The majority of America’s workers are struggling to make ends meet. At the start of 2022, 64% of the U.S. population was living paycheck to paycheck, as rising inflation increased the everyday cost of living and financial insecurity. At the same time, employers are struggling to hire and retain workers amid The Great Resignation. It’s not a problem that’s going to end soon, with 40% of Gen Zers and 24% of Millennials saying they plan to leave their current job within two years.
Both of these challenges pose a unique opportunity for employers to have a positive impact on their employees’ lives and on the future of their organizations. To implement effective solutions, it is first important to understand the unique needs of those living paycheck to paycheck.
The Experience of Living Paycheck to Paycheck
One of the most common misperceptions of living paycheck to paycheck is that it’s only a problem for lower-income workers. In reality, a large portion of this population earns over six figures. A recent survey found that 60% of millennials earning more than $100,000 per year report living paycheck to paycheck.
Experts say this trend is the result of this generation having faced two significant economic challenges in their adult lives. Many of them graduated college in a challenging job market created by the 2008 financial crisis, and the pandemic caused the second recession of their adult lifetime in addition to a subsequent housing crisis.
The typical biweekly paycheck cycle makes financial matters even more challenging. Bills, subscriptions and expenses do not align with payday, much less emergency expenses like a car repair. This means many living paycheck to paycheck find themselves turning to expensive payday loans or accruing high overdraft fees on their bank accounts to make ends meet.
This inhibits long-term financial success, preventing people from being able to save money for the future. Building a solid emergency fund is an important step on the road to financial wellness, yet it’s often a challenge for people living paycheck to paycheck. In fact, 56% of Americans report not being able to cover a $1,000 emergency expense with their savings.
We know the challenge of living paycheck to paycheck transcends multiple socioeconomic brackets and tends to affect younger generations more. We also know that the cycle is difficult to break, as by nature it prevents people from being able to get ahead financially. So what does this mean for employers?
The Opportunity for Employers
Now is a critical time for employers to step in and support employees with financial wellness tools, as 56% of workers report feeling stressed about their finances. Most employees who experience financial stress say these concerns distract them at work and hinder their productivity. Overall, employee financial stress costs employers $4.7 billion per week in lost productivity, making financial wellness a top priority for organizations.
PwC’s 2022 Employee Financial Wellness Survey found that financially stressed employees are twice as likely to look for a job outside of their current company. Meanwhile, 76% of these employees say they would be attracted to another company that cares more about their financial wellbeing. In this age where hiring and retention are more difficult than ever, employers can’t afford to lose employees over a lack of financial wellness offerings.
How Employers Can Show That They Care About ‘Financial Wellbeing’
Cash flow is all about timing. We know the liquidity gap created by the biweekly paycheck cycle contributes to the challenge of living paycheck to paycheck. Employees’ earned wages are tied up with their employer for two weeks, making it hard to cover bills that come before payday or emergency expenses.
This two-week pay cycle is outdated. Prior to the Industrial Revolution, workers were paid every day. However, industrialists decided to transition payday to a batch system because it was more convenient for them. In our current climate, employers operate with much more concern for their employees’ well-being, but the practice of paying workers biweekly has become ingrained in our business models. The technology now exists to enable employers to offer employees access to their wages as they earn them – it’s called Earned Wage Access (EWA).
An effective financial wellness benefit, EWA helps employers support their employees’ financial wellness. Employees gain the opportunity to access part of their earned wages as needed. One survey of EWA users found that the majority of respondents use it every two weeks to access an average of $100-$149 in order to pay bills on time, avoid overdraft fees and buy groceries. Overall, 92% felt that the service helped them to achieve at least one of their financial goals in 2020, which were to pay bills on time, avoid overdraft fees and payday loans and become less dependent on credit cards. Similarly, 82% reported feeling less stressed about their financial situation after using the service.
Not only can services like EWA reduce financial stress, they also support overall business productivity. Workers often report that they feel more motivated at work when they know they can get access to their earned wages before payday. Some even offer to pick up more shifts for this reason. The ability to cover emergency expenses, such as a car repair or childcare, means employees do not have to miss work as often. This is especially important for hourly workers, as missing a shift would decrease their week’s wages and hinder their financial flexibility.
While cash flow is a key component of the paycheck to paycheck challenge, supplementing EWA offerings with tools such as budgeting and saving resources can support employees’ financial wellness more holistically for long-term financial success.
The Role of Financial Wellness in Worker Wellbeing
Businesses now understand the importance of supporting workers’ overall wellbeing when it comes to minimizing burnout, but financial wellness should be at the top of that list as well. Not only are finances posing a greater challenge for workers, but financial stress is having a significant impact on workplace productivity.
With the majority of employees saying they would be attracted to another company that “cares more about their financial well-being,” it’s time for employers to take a step back, consider where they currently stand on financial wellness and explore strategies they can implement to support employees. So, does your organization “care” enough?
Ratesh Dhir serves as VP Business Development & B2B at Earnin, which builds products designed to help employers support their employees’ financial wellness. He is responsible for building brand partnerships to help employers reduce employees’ financial stress and improve retention and business productivity. Prior to joining Earnin, Ratesh served as VP of Business Development at Even in addition to serving as CEO of iTeleport. He also held various leadership roles at companies in the software and mobile device development space. Ratesh obtained his bachelor’s degree in economics from the University of Liverpool.
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