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Case 9.1: Alleviating Employee Stress Through Financial Education
The severe economic recession in the United States that peaked with the near total collapse of the financial and housing markets in 2007–2008 has not only dealt a significant blow to businesses, but also has adversely affected most employees. Because of the downturned stock and housing markets and significant loss of personal worth, many employees have been forced to reduce spending and take a hard look at how to better manage their finances, a trend that continues to this day.
According to the Census Bureau, the poverty rate in the United States grew from 12.5 percent (or 37.7 million people) of the population in 2007 to 15.1 percent (or 46.6 million people) in 2010. Additionally, nearly half of the families in the United States are categorized as low income because their annual household income for a family of four totals less than $45,000. Looking at these statistics, it is clear that the recession has contributed to many employees feeling the effects of financial stress due to stagnant wage growth, decreased hiring, and recurring rounds of layoffs, as well as the rising cost of healthcare, education, child care, and housing.
A 2011 survey conducted by the Society for Human Resource Management (SHRM) found that living expenses, medical bills, and debt (including credit card and student loan debt) were among the top financial concerns for employees. Recent college graduates who often fill entry-level positions have been especially hard hit—the average student loan debt was $23,300 per borrower that year. The total amount in outstanding student loans tops $1 trillion, and other debt, including credit card and auto loans, accounts for an additional $1.5 trillion. Add to that the stressors encountered in daily life such as relationships, commuting, work-life balance, and meeting the strenuous demands at work, and it is easy to see how individuals can be overwhelmed, which in turn, can have a profound negative effect on their performance, satisfaction, attendance, and overall productivity at work.
What can be done to help employees manage their stress about finances and increase their focus on job performance? Many companies have responded by offering education programs that focus on teaching employees about different aspects of financial and monetary responsibility. Organizations tailor financial education seminars to fit the particular needs of employees by offering such topics as basic budgeting and saving strategies, creating a plan to pay off debt, or providing the fundamentals of more complex issues such as investing, buying a home, or retirement planning.
Financial education seminars range from free workshops presented by financial professionals and programs conducted by community organizations such as the YMCA, to more extensive training sponsored by third-party financial institutions. The programs vary in their presentation methods. Some are offered weekly in a classroom setting during the evenings, lunchtime, or on weekends to accommodate varying work and personal schedules. Others meet less frequently, but include an online component for assigning homework and assignments for participants that bridge face-to-face sessions. Both techniques allow participants to get the most out of the training while fitting it into their busy schedules without adding extra stress.
For example, McLeod Health of Florence, South Carolina, implemented a 12-week financial education program in 2008 comprised of a combination of classroom and online teaching methods. The program yielded a positive financial impact on both the company and its employees. A third party analyzed the results of the financial education program and found that the health care company had a return on investment of $6.60 per $1 invested in the program. The data showed a significant decrease in turnover, lost work time, and absenteeism of employees enrolled in the class while their job performance increased for a total return of $569,133. Soon, word spread of the value of the program, which led to strong demand from other employees who wanted to enroll in upcoming sessions. In the four years the program has been offered, roughly 650 of McLeod’s employees have participated and have benefitted directly from the financial education training.
One aspect of financial education programs that has a profound effect on the results is the support that participants gain from other employees who have already received the training. Previous participants encourage employees (many of whom are struggling financially) to remain on their budgets and pay off debt. Employees who receive this support and reinforcement from fellow employees are more likely to manage their finances (and related stress) in a better manner.
At Therm-O-Disc, a manufacturing company in Ohio, employees that took advantage of the company-sponsored financial education programs were able to create a savings fund of $1,000 each and pay off a portion of their debt. Julie Buzzard, financial education coordinator of Therm-O-Disc, summarizes it this way: “Experienced participants have been able to encourage those who are having a lot of difficulties, which helps to build teamwork across lines and departments that normally do not cross.”
In sum, financial education offers companies and employees a proactive method to cope with the challenging economic conditions that continue to
confront many Americans. From manufacturing to health care to technology companies, financial education programs create a win-win situation: employees can reduce stress (and focus more on their jobs) by improving how they manage their personal finances and debt, while companies show they care about their employees by providing them with a useful set of tools to manage their earnings, and ultimately, their stress.
Questions
1.
To what degree do companies have an obligation to provide financial education programs to alleviate employees’ stress? Explain your answer.
2.
Referring back to Exhibit 9.2, to what degree do you think an employee who is experiencing a considerable amount of financial stress might exhibit some of the behavioral and cognitive outcomes listed in the far-right section of the model?
3.
Though not extremely expensive, financial education programs still cost organizations money and resources to organize and administer to employees. In your opinion, why do organizations like McLeod Health and Therm-O-Disc offer these programs? What returns of investment can these two organizations expect from having employees who become better at managing their finances?