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What is the True Cause of Employee Financial Stress? [Study]


Last Update: August 30, 2021

Without a doubt, financial stress is something a lot of people are talking about, especially as it relates to other hot topics like COVID-19 and student loan debt. 

Recent headlines include:

  • The Financial Stress from COVID is Taking an Emotional Toll – CNN
  • Here’s How to Get a Handle on Your Financial Stress During Covid – CNBC
  • How to Deal with Financial Stress Caused by COVID-19 – Washington Post
  • How Student Debt Can Affect Your Mental Health – Yahoo Finance
  • Indebted and Drained: Student Loans and Rural America – Choices Magazine

Based on much of the media coverage, companies might assume that COVID-19 or student loan debt caused financial stress.

However, a new study1 based on data from the FINRA Investor Education Foundation and December 2020 focus groups found that the root cause of financial stress was not student loans or COVID-19. 

Instead, the real cause of financial stress is low levels of financial literacy, which translates into poor financial behaviors leading to decreased financial security.

Related article: New Health Study Shows Widespread Employee Financial Insecurity

Pre-Pandemic Financial Stress 

The study found that financial stress existed in the U.S. long before the pandemic.

Data from 2018 shows that:

  • Three out of five U.S. adults experience anxiety when thinking about their personal finances
  • Half of U.S. adults experience anxiety when talking about their personal finances
  • More women (65 percent) than men (54 percent) are anxious about their finances

More subjective data collected during focus groups during the pandemic found that although financial stress is now worse, for most Americans, the pandemic exacerbated the problem rather than created it. 

Lack of Financial Literacy at the Center

When looking for the cause of financial stress, the research found a myriad of issues ranging from not having enough income to family circumstances to social pressures can influence financial stress.

However, the lack of financial literacy stands at the center of it all.

Related article: New Study Shows that Employees Need a Financial Wellness Benefit

The study looked at financial stress among those who could answer three questions about interest rates, inflation, and risk diversification compared to those who could not. 

For those who could answer the questions, and were thus deemed financially literate:

  • 51 percent (vs. 63 percent) felt stressed when thinking about personal finances
  • 38 percent (vs. 55 percent) felt stressed when talking about personal finances

The study also linked high financial stress to poor financial decision-making, which past studies have linked to poor financial literacy and understanding.

In this study, those with high financial stress are more likely to have credit card debt and other consumer loans, overdraw their checking account, late payments, withdraw funds from retirement accounts, and take out high-interest loans. They are also less likely to own their own home, invest money, have an emergency savings account, or have a retirement account. 

Although having enough money was important to alleviate stress, the study found that what was even more important was knowing how to manage the money you had.

Having more money does not mean increased financial wellness and those who did not have strong money management skills made poor decisions in the present and failed to plan for the future. 

Financial Wellness Can Help

Employees stressed about finances bring that stress to work, costing U.S. businesses about $2800 per year per employee2. And those stressed employees (86 percent)3 expect their employers to help them overcome this stress by providing financial wellness programs.

Related whitepaper: Effects of Financial Literacy on Profitability

By offering a holistic financial wellness program, employers can help employees experiencing financial stress in three key ways: 

  1. Improve financial knowledge: Financial wellness programs can teach employees about financial matters specific to their situation. Because of the link between financial stress, financial literacy, and financial behaviors, it is important to help educate employees about financial topics and provide them with the tools needed to create healthy financial habits. Internal data from one major Enrich user found that after using the financial wellness program for one year, 28 percent more employees pay off their credit cards each month and 15 percent more contribute to their retirement plan.
  2. Help employees create an emergency savings account: Studies show that even having a small amount of savings can decrease financial stress. Financial wellness can help employees learn to save money and employers can provide automation to make saving money easier. Enrich data shows that those with emergency savings increased by 27 percent.
  3. Offer resources that help employees deal with anxiety and stress: In addition to offering mental health services, offering holistic financial wellness reduces financial stress. In 2019, the Enrich financial wellness program reduced financial stress for its users, on average, by over 23 percent.

Thankfully, offering a financial wellness benefit is a win-win situation.

Employers win by reducing the cost of financial stress in the workplace and providing employees with benefits they desire and employees win as they experience greater financial health.



1 - https://gflec.org/wp-content/uploads/2021/04/Anxiety-and-Stress-Report-GFLEC-FINRA-FINAL.pdf?x85507

2 - https://resources.salaryfinance.com/hubfs/Campaigns/USGuide19/Employers_Guide_to_Financial_Wellness_2019_Salary_Finance.pdf?utm_campaign=USGuide19

3- https://retirement.johnhancock.com/us/en/financial-stress-survey

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