The Impact of Financial Stress on Workforce Productivity

Your company is losing money – lots of money – due to the financial stress of your workforce. One out of every four workers reports they are suffering serious financial distress1, and that financial stress is wreaking havoc on your company’s productivity.

Here are six of the primary ways your company’s profitability is suffering as a result of stress, organized into the acronym, DEFACE. After all, stress can most certainly deface your organization’s bottom line. The cost summaries apply to a company with 1,000 employees.

Days Available: Unscheduled absenteeism costs $3,600 per year for each hourly worker2. Seventy percent of all job absenteeism is tied to stress-related illnesses3, of which one of the leading causes is financial distress4.

Cost: $2,520,000 per year

Engagement: On average, a financially-stressed employee will spend 20 hours per month dealing with financial issues at work. The estimated cost of this lost productivity is $7,000 per year for each stressed employee5.

Cost: $1,750,000 per year

Fatigue: Fatigue-related productivity losses are estimated to cost $2,000 per employee each year6. “Present-eeism”, where a worker is physically present but mentally absent due to distractions about financial concerns or loss of sleep from worrying, steals away six hours of productivity per month per employee.

Cost: $500,000 per year

Alertness: About 70% of workplace accidents are stress-related7 due to the distractions of that stress. As a result, companies with 1,000 employees see about 23 stress-related accidents per year8, costing about $29,000 each9.

Cost: $667,000 per year

Commitment: Financially stressed workers are less satisfied with their jobs and their pay, and are more likely to go looking for greener pastures elsewhere. Average turnover is about 15%10, but 40% of that workplace turnover is due to stress11, and the cost of replacing those hourly employees is at least $3,500 each12.

Cost: $210,000 per year

Ethics: Financially stressed workers are more tempted to steal from their employer, and 4.2% of employees have been caught doing just that13. The average dollar loss per employee theft case is $1,76214 not including the extra costs for security, HR, legal expenses, and employee replacement.

Cost: $18,500 per year

TOTAL COST OF WORKFORCE STRESS (1,000 employees): $5,665,500 per year!

So how can your company reduce the impact of stress-related expenses? It’s not as hard as you might think.

Here’s a proven four-step process to increase productivity by reducing financial stress:

1) Incorporate robust, ongoing financial education as part of your company’s wellness program.

2) Make sure the education is unbiased, not just an excuse for someone trying to sell their product or service. Beware of “free” education!

3) Verify the education provider has expertise in all areas of financial planning by insisting they hold or are actively pursuing the CERTIFIED FINANCIAL PLANNERTM designation.

4) Require your provider to use a results-focused education approach, rather than the usual activity-focused approach. The provider needs to partner with you to:
a. Analyze the financial education needs of your employees.
b. Create an education plan based on those needs.
c. Choose measurable goals and focus on them one at a time, according to priority.
d. Allocate the necessary resources to facilitate the desired change.
e. Target the educational campaign for the greatest effect, not for the most touches.
f. Analyze the results of your efforts for effectiveness.
What results can you expect from comprehensive workplace financial education?

The return on investment (ROI) can actually be estimated with a fair degree of accuracy. A landmark study, The Business Case for Financial Education by Thomas Garman of PFEEF15, uses the example of a company of 1,000 employees that decides to invest $200 per worker on a model financial education program.

The calculations conservatively factor in the results of workplace financial education: reduced absenteeism, increased time focused on the job, less time processing garnishments and loans, reduced Social Security taxes less illness, reduced premiums for health care, fewer accidents, less burden on HR, less turnover, increased acceleration of retirements and other factors. The result is a total savings for the company of $624,250 – over a 300% return on the $200,000 initial investment!

Our experience at Pension Consultants has been similar. One of our clients with 5,000 employees recently decided to allocate about $100,000 per year toward ongoing, comprehensive financial education. As a result, the rate of new hires who choose to sign up for the retirement plan has increased from 15% to 45% and the overall participation rate has improved from 36% to 53% — almost a 50% increase.

If you’d like to see the effects of reduced financial stress in your workforce, contact Participant Services at Pension Consultants. We will guide you through the process of creating and effectively implementing a comprehensive education plan with your employees.

 

1 Garman, E.T., Junk, V.W., Kim, J., O’Neill, B.J., Prochaska-Cue, K., Prawitz, A.D., Lawrence, F.C., Yao, R., Weagley, R.O., Weisman, R.L., Carnathan, G., Schaus, S., Hutcheson, M.D., McKinley, D.H., Brook, M.J. (2005, March 22). Financial Stress Among American Workers, Final report: 30 million workers in America-One in four-Are seriously financially distressed and dissatisfied causing negative impacts on individuals, families and employers. Independent report from the authors that is available at www.pfeef.org.
2 Absenteeism: The Bottom-Line Killer, © 2005 Circadian Information Limited Partnership, an Affiliate of Circadian Technologies, Inc.
3 Adams, G.T. (1987). Preventive law trends and compensation payments for stress-disabled workers
4 R.L. Weiseman, Personal Financial Stress, Depression, and Workplace Performance
5 Estimate of time at work spent on personal financial problems by a financially distressed employee, Dr. Thomas Garman, Personal Finance Employee Education FoundationTM, www.pfeef.org
6 The Cost of Poor Sleep: Workplace Productivity Loss and Associated Costs, 2010, The American College of Occupational and Environmental Medicine, Rosekind, Mark R. PhD; Gregory, Kevin B. BS; Mallis, Melissa M. PhD; Brandt, Summer L. MA; Seal, Brian PhD; Lerner, Debra PhD
7 The Herman Trend Alert, May 2003, The Herman Group
8 http://www.bls.gov/news.release/osh.nr0.htm
9 http://www.stress.org/job.htm
10 http://www.compensationforce.com/2012/09/2012-turnover-rates-by-industry.html
11 http://compliance.safetysmart.com/wp-content/uploads/2011/11/Tool-11.pdf
12 http://www.webpronews.com/employee-retention-what-employee-turnover-really-costs-your-company-2006-07
13 http://www.resicomm.com/surveillance/sdata.htm
14 University of Florida 2005 National Retail Security Survey
15 Garman, E. T. (1998). The business case for financial education – Personal financial wellness and employee productivity. In E.T. Garman, S. Joo, I. E. Leech, & D. C. Bagwell (Eds.), Personal Finances and Worker Productivity, Proceedings of the Personal Finance Employee Education Best Practices and Collaboration

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