Many credit unions are responsible for the financial health and employee wellness of two employee groups: their own employees and the employees of their SEG sponsors. It only makes sense then that these credit unions should promote financial wellness among both employee groups. Financial hardship has a negative impact on employee productivity in the short-term, and eventually employees’ retirement preparedness. Employees without sufficient financial stability often turn to expensive payday loans to manage their cash flow issues, which eventually creates a cycle of debt that adversely impacts their productivity, morale and financial wellness. Credit unions are well positioned to take a leadership role in the financial wellness of both their own employees and their members.
Benefits to Credit Unions as Employers
Studies have shown that better financial wellness and employee wellness equate to increased productivity in the workplace. According to a recent study released by PwC, a quarter of U.S. workers said financial worries caused them health problems, 40% said finances distracted their work, and 15% said financial problems caused them to miss full or partial days of work.
Financial instability also impacts employees’ potential for retirement. In 2012, employees withdrew $70 billion from retirement accounts before reaching retirement age. This equates to 59 percent of employers’ matching dollars contributed to those accounts that same year. Even a one-year increase in retirement age costs employers about as much as sick and personal leave days combined. When credit unions promote employees’ short-term financial stability, it translates to cost savings when employees get closer to retirement.
What Can Credit Unions Do?
As providers of employee benefits, credit unions are viewed by their employees as trusted partners who can help them achieve financial wellness. Traditional workplace benefits programs are expanding to include new, complementary financial wellness approaches. These programs focus on foundational financial issues, such as budgeting, debt management, saving and investing, and protecting against key financial risks.
Credit unions may be familiar with offering SEGs paycheck advance programs, but many organizations are unable to support them. Alliances with trusted partners to offer employee small-dollar lending programs that provide an alternative to traditional payday lending can fill this need. More than 12 million Americans turn to payday loans annually, demonstrating a strong need for better solutions to these expensive products. Employees with access to instant liquidity solutions, such as inexpensive small-dollar loan products, are often able to budget and manage debt more effectively.
Defining These Goals
To reach financial wellness and employee wellness, consumers must first be in control of their day-to-day financial needs. This often involves creating monthly and annual budgets based on income and expenses, then limiting their expenditures to remain within the budget.
Controlling day-to-day needs also means consumers are financially prepared to cover an unexpected expense on short notice. Many times, a one-time unexpected expense of even a few hundred dollars can completely derail this financial stability, causing consumers to turn to payday lenders for their financial needs. Achieving important financial goals of saving or making the move from renting to owning a home can often get sidetracked by these unexpected expenses, which can be compounded by the cost of payday loans. This frequently causes the next unexpected expense to have an even more profound impact.
The final element of financial wellness is protecting against key financial risks, such as an economic downturn, the loss of a job or a serious illness, which is extremely difficult when consumers are living hand-to-mouth.
Short-term stability is an important element of an employee’s overall financial wellness. Employees with access to small-dollar lending solutions through their trusted credit unions have better opportunities to manage their short-term financial goals, which enables them to achieve long-term financial goals. As financially stable individuals, employees are better equipped to focus on work and can retire on time. Small-dollar lending is an important part of this equation and can have a profound impact on employees’ financial health.