resource (HR) managers understand the prospective value of employee financial wellness programs (EFWPs) as a new type of benefit. We define and describe EFWP products and services, noting advantageous features, and review research evidence about EFWP prevalence, access, use, and outcomes. We also present findings on access, use, and benefits among a large sample (N = 16,650) of LMI employees who may be in most need of help from an EFWP. Lastly, we discuss these findings in relation to EFWP-related policy proposals and review other steps employers might consider.

We find that awareness among LMI employees of the four types of EFWPs we examined—financial coaching, online financial management tools, pay advances or short-term loans, and credit counseling—was low, ranging from 11 to 15%. However, close to a third of employees who were aware of these services used them. Employees in small companies (<100 employees) were more aware of EFWPs than employees in medium and large companies. Employee financial challenges were more predictive of EFWP awareness and use than financial habits. As a result of using an EFWP, almost half of employees said they felt better about being an employee yet less than a fifth said they reduced the amount of time they missed from work.

EFWPs: New Type of Benefit?

EFWPs include financial products and services offered by or through employers to promote financial well-being: control over ordinary finances, coping with financial emergencies, meeting financial goals, and having financial freedom of choice.^20,21 In addition to compensation and usual benefits (e.g., health insurance), EFWPs include financial coaching, financial counseling, student loan repayment assistance, small-dollar loans, digital personal finance apps and platforms, savings programs, and pay advances and emergency assistance. ²²

How EFWPs are offered and paid for varies. ²³ A small business might allow a nonprofit EFWP provider to offer its services for free to employees using grant support from foundations, or an employer may pay a per-employee subscription fee for financial counseling services or a digital financial wellness app. For pay advances and loans, the employer enables a financial technology (“fin tech”) provider to link their digital platform to the company’s payroll system. Employees then pay a service fee for advances or interest on loans. Lastly, employers themselves can offer an EFWP, such as a monthly student loan repayment benefit. Thus, the time, effort, and expenses required of employers varies by the particular financial product or service offered.

EFWPs are not an entirely new concept; companies have offered wellness benefits since the 1970s ²⁴ and may also offer workplace financial education and access to financial counseling via employee assistance programs. ²⁵ Yet, EFWP products and services help employees address a wider range of nonretirement financial needs, such as improving credit health.

EFWPs also leverage digital technology and payroll systems in new ways.^26-28 For example employer-sponsored small-dollar loans (ESSDLs) enable employees to make automatic, payroll-deducted loan installment payments which can be rolled over to savings deposits once the loan is paid in full. ²⁹ ESSDLs are accessed by employees through a third party digital platform and underwritten by a credit union ³⁰ and offer an important credit alternative to high-cost and risky payday and auto title loans. ³¹

Digital financial wellness apps give employees access to financial counselors (via chat or video conferencing) ³² and personal financial management tools, such as help with tracking bill due dates and help tracking spending based on real time bank account balances.^33,34 These digital tools might be helpful for employees who work 2nd or 3rd shift or who spend most of the workday in the field (e.g., home health workers) and cannot access in-person services at a worksite. However, no research has been conducted to compare the effectiveness of digital and in-person services offered to employees with respect to awareness, participation rates, and outcomes.

EFWP Availability and Use

Less than a quarter of employees indicate their employer provides a service to help them address personal finance issues. ³⁵ The availability of specific types of EFWP-related benefits vary from 8% of employers who offer student loan repayment assistance to 36% who offer nonretirement financial advising. ³⁶ However, the availability of certain benefits is growing. Student loan repayment help is seen as a promising retention strategy for younger workers and was expected to rise to 20% by 2018. ³⁷

Estimates of EFWP use vary considerably. Two survey studies found that just 19% ³⁸ and less than a third ³⁹ of employees participated in these programs while a similar study found a rate of 71%. ⁴⁰ Variable utilization rates are likely an artifact of differences in how these benefits are defined and survey sampling and measurement methods.

Interest in EFWPs among employees is high. Most (86%) employees said they would participate in a financial education program offered through the workplace. ⁴¹ Over two-thirds (71%) of employees would use a payroll-deducted nonretirement savings program if offered. ⁴² Among employees with student debt, 79% and 92% would use a student debt counselor and an employer match for loan repayments if offered, respectively. ⁴³

Our study of EFWPs in three organizations that provide home health and caregiving services offer insights concerning program implementation and use. From interviews with human resource managers, executives, and employees, three themes emerged. Promoting the program in person and integrating promotion in organizational procedures boosted employee awareness, while stable leadership and vocal support for the program among managers was associated with successful implementation. Also, take-up among employees was higher at two of the organizations where the EFWP seemed well aligned with organizational practices, such as offering employee ownership and job advancement opportunities. Conversely, at the other organization where take-up was low, managers questioned the work ethic and commitment of its caregiving staff. ⁴⁴

Do EFWPs Work?

Research on outcomes associated with EFWPs is limited. A set of studies that predate the recent surge of interest about employee financial wellness focused on workplace financial education. These studies found improvements in self-reported financial knowledge and/or behaviors among university, ⁴⁵ chemical plant, ⁴⁶ and publishing company ⁴⁷ employees. However, these studies did not use control or comparison groups to assess outcomes.

One study used a staggered rollout of the US Army’s personal financial management course to conduct a natural experiment. Positive impacts were found for credit and debt outcomes in the first, but not second year after the course was offered, and there were no impacts on credit scores. Positive impacts on retirement plan take-up and contributions were found for both years. ⁴⁸ However, numerous studies have found that financial education—whether offered in the workplace or elsewhere—is generally not effective in promoting improved financial well-being. ⁴⁹ A focus on improving employees’ financial literacy may deflect attention away from other factors that affect their financial well-being. ⁵⁰

Recent studies offer evidence concerning other EFWP products and services. Half of employees offered an online employer-sponsored savings program with incentives said they were saving regularly after six months. ⁵¹ In a study of LMI employees (N = 2849) who received financial counseling over a 12-month period, 59% experienced an increase in credit scores. Of those with a subprime (<660) credit score at baseline, 15% brought their scores up to prime range (660 or above). ⁵² In another study, 64% of LMI employees (N = 347) who received credit-building services over an 18-month period experienced an increase in their credit scores and 23% moved from subprime to prime scores. ⁵³ In both studies, counselors’ presence in the workplace was limited to an initial session. Subsequent counseling occurred via phone, email, and text.

ESSDLs have the potential to offer employees with damaged or no credit an alternative to expensive payday and auto title loans. Among employees in Vermont, the default rate was 5% and half of borrowers chose to rollover their loan payments to savings deposits once the loan was paid off. ⁵⁴ In another study of ESSDLs, loss rates were 2–3% and employers attributed participation to lowered defined contribution plan withdrawals. ⁵⁵ Over half (54%) of employees (N = 781) who used an ESSDL had previously used a high-cost payday, auto title, or pawnshop loan and 28% had taken a loan from a defined contribution plan. ⁵⁶

The above findings suggest that employees will use EFWPs if offered to address various financial needs, LMI employees can improve their credit health, and defined contribution plan “leakage” may be positively affected by offering credit alternatives such as ESSDLs.

Study Purpose

The purpose of this study is to fill gaps in knowledge about EFWPs among LMI workers—those who are most at risk for financial stress and can benefit from easier access to affordable financial products and services. We examine different employer and employee factors that may explain variation in awareness and use of EFWPs. Our research questions include

Findings from our study can help inform business executive and HR professionals’ efforts to consider new types of benefits—especially in companies that employ many frontline workers.

Methods

Results

Discussion

We used results from a survey of LMI tax filers to examine the availability, awareness, and use of EFWPs. Our most notable finding is that the availability of these programs as perceived by LMI workers is low. For the four products and services we examined, employer offerings ranged from 11% to 15%. These rates are somewhat lower than rates from a nationally representative survey of employers. For example credit counseling was available to 11% of LMI workers in our study compared to 18% of employers who offer this service based on a national survey. ⁶² Similarly, 15% and 17% of employers offer pay advances and emergency loans, respectively, ⁶³ compared to 12% in our study who offer either advances or loans.

However, it is important to note that EFWP availability in our study was measured by employees’ perception of whether their employer offered an EFWP. Also, because our sample is comprised of LMI employees, our findings are not representative of all employers; employers with higher than average wages are likely underrepresented in our sample. Thus, actual EFWP availability may be greater than we measured. Still, these findings suggest that despite the attention-grabbing headlines regarding employee financial stress, EFWPs are still far less common and available than other benefits such as health insurance and retirement plans.

Most LMI workers were aware of whether their employer offered one of the four products and services we studied, and except for credit counseling, about a third of workers used them. Regarding Research Question 1a, the industry in which LMI workers were employed did not help explain differences in awareness and use. For example at one large home health care agency in New York City, financial counseling utilization was extremely low, while at another large agency, utilization was high. ⁶⁴ At the agency with low utilization, instability at the senior management level that led to poor program promotion and lack of program integration with HR practices appeared to be an important factor. At the agency with high utilization, onsite promotion occurred regularly, and senior management championed the program vigorously.

Regarding our Research Question 1b, LMI employees’ financial habits were generally unrelated to their awareness and use of EFWPs. For example employees’ budgeting and saving habits did not influence their EFWP use. Thus, preexisting financial habits may not affect who is aware and/or selects into an EFWP. The one exception was that employees who are more concerned about debt reduction were more likely to be aware of and use EFWPs. This suggests that employer communication about EFWPs may resonate with employees who strive to manage their debt and that products and services considered by employers ought to include ways to manage debt. Otherwise, that habits generally do not predict awareness and use is a good thing as it seems employees who already have certain positive habits (e.g., budgeting and saving) may not be self-selecting into EFWPs.

Regarding Research Question 1c, difficult financial experiences were related to EFWP awareness and use. Experiences such as expensive car repairs and difficulty making ends meet were associated with workers’ use of EFWPs. More specifically, financial shocks predicted use of financial coaching while material hardship predicted use of pay advances and emergency loans. It is also interesting to note that employees without bank accounts were more aware of EFWPs than those with bank accounts. This finding may seem counterintuitive, as employees with bank accounts might be expected to be more in tune with their personal finance needs. Yet, it may be that because unbanked employees have less access to financial services, they are more likely to notice if their employer offers a service they need that banked employees do not need. Experiencing financial shocks was a strong predictor of EFWP awareness among unbanked, but not banked employees. The implication of these findings is that whatever type of EFWP an employer might consider offering, helping employees open bank accounts should be a goal. Owning a bank account makes it possible to use split deposit to save some of every paycheck and access other financial services such as credit cards and auto loans. Employers might consider forming a select employee group affiliation with a credit union to ensure that employees without bank accounts may gain access to them.

The findings discussed above suggest that EFWPs have the potential to perform as they are intended—to offer help for employees for their nonretirement financial challenges and needs. Employers should understand employees’ specific financial challenges to select products and services employees will likely use. For example pay advance and small-dollar loan programs are well suited for helping employees cope with financial shocks, while savings programs can help employees build emergency savings to cope with future shocks. Also, employees may be more receptive to EFWPs when they have recently encountered financial adversity. The implication for employers is that communication about EFWPs needs to be continuous. If employees only learn about an EFWP during onboarding or annual open enrollment for benefits, they may miss the chance to use a product or service when they really need it.

One practice employers can consider is to refer employees to an EFWP when they inquire about defined contribution plan hardship withdrawals or loans, which may be precipitated by having experienced a financial shock such as an expensive car repair. Employers might also counsel supervisors and managers who report performance issues to HR to provide information about EFWPs to these employees since some problems, such as poor attendance, may be associated with transportation difficulties caused by a lack of financial resources for car repairs.

Yet, it is also important for employers to encourage employees to be proactive, not reactive, such as how employers promote physical wellness via preventive health services, gym discounts, and other incentives for healthy behaviors. ⁶⁵ An important first step is to understand employees’ financial challenges and possible solutions. The National Fund for Workforce Solutions offers a free financial wellness guide to employers to navigate this process, ⁶⁶ which includes specific ways employers can assess financial needs among their employees and consider various solutions, including but not limited to EFWPs.

Should an employer select an EFWP, they might adopt similar messaging as physical wellness programs, such as “Get a financial check-up today!” Additionally, employers can encourage employees to take up EFWPs by promoting the benefits of program usage with messages like, “Improve your credit score and make your paycheck go further!” Just as employers promote physical wellness programs to help reduce costs, such as those associated with absenteeism due to illness, employers should expect to see a return on their investment in promotional efforts for EFWPs, which may have similar outcomes, particularly for the lowest-paid employees.

Of course, timely products and services to help employees respond to financial crises are also important. Pay advances and loans are particularly important for LMI workers who lack affordable credit options when facing financial trouble. For example 59% of employees who used a pay advance or loan and had a hardship said they owned a credit card compared to 79% of nonusers without a hardship. Conversely, 15% of pay advance and loan users with hardship said they had a payday or auto title loan compared to only 1% of nonusers without a hardship. Employers can offer pay advances and small-dollar loans at a dramatically lower cost to employees than high-cost credit like payday loans.

A community coalition of employers, financial institutions, and nonprofit organizations in New Orleans focused specifically on expanding LMI workers’ access to ESSDLs as an antidote to payday loans. ⁶⁷ ESSDLs can be offered at no more cost to employers than the time and effort to connect payroll to a digital platform that facilitates loan disbursements and payroll-deducted installment payments. ⁶⁸

Though we did not assess the effectiveness of EFWPs in this study, employees’ responses to the question concerning benefits they experienced from using an EFWP (Research Question 2) suggest caution concerning how offering an EFWP might address employee performance. Less than a third of employees said using an EFWP helped them concentrate at work and under a fifth said participation reduced time they miss from work due to financial worries. If employers are concerned about productivity, there are probably stronger and more direct ways to influence this outcome. Nonetheless, almost half said EFWP participation made them feel better about their employer, which may have an indirect and positive influence on productivity. Lastly, confidentiality and trust issues seem not to be a major barrier for employers to offer an EFWP (Research Question 3). Employees were far more likely to say a lack of need was the reason for nonuse. Nonetheless, confidentiality is a very important consideration with respect to employees’ personal finances. We found that LMI employees who were concerned about their employer learning about their financial situation had much greater financial challenges than unconcerned employees. This suggests that employers need to emphasize the confidentiality of EFWP services in their messaging so employees with the greatest financial needs will feel comfortable seeking help.

Conclusion

EFWPs are a new type of benefit employers can offer. These products and services have the potential to help LMI employees address financial challenges in ways that usual benefits like health insurance and retirement plans do not.

Still, we urge four points of caution to employers. First, EFWPs are a poor substitute for good wages, generous benefits, and good work conditions. Use of pay advances and emergency loans may reflect that employee pay is not enough to cover usual expenses such as housing, food, and transportation. ⁶⁹ If employers cannot afford to raise pay or offer more generous health benefits, they might look at indirect ways to promote workers’ financial security, such as by offering steady and predictable work hours, ⁷⁰ which have been shown to provide benefits to employers and employees.^71,72

A barrier to better wages, benefits, and working conditions may be the perception that such measures reflect only costs to the employer and do nothing to improve company performance. ⁷³ However, several studies have found that pay increases among lower-paid workers are associated with positive outcomes for employers such as greater employee satisfaction, tenure, and productivity (e.g., Dube, Naidu, and Reich, 2007; Levine, 1992; Mas, 2006; Reich, Hall, and Jacobs, 2005).^74-77 In general, there is strong evidence that financial incentives for employees strengthen company performance in various ways. ⁷⁸ However, how wage increases and other financial incentives are structured and understood may affect whether and how they affect productivity.^79,80

Second, little evidence exists concerning the effectiveness of EFWPs in achieving both employee and employer outcomes. ⁸¹ Employers risk wasting limited resources by offering programs that may not fit employees’ needs. Taking the time to understand the realities of their employees’ financial lives and identifying their most pressing needs may mitigate this risk. Additionally, employers can benefit from measuring outcomes when piloting EFWPs to determine if programs are delivering intended results.

Third, no industry standard for EFWPs exists and the field is quickly evolving. Employers are considering new benefits that may affect employee financial well-being in less obvious ways than a service like financial counseling or a loan program. For example some employers are considering matching contributions to college savings plans. ⁸² Given the paucity of evidence regarding EFWP outcomes, employers should scrutinize claims for products and services marketed as addressing employee financial wellness and consider a wide range of options.

Fourth, changes to public policy are needed to make it possible or easier for employers to offer certain EFWP products and services. For example ESSDLs lie at the intersection of still-evolving regulations concerning financial technologies and small-dollar loans. A bipartisan bill (HR 1043) aims to expand the current corporate tax exemption for employee tuition assistance to include student debt repayment. In response to a request from Abbott Labs, the Internal Revenue Service (IRS) issued a private letter ruling to allow Abbott Labs to offer 401k contributions to match employees’ student loan repayments. Yet, this ruling is limited in scope and does not apply to several circumstances ⁸³ prompting the introduction of bipartisan bills in Congress to address these coverage gaps. Employers should consider the degree to which existing laws and regulations make it both possible and feasible to offer a particular EFWP benefit.

This study has important limitations to note. First, while data were weighted to be nationally representative of lower-income households, we do not know if our results are representative of LMI workers specifically. Second, we do not know whether our results might be similar or different for higher-income employees. With respect to understanding the availability of EFWPs to employees of all pay ranges, we refer readers to nationally representative employer survey findings. ⁸⁴ Third, EFWPs are a new phenomenon and lack a standard nomenclature. Survey respondents may have not fully understood questions about these new types of benefits.