Millions of Americans were living paycheck to paycheck before COVID-19 hit our shores. The pandemic exacerbated the problem. The impact of job losses, furloughs and decreased hours has resulted in a staggering increase in paycheck to paycheck living.
A new survey conducted by payroll, human resource and benefits outsourcing company Paychex found that nearly one in three people have been living paycheck to paycheck for less than a year. These Americans are also depleting savings and taking on more debt.
So, what can employers do to help their employees that are hurting the most? First, let’s get real. There is no single solution. Products alone don’t change behavior. Self-help programs have good intentions, but don’t actually solve problems for this group.
Many employees say they’re stressed about money but won’t take the required actions to improve. Leadership is supportive, but not necessarily providing budget. Implementing an effective financial wellness program is hard. At times, it may feel overwhelming and like you’re facing an uphill battle.
You do not need to implement every solution below to get started. Instead, select a few from each section, get feedback and build from there. This is a marathon and your ultimate goal is to offer a program that inspires and enables struggling employees to achieve financial stability once they’re committed.
Let’s dive into your paycheck to paycheck employee persona. For the purpose of this article, we will call her COVID-19 Cora. Cora has negative $250 of “Financial FUEL” most months. Financial FUEL is the amount of cash left each month after bills and spending. It’s income minus expenses. It’s the money Cora needs to tackle every financial need in life.
On average, she earns $3,650 after taxes and spends close to $3,900. This gap has led to no savings, $4,500 of credit card debt, and several past due medical bills. Sure, Cora wants
to pay off the debt and build an emergency fund, but she doesn’t have the money. COVID-19 has made her finances feel even more uncertain. She’s keenly aware of the overdraft fees, low account balances, and deferred payments. She knows this path isn’t sustainable. Still, she doesn’t see a clear solution. Cora is stressed.
Cora needs to make more money each month. Part of the solution is Cora’s responsibility while the rest involves an employer creating opportunities. First, Cora must commit to 55. This is the number of hours per week Cora needs to work toward earning money. If 55 is unrealistic, try 50. If 50 is too much, start with 41. For now, Cora must invest more of her time toward making money to get over the hump and build positive financial FUEL. Once she commits, your financial wellness programs can provide guidance and opportunities. Here are a few ways you, as an employer, can help Cora make more.
- Easy overtime: If overtime is ever available, make it easy for Cora to engage. If you expect overtime, get the word out. Speak directly to Cora on how overtime can immediately impact her FUEL. Overtime can be a win-win for the employer and Cora.
- Side hustles: Cora may need to look outside of her employer and into “gigs” for extra income. According to Forbes, more than one-third of U.S. workers are part of the gig economy. Gigs include freelance opportunities such as Etsy, Instacart, Doordash, and Upwork. Apps like Steady make finding gigs easier. Gigs are part of the future, and, for Cora, should be part of her present.
- Cashing in PTO: Paid time off (PTO) can be a great way to recharge, especially given the mental health toll of the pandemic. Still, for Cora, taking more time off often leads to more spending and less earning. In the short term, Cora may need cash more than PTO. While tax consequences should be highlighted, their impact is often far less than the cost of recurring debt.
- Education / skills training: Cora’s ideal long-term solution is to earn higher wages. Multiple research studies show that higher education leads to higher wages and productivity6. Tuition reimbursement programs or encouraging Cora to participate in free online education will allow her to work toward a permanent increase in her income. Explore partnerships with Guild Education, Coursera, Udemy, Edx, and lynda.com to give Cora the skills she needs to compete for the long term.
The second option for Cora to build FUEL is cut her expenses. COVID-19 has created a natural barrier to spending but that won’t be enough. Cora’s core expenses include rent/mortgage, utilities, cell phone, insurance, transportation, food, and medical. She also has discretionary expenses; however, helping Cora reduce her core costs will have a positive spillover effect on the overall budget. Here are a few ways employers can help Cora reduce expenses:
- Discount programs: Large companies can leverage their buying power to benefit Cora. They can utilize established programs such as Beneplace or Access Perks or create their own deals. The key for employers is to make sure (1) the discounts help Cora with her core costs (not just discretionary wants) and (2) the discounts are true deals. Periodically test the discounts to see if they accomplish both objectives.
- HSAs and wellness perks: Employers making contributions to Cora’s HSA for completing her wellness assessment is powerful. This perk helps Cora and the employer. If utilization is low, double down on marketing. Helping offset rising healthcare costs enables Cora to save more.
- Subsidized child care: In 2018, the average cost of childcare in the U.S. was $914 per child per month. That’s the equivalent of $14,618 in pre-tax earnings!7 Childcare is among the most expensive items in Cora’s budget. Offering dependent care spending assistance plans (DCAP), at a minimum, can allow her to pay through pre-tax dollars.
- List of simple savings: MintMobile recently offered a cell phone plan for $15. Cutting cable and using internet content with Roku, Amazon Firestick or Apple TV can save $50-$100 per month. Shopping auto insurance every six to 12 months ensures Cora is getting the best deal. Find simple, accessible opportunities to save and make a list. Then, have your CHRO send out that list to reinforce the company’s commitment to financial health.
Avoid more debt
Increasing income and cutting expenses will help Cora get to positive financial FUEL. Change will not happen overnight. Instead, life happens. Bills happen. Birthdays happen. Holidays happen. Emergencies happen.
When they do, it’s critical that Cora doesn’t go deeper into debt. So, what are her alternatives? Here are some options employers can explore to limit Cora’s short- and long-term dependence on credit:
- Cashing in the PTO: We reviewed this in the income section above. In the short term, Cora needs cash, not PTO. Don’t overthink this. Allow her to get the cash she needs to avoid more dangerous traps;
- 401(k) / 403(b) loans or withdrawals: In a perfect world, employees would not borrow from their retirement savings. Cora’s world is not perfect. She’s going deeper into debt each month, and her options are often limited. Accordingly, it’s important to highlight Cora’s options within her retirement account. The CARES act defers Cora’s payments on existing loans and provides revised options for borrowing or withdrawing money from her 401(k). Sure, conventional wisdom discourages tapping the 401(k). Still, in this environment, leveraging existing savings is far better than the alternatives;
- Purchase programs: Cora will need (and want) various consumer products along her journey. If she’s cash poor and has poor credit, she will lean on predatory debt to fulfill her needs. She won’t talk about it, but it’s happening. Purchasing programs such as Purchasing Power allow Cora to use payroll deduction instead of revolving credit. This approach is a better stopgap for Cora if she can’t pay cash or avoid the expense. The keys for employers implementing these programs is to ensure responsible limits, be clear on the tradeoffs (e.g., pricing) and encourage Cora to get positive FUEL, so she has better options;
- Early access to pay: Earnin, PayActiv, Salary Finance, and FlexWage are among a new set of tools that give employees early access to earned wages. These tools allow Cora to avoid expensive payday loans, title loans, overdraft fees, and a range of predatory financing. That’s positive. At the same time, these tools alone don’t change Cora’s financial picture. She’ll still struggle with building financial FUEL unless she’s simultaneously increasing income and cutting expenses. With that in mind, employers should set limits on payday advances while providing tools to help Cora graduate from needing early access; and
- Hardship funds: Great companies have great cultures. Employees want to help one another. They empathize with Cora’s situation and chip in to help her tackle financial challenges. Hardship programs, sometimes called “pass the hat,” send a powerful message to contributors and recipients that the company is a true family. Employers should continue these programs and, when Cora needs a few extra dollars, attach a note to the funds that says, “Financial independence is well within your grasp. Hope this small contribution helps you through the rough times”.
The last step to help Cora increase her financial FUEL is encouraging her to track her progress and let her know it will take six to 12 months to have consistent, positive financial FUEL.
For more information on how to help Cora start budgeting and other employee personas, take a look at our financial wellness playbook at https://www.joinsmartpath.com/financial-wellness-playbook.
Alok Deshpande is the CEO and co-founder of SmartPath.