The Cost Of Financial Stress: Why HR Should Care

Why HR must bridge the gap between perception and reality in employee financial wellness

Millions of employees in the United States are under immense financial strain. They aren’t saving enough for retirement, they’re struggling to keep up with the rising cost of living, and many are living paycheck to paycheck. This is an urgent problem for Human resources (HR) teams, as employee financial stress negatively impacts everything from mental health to productivity and retention. HR teams need to focus on improving financial wellness among their employees, which will require them to think more creatively about the benefits they offer.

Employees increasingly expect companies to be more proactive about improving their financial wellness. HR teams can offer many resources to meet this expectation—from financial literacy programs to flexible benefits that help employees save and invest in their futures. While many companies believe they offer employees sufficient financial support, they disagree. This gap can cause significant problems with employee morale and productivity, leading to turnover.

HR teams are responsible for building a comprehensive financial wellness program for their employees. This will require them to engage with employees about their needs actively, provide the flexibility necessary to help diverse employees pursue their unique financial goals, and make financial wellness a daily priority.

Employees Face Severe Financial Hardships

Far too many American workers are in bad financial shape. Well over half of Americans say they wouldn’t be able to pay for an emergency $1,000 expense from their savings—they would have to do so with a credit card, borrow the money from family or friends, or cut down on spending. Americans have $1.17 trillion in credit card debt, and delinquency rates are elevated. Credit card interest rates are bad enough, but millions of Americans also take out extremely high-interest payday loans yearly. 

It’s no wonder that 53 percent of Americans feel behind on their retirement savings — it’s challenging to plan for the future if you don’t have enough money to cover necessities right now. Americans are borrowing from their futures to pay for these necessities — the rate of early withdrawals from retirement accounts (which are referred to as “hardship withdrawals”) increased from 2022 to 2023. Although the inflation rate has fallen, over half of employees say their paychecks aren’t keeping pace with inflation.

Employees across the country confront huge financial challenges that prevent them from saving, investing, and planning for the future. Hardworking employees shouldn’t have to mortgage their futures just to get by, nor should they suffer the daily psychological strain of constantly living on the edge of a financial crisis. This status quo isn’t just bad for employees—it’s harmful for the entire company.

The Consequences of Employee Financial Stress

When employees have financial difficulties, this can seriously impact their personal lives — it increases stress, affects their sleep and physical health, and creates a constant distraction at work. These issues often lead to a lack of productivity and engagement, creating tension between colleagues and damaging the company culture. This is why HR teams need to be proactive about addressing employees’ immediate financial concerns and helping them prepare for the future.

According to a recent PwC survey, 57 percent of employees say finances cause stress. Financially stressed employees are nearly five times more likely to say money problems are a distraction at work, and they’re significantly less likely to feel energized on the job or recommend their company as a great place to work. These employees are also twice as likely to look for a new job. A 2024 SoFi survey found that financial stress reduces focus, motivation, and productivity. The destructive effects of financial stress haven’t escaped the attention of HR leaders — 40 percent say it impacts employees’ productivity and focus.

However, there are wide gaps between HR perceptions of employees’ financial well-being and the reality. While 76 percent of HR leaders think employees’ financial health is good or excellent, just 59 percent of employees agree. It’s time for HR teams to narrow this gap by helping employees onto a sturdier financial foundation.

How HR Teams Can Prioritize Financial Wellness

Employees increasingly expect employers to help them improve their financial well-being. A Bank of America survey found that 82 percent of employees say their companies should support their financial wellness. This encompasses everything from providing resources such as long-term financial planning and retirement assistance to flexible benefits that help employees save money and pursue their goals. PwC reports that nearly three-quarters of employees are interested in financial guidance, while SoFi found that employees’ “desire to improve financial literacy and knowledge” is rising.

At a time when employees are asking for greater financial support, HR teams should seize the opportunity to help them improve their financial health. HR teams must make education a core focus, which doesn’t just mean encouraging healthy saving and spending habits; it also means informing employees about programs like the SECURE 2.0 Act, making saving for retirement easier. Employees should also be aware of the full range of financial benefits available at the company, from 401(k) match programs to health savings accounts.

It’s time for HR teams to think creatively about how they can improve financial wellness, and one way to do so is by evaluating existing benefits programs to ensure they’re meeting employees’ needs. For example, PTO is among the most common and widely underused benefits — 78 percent of employees say they don’t use all their time off. HR teams can provide flexible benefits like convertible PTO that allow employees to allocate the value of their unused time off toward other financial goals, such as student loan payments, retirement contributions, or emergency savings. At a time when 70 percent of employees say they want more customizable benefits, the flexibility offered by convertible PTO meets this demand.

There are many ways for HR teams to improve the financial wellness of their workforce. Doing so will not only put employees on solid financial footing but also give their companies a competitive advantage by improving engagement, retention, and productivity. 

Steve Armstrong is the VP of Operations and Finance at BNFT.