Hidden Adversity: Employee Financial Problems and the Workplace

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Every year employee personal financial issues cost corporation billions of dollars in lost productivity, theft, low morale and absenteeism to name a few.

My presentation takes a look at this important but often unseen issue exploring the actual estimated costs, psychological causes and some possible solutions.

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  • The results of employees’ poor personal financial habits can affect their performance at work. Let’s look at several areas. 1 Absenteeism, tardiness, presenteeism. People who have personal financial problems typically take more time off from work, tend to be more tardy, and spend time at work focusing on personal issues. Poor health. Financial problems add stress to people’s lives and can affect their health, causing even more distraction and absences from work. Between 75 percent and 90 percent of all visits to doctors are stress related. 2 Lower employee morale. When some employees aren’t working optimally, it can result in poor morale among co-workers, which affects work performance, quality, and productivity. Lower pay satisfaction and turnover. Employees with financial troubles often feel that they are not being paid sufficiently, a feeling that sometimes leads them to search for a new employer with higher pay. Forty percent of employee turnover is due to stress. 3 Accidents. Employees who are distracted with outside issues have more accidents on the job. It has been estimated that between 60 percent and 80 percent of on-the-job accidents are related to stress. 4 Theft. Studies show that people with financial problems steal more often. Substance abuse. In addition to affecting morale and productivity, substance abuse can result in additional expenses for Employee Assistance Programs. Loss of customers. Poor service and workmanship could lead to a loss of customers, which can affect your bottom line. Administrative costs. All these costs are cumulative. When HR has to deal with these issues, it costs the employer both time and money. Attending to money-related distractions can account for as much as 10 percent of departmental budgets. 5 Sources: 1) Personal Finance Employee Education Foundation, 2009; 2 – 5) Journal of Employee Assistance , 1st Quarter 2009 0070
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  • Hidden Adversity: Employee Financial Problems and the Workplace

    1. 1. Hidden Adversity: Employee Financial Problems and the WorkplacePresented By: Matt Wilson, CRPC CFSSecurities and Investment Advisory services offered through United Planners Financial Services, Member SIPC 11130 N Tatum Blvd, Suite I-101, Phoenix, AZ 85028.Gold & Associates is not a subsidiary of nor controlled by United Planners Financial Services
    2. 2. “To do the impossible, you first have to see the invisible” - Ancient proverb
    3. 3. Why Aren’t People More Open About Their Financial Matters?• Financial habits usually start in childhood, but many parents do not discuss money with kids as it’s one of the “taboo” subjects.• Constant examples of extreme wealth by celebrities, athletes, etc can foster a distortion of reality.• In today’s society money is equated with power and status. Disclosing or flaunting it gives some people an ego boost (and an implied inferiority to the other person).
    4. 4. Why Aren’t People More Open About Their Financial Matters?• Negative stigma associated with bankruptcy, excessive credit card debt, etc• Reluctance to expose personal financial matters, especially if job or career path could be negatively affected.
    5. 5. Economic PTSD: The Great Recession’s Lasting Effects Re-Traumatization Fear : An initial trauma does damage andleaves one with a deep lingering fear of a second occurrence. • All subsequent behaviors following such traumas can be viewed as an effort to avoid re-traumatization at all costs • Examples might include social withdrawal, alcohol/drug abuse, moodiness & irritability, even rage (when cornered or provoked) or suicide in extreme cases • People are left with feeling of vulnerability; They harbor the secret that they got past the trauma but never really over. (Just like the 1930s) Source: Dr. Mark Goulston Huffington Post 1/13/09
    6. 6. “Employees with money problemsare like sharks swimming around theworkplace taking bites out of thebottom line.” — Dr. E. Thomas Garman President, Personal Finance Employee Education Foundation
    7. 7. Many Employees are in Trouble• In 2010 Americans amassed 2.4 Trillion dollars in consumer debt – $10,360 per household.1• 61% of Americans report having “serious financial problems”2• 81% Identify money and the economy as a significant source of stress in their lives3 Source: 1Wood, J., EHow The Average Amount of Debt 2 Kaiser Family Foundation 2008 3 American Psychological Association 2008 4 Partnership for Workplace Health 5 PWC Financial Wellness Survey 2011
    8. 8. Household Debt & Personal Saving Rate Source: Federal Reserve Bank of San Francisco, 2011
    9. 9. Credit Card Debt Swallows American Households Source: Business Insider Chart of the Day May 9, 2009
    10. 10. Many Employees are in Trouble• Less than 1/3 said they have enough savings to cover more than 6 months of life expenses 4• 36% of those earning $100K or more say it’s difficult meeting their household expenses on time 5 Source: 1Wood, J., EHow The Average Amount of Debt 2 Kaiser Family Foundation 2008 3 American Psychological Association 2008 4 Partnership for Workplace Health 5 PWC Financial Wellness Survey 2011
    11. 11. Employee Financial Stress Ranks at the TopOne EAP study found that among the five key stressors in life: 1. Personal Finances 2. Relationships 3. Work Issues 4. Health 5. Crime / ViolenceConcerns about personal finance were rated as the number one source of stress, about five times those regarding health Source: Financial Distress Impacts Health & Productivity: Employees Turning to EAP for Help Shepell FGT Research Group 2009 volume 5 issue 1
    12. 12. Top Causes of Financial Stress Stagnant / reduced earnings1 Using credit to make up necessary expenses & carrying excessive debts Life Events – marriage, divorce, death, illness, accidents, lawsuits, emergencies1 Caring for elderly family members1 Uncertainty about their future Source: 1 American Psychological Association 2008
    13. 13. Possible Symptoms of Employee Financial Problems Low Productivity  Decline to enroll in benefits “Presenteeism”  Substance abuse Absenteeism  Loss of customers Theft  Personality changes Low morale Source: Personal Finance Employee Education Foundation, 2009
    14. 14. Financial Wellness Correlates to Productivity Research by Joo in 1998 showed that:Workers with good financial wellness Workers with poor financial wellness had: are usually those who: • higher rates of absence• came to work • received lower performance ratings• received good performance ratings,• spent little time dealing with personal • spent “excessive” time at work dealing with financial matters, personal financial problems• saw increased productivity • saw decreased productivity Source: Financial Distress Impacts Health & Productivity: Employees Turning to EAP for Help Shepell FGT Research Group 2009 volume 5 issue 1
    15. 15. Impact on Productivity 29% of employees say personal finances have been a distraction while at work 48% admit to handling personal finances during work hours Personal finances being a work distraction was highest among employees aged 35-44 (40%) and those making over $100K (37%) Source: PWC Financial Wellness Survey, 2011
    16. 16. Estimating Productivity LossesA recent study estimated that approximately 25% of working adults reported stress from financial difficulties 1• A conservative estimate is that a worker with financial problems spends 15 minutes per day dealing with personal financial matters• Equals 75 minutes per week, or 62.5 hours total in a 50-week work year• Multiply your average hourly pay per employee by your total headcount.So estimated losses for a 1000 person company:• 250 Employees X $10 average Hourly Rate X 62.5 Hours Spent on personal financial issues = $156,250 annually Source: Bureau of Labor Statistics, 2011
    17. 17. How Much is Lost Productivity Costing You? If your company’s average hourly rate is: $15 per hr $20 per hr $23.24 per hr (Nationalthe estimated the estimated Average Rate1) annual loss is annual loss is the estimated annual loss is $ 234,375 $ 312,500 $ 363,125 Source: 1Bureau of Labor Statistics, 2011
    18. 18. Employer Losses Due to TheftEmployee theft is estimated to cost employers $50 Billion annually Source: US Department of Commerce
    19. 19. Financial Problems & Embezzlement Usually requires 3 Factors to Commit: • Rationalize it’s ok • Opportunity • Financial Pressure or Need Source: White Collar Crime Fighter, Gary Zeune
    20. 20. Financial Problems & Embezzlement Rationalization: Making the illegal action fit into their personal code of conduct Opportunity: Poor control measures and low chances of being caught Need: Can be direct or indirect Remember: The only employees who can steal from you are the ones you trust! Source: White Collar Crime Fighter, Gary Zeune
    21. 21. Financial Problems & EmbezzlementProfile of the typical white-collar criminal • Older, more highly educated • More family oriented and attend church frequently • Long-time employees • Hard workers, rarely take time off • First to arrive and last to leave in the day • Don’t steal money to save, it’s usually spent quickly Source: University of Dayton, Professor Janet Greenlee Dayton Daily News, April 2010
    22. 22. Financial Problems & EmbezzlementSome warning signs & conditions to look for: • Periods of major change in the company (like downsizing) • Employees with addictions • Employees under personal stress • “Thrill seekers” who like bending the rules under the right conditions • Employees who can’t stand not being the center of attention or always have to be #1 Source: University of Dayton, Professor Janet Greenlee Dayton Daily News, April 2010
    23. 23. America’s Retirement Crisis 1. The Aging of America 2. Medicare 3. Social Security 4. Disappearing Pension Plans 5. Taxes 6. Inflation 7. Financial Mistakes
    24. 24. “Life is thesum of all your choices.” - Albert Camus
    25. 25. Behavioral Finance What is it? The study of why people make the choices they do when faced with investment and other financial decisions
    26. 26. The Psychology of Loss5 stages of grief: 1. Denial & Isolation 2. Anger 3. Bargaining 4. Depression 5. Acceptance
    27. 27. The Psychology of Loss 1979 Study by Tversky and Kahneman Findings: Prospective losses bother people more than prospective gains please them
    28. 28. Which line is the same: A, B, or C?
    29. 29. Herding EffectSolomon Asch study on Social Conformity: Social consensus vs. analysis Asch planted fake participants into the study group and had them say “B” was correct even though obviously wrong 32% said B was correct, more willing to follow the majority than think for themselves Explains the “Bandwagon Effect” or why individuals are driven to follow market trends resulting in financial bubbles in the absence of data or analysis to support their decisions
    30. 30. Emotional Decisions & The Recency Effect Most RiskRecency Market Cycle EuphoriaEffects Thrill Anxiety Excitement Denial Optimism Fear Optimism Relief Recency Panic Hope Effects Capitulation Least Risk
    31. 31. Cognitive DissonanceCognitive Dissonance is a term in psychologythat describes the feeling of conflicting tension experienced by a person when they hold two contradictory beliefs at the same time.Since both beliefs or ideas cannot at the sametime be true, a person will feel uncomfortableand start trying to figure out a way to reconcilethe beliefs so they dont seem to be in conflict anymore or until the discomfort seems to be relieved. By the way…CD happens in Capuchin monkeys too…..
    32. 32. “Dont dwell on what went wrong. Instead, focus on what to do next. Spend your energies on moving forward toward finding the answer” ~Denis Waitley
    33. 33. Solving the Problem Employee problems fit into two general categories: Financially drowning: Financially disoriented: Have stability, but no roadmap for Have debt, credit, or spending their future nor the understanding ofproblems that are keeping them today’s complex financial world to down help them find their way.
    34. 34. Solving the Problem Good Solutions for each: Financially drowning: Financially disoriented:Employee Assistance Program, Personal financial education debt/credit management programs, benefit info sessions,companies (TCA, MMI, Others) accessible resources
    35. 35. Solving the ProblemWorkplace Financial Education Program Success • The typical 1-hour annual lunch & learn from the 401k provider is not enough. • Should be ongoing and accessible to everyone (in person, remote, or absent) • The curriculum should be comprehensive in nature and cover important topics like budgeting, debt management, credit use, the 401k plan, retirement planning, investing basics, risk management, taxation, and estate planning to name a few.
    36. 36. Solving the Problem Final Thoughts: • Show that you sincerely care, don’t judge • Take a holistic approach going beyond the norm: onsite child care, weight watchers, yoga/stress relief sessions • Review your internal practices for access and handling of funds; pull surprise audit check • Start a library of financial resources & books in the break room (magazines, brochures, etc). Easily attained from benefits providers, Social Security, etc • Provide incentives for employees who attend programs – get creative. (positive reinforcement)
    37. 37. Thank You ! Visit: www.employeefinancialbootcamp.com Matt Wilson CRPC CFS Financial Specialist Gold & Associates 602-494-0400 x 25 mwilson@goldfc.com

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