Financial Stress: The Quiet Culture Killer

Contributors: M. Tordecilla, R. Salazar/ SAVii Data; SAVii Marketing Team

Summary: Employees' financial stress has a significant impact on their employers. We outline current research on these impacts and present our recent survey on financial stress. Our analysis shows the lack of liquidity as a main driver of financial stress. Counterintuitively, we also find a savings surplus from salary-derived income of financially stressed individuals. We present several strategies to build a nest egg to address the lack of liquidity and reduce financial stress.

Financial stress is often an unrecognized factor in workplace. While its effect on mental health is well established [1], its impact on productivity and employee loyalty is rarely discussed. A growing amount of research shows that addressing employee’s financial stress is a key lever to performance.

Is your company leaving money on the table by not addressing it?

19.5 days a year per full time employee

In personal finance, financial stress is when a person is stressed about financial concerns. It is one of the most common and persistent forms of stress in the world.

While financial stress can be pigeon-holed as a personal concern about a limited number of individuals, current research shows otherwise. According to PwC’s Annual Financial Wellness Surveys [2],

• One in five employees admits that productivity at work has been impacted by financial worries. In fact, 49% of employees who are distracted by their finances at work say they spend three or more working hours each week thinking about or dealing with issues related to their personal finances.
• Over the course of a year, a full-time employee may spend more than 156 hours (or 19.5 days) distracted from work because of personal money matters.
• Finances are the number-one source of stress, more so than work, health and even family issues.

The National Payroll Institute in Canada estimates that employee financial stress costs Canadian companies $40 billion in 2022, up from $26.9 billion the prior year. Their annual survey says almost three-quarters of workers are devoting part of their workdays to thinking about or handling money problems, with 46 per cent of stressed staffers saying it’s taken a toll on their work. [3]

Kantar Financial in 2020 found that employees burdened by money matters are?nine times?more likely to have troubled relationships with coworkers. They are also?twice as likely?to be searching for a new job. [4]

On the other end, financial wellness is a key draw for employees. A YouGov survey in March 2023 found that two-thirds (66 per cent)?of all employees and 73 per cent of workers aged 18 to 24 said they’re more likely to apply for a job if the employer can support their financial well-being. [5] Greystone Consulting, an affiliate of Morgan Stanley, stated the same: that 60% of employees are more likely to stay with an employer that offers a program designed to help them manage their money. [6]

Millennials, Breadwinners, and Low Earners are most vulnerable

SAVii Marketing and Communications’?Customer Insights Survey 2022 [7] gives a more granular picture of the current financial situation of its covered users. Based on their financial stress scores (5 being the highest, 1 the lowest),?34%?of survey respondents self-reported that they suffer from financial stress.

PwC 2022 Financial Wellness Survey corroborates SAVii results that one-third (34%) of employees overall say that they have financial stress, and it has a severe negative impact on their mental health.[8]

In terms of age brackets, our survey found that respondents?aged 18 to 39?are the most financially stressed of any age cohort. This is in line with Deloitte Global’s 2022 Gen Z and Millennial Survey which established that?56%?of millennial employees in the Philippines experience financial stress.[9]

Our data also suggests that financial stress increases?exponentially?with the number of dependents. A person with 1 dependent is 1.1 times more likely to report being stressed as someone with no dependents. That likelihood grows to 1.5 times and 1.8 times more likely with 2 dependents and 3 dependents, respectively.

As expected, financial stress is more prevalent among lower income earners. Data shows that employees with a monthly net income of?Php 20,000 or below?are more likely to be financially stressed. According to the 2018 Consumer Finance Survey conducted by the Bangko Sentral ng Pilipinas, households with a monthly income of this range have the highest percentage of individuals (88%) who have difficulty meeting their basic needs.[10] Interestingly, the effect has a ceiling, with the likelihood of being stressed not materially reducing once a monthly net income of?Php 30,000?is met.

Savings not a focus

Our research also found several interesting insights about savings behavior.

Compared to the average, a financially stressed person is?1.3 times?more likely to have at most Php 10,000 in savings, and?1.7 times?more likely to have no savings at all. While this does not prove causality, there is a distinct link between having a nest egg and financial stress.

Counterintuitively, while?88%?of financially stressed users report having?less than Php 10,000?in savings,?35%?of this financially stressed sub-set also report they save?5% or more?of their salaries. At that rate, we calculate that the average user should be able to build Php 10,000 of savings in no more than?1.7?years. This is much less than the average number of working years of a typical respondent.

This inability to build up a nest egg is interesting but there are several scenarios to explain why this is the case:

1. The person does not view savings as a goal. They spend as they wish regardless of their savings rate.
2. The person recognizes that having savings is important, but does not know where their current savings are spent. They save what is not already spent.
3. The person recognizes that having savings is important, knows where their savings are spent, controls their spending, but their nest egg buffer is insufficient. Their nest egg gets continuously extinguished because of unexpected and unavoidable expenses.

Multi-factorial; multi-solution

Unfortunately, there is no single solution to solve financial stress and prevent its negative impacts on individuals and the companies they work for.

For a nest egg to be built, and ideally, financial stress to reduce, several items must be in place. Below are just a few remedial solutions you can implement in your workplace based on our research.

1. Share the need for a nest egg.?Educate employees on the need for an emergency fund and set a baseline, typically 3 months' worth of expenses.
2. Pay yourself first. Establish the need for employees to save, regardless of salary and savings rate. Savings plans that allow employees to set aside a portion of their salary automatically are ideal.
3. Budget, budget, budget. Teach basic personal finance tools like budgeting and expense monitoring to keep employees on track. Financial wellness seminars are an ideal first step.
4. Provide Access to Funds. As a last resort, employers should provide employees access to emergency funds either thru a communal fund or thru salary linked loan products. This safety net will lower financial stress at times of emergency.

Note that not all employees suffer from financial stress equally. Your efforts will have the most impact by focusing on millennial employees, those more than 2 dependents, and those on lower salary bands.

By implementing these strategies, individuals can take control of their finances and work towards achieving their financial goals. This will lead to a more stable and stress-free financial future.

We hope that by sharing these insights, you are able to be more data driven and more effective in your employee engagement.

Sources:

1. The Relationship Between Financial Worries and Psychological Distress Among U.S. Adults
2. PwC’s Annual Employee Financial Wellness Survey, PwC US, 2012-2019
3. Workers are stressing out over their finances — and it's costing employers billions
4. https://www.bworldonline.com/sparkup/2022/08/23/470075/kantar-breaks-down-phl-spending-habits-food-gets-bulk-of-budget/
5. 70% of U.S. employees say financial stress negatively affects work performance: survey | Benefits Canada.com
6. The Real Costs of Employee Financial Stress—and How Employers Can Help | Morgan Stanley
7. https://prod-apnortheast-a.online.tableau.com/#/site/savii/views/CustomerSurvey2022/CustomerSurvey?:iid=1
8. https://www.pwc.com/us/en/services/consulting/business-transformation/library/employee-financial-wellness-survey.html
9. https://www2.deloitte.com/content/dam/Deloitte/at/Documents/human-capital/at-gen-z-millennial-survey-2022.pdf
10. https://www.bsp.gov.ph/Media_And_Research/Consumer Finance Survey/CFS_2018.pdf
11. Salary Finance. “Inside the Wallets of Working Americans.” 2020.
12. https://www.bsp.gov.ph/Media_And_Research/Financial Inclusion Dashboard/2022/FIDashboard_2Q2022.pdf
13. https://www.bsp.gov.ph/Lists/Consumer Expectation Report/Attachments/21/CES_4qtr2022.pdf
14. 70% of Filipinos stressed by debt | Inquirer News
15. Evidence and Tools to Track the Bottom 40 - UNDP Data Futures Platform %
16. Felipe M Medalla: Strengthening financial health through financial literacy
17. PHL millennial, Gen Z workers report higher levels of stress, anxiety, survey finds?- BusinessWorld Online
18. Filipinos cope with COVID-19, as financial and mental health worries persist – Manulife survey
19. https://psa.gov.ph/sites/default/files/FIES 2018 Final Report.pdf
20. https://s3.amazonaws.com/cfsi-innovation-files-2018/wp-content/uploads/2019/05/24163214/FHN-MorganStanley-Infographic-FINAL.pdf
21. Emergency Fund: What it Is and Why it Matters - NerdWallet
22. Pay yourself first
23. Council Post: Pay Yourself First: Why It's Important For Small-Business Owners