Financial Anxiety Lives Inside Credit Unions

To figure out how to improve employee productivity and performance, credit union executives first need to ask their staff a common but critical question: What keeps them up at night?

If your best guess at their answer is money, you’re right, Filene Research Director Taylor C. Nelms wrote in his new report, “The Case for Workplace Financial Well-Being.”

It’s not just another study about how credit unions need to offer their employees financial education so they can work out their own money challenges. In fact, financial education is simply not enough. Instead, Nelms’ comprehensive research shows that one of the best ways to increase employee engagement and productivity, and reduce turnover and costs, is to offer a holistic mix of programs, services and tools tailored to employees’ needs and the organization’s capacities.

In addition to taking the first step to evaluate whether staff members are earning a living wage, some programs include providing employee-sponsored small-dollar lending, hardship funds, income advances, student debt assistance, matching savings accounts, and personalized financial coaching and advice.

“My point in writing this paper was really to get people to think about the business case for addressing the problems of financial insecurity more generally,” Nelms said. “I think there are real gains to be had for credit unions specifically and in taking on this challenge for their employees, for their staff. I think it makes sense from a mission perspective.”

After all, he questioned, how can credit union staff be expected to help members with their financial challenges if staff members are struggling with their own finances? And how can credit union leaders preach the importance of member financial well-being and not invest in the financial well-being of their own employees?

The financial insecurity of the average American employee has been well documented by dozens of academic, government and corporate research pieces; economic books and media reports over the last few years.

Some of this research showed about half of employees across all industries struggle with personal finances and nearly eight million workers live in poverty despite having a full-time job. Additionally, more than a third who make in excess of $60,000 annually and 13% who earn more than $100,000 are struggling financially as well.

What’s more, the National Credit Union Foundation in partnership with the Center for Financial Services Network, now the Financial Health Network, measured the financial health of employees of six participating credit unions. That study found 55% of staff members are struggling financially. Other studies of employees within the financial services industry have found similar results, such as a study of white-collar workers in a large financial services firm that found one in five employees reported high levels of financial stress.

These personal financial issues seem to be coming to a head, because in addition to a lack of wage growth for average employees, these employees have been shouldering more of the rising costs of health care, housing, education and retirement over the last 40 years.

For example, a new study by the Economic Policy Institute found that CEO compensation among the nation’s top 350 firms skyrocketed by 1,008% from 1978 to 2018. Compensation for the typical worker, however, increased a minuscule 12% within the same years.

Moreover, over the last four decades, there has been a dramatic transfer of the risks associated with financial planning, savings, borrowing, investment and insurance onto household budgets.

“This transfer of risks is nowhere more evident than in health care and retirement, as employers have moved away from defined-benefit pensions in favor of defined-contribution plans, and as employees’ share of health insurance expenses and benefits financing has grown dramatically through higher premiums and deductibles, and the use of cost-sharing tools like flexible spending accounts and health care savings accounts,” Nelms wrote in his research report. “In short, workers are increasingly shouldering the cost of health care and retirement planning even as the benefits provided by their employers are reduced.”

Although inflation has been tame for years, it hasn’t tamed the rising costs of health care, education and housing, he noted.

“When you have this confluence of rising prices along with 40 years or more of stagnant wages and the transfer of the risks on individual households, we are really making a tinderbox of difficulty with personal finance,” he said.

Of course there are consumers who make irresponsible or poor decisions related to spending money, but the research indicated most consumers are responsible with managing their cash.

Nelms pointed to the groundbreaking and award-winning book, “The Financial Diaries,” by Jonathan Morduch and Rachel Schneider.

The authors tracked the income and expenditures of 235 low- to middle-income families over a year, and found the vast majority of them don’t have enough cash to pay all of their bills. Recent research over the last three years, including from the Federal Reserve, found nearly 80% of working Americans are living paycheck to paycheck, and about 40% cannot cover a $400 emergency expense, meaning most households are just one paycheck away from a financial disaster.

“When you actually look at that kind of micro level data, you see that people are basically doing the best they can with a situation that’s well beyond their control,” he said. “And so things like the turning to a credit card, a friend, a payday lender, those are very rational decisions that people make for their particular circumstances.”

So what can credit unions do to improve the financial health of their employees?

Provide them with a living wage by raising their salaries.

“If you’re looking for more bang for your buck, you need to run the numbers and see if maybe just simply raising your wages wouldn’t make a difference, because I think it would,” Nelms said. “You could have a direct impact and potentially spend less over the long term by simply raising wages.”

To determine whether your employees are earning a living wage, Nelms recommends using a living wage calculator such as the one developed by Amy Glasmeier at Massachusetts Institute of Technology, livingwage.mit.edu, which estimates the cost of living in your community or region and provides a wage rate that can allow residents to meet the minimum standards of living.

According to Filene’s research, market comparisons of wages and official poverty thresholds do not always provide accurate measures of resources needed for households to make ends meet, because they typically don’t take into account variations in family compositions or the costs of health care, child care, transportation and other necessities. Additionally, credit unions should offer a strong mix of benefits, including paid time off to take care of a child or an elderly family member, because it provides financial stability for employees at a negligible cost to employers, according to Filene.

One of the most successful programs that help employees make ends meet is the Employee-Sponsored Small-Dollar Loan program.

Rather than using traditional credit scoring, employees with reliable work records are automatically approved for loans of up to $2,000, which are typically available within 24 to 48 hours. The interest rates are lower than payday loan vendors, and the ESSDL loans are repaid via payroll deduction.

Pioneered by the Working Bridges Employer Collaborative of the United Way in Chittenden County, Vt., the ESSDL program was piloted by Rhino Foods and the $641 million North County Federal Credit Union in South Burlington, Vt.

Filene tested the ESSDL program with 48 employees and 13 financial institutions in eight states, extending more than 1,000 loans totaling $1.2 million. Loss rates reported during Filene’s test ranged from 2% to 3%.

To attract young talent, credit unions may want to consider student loan repayment plans. The $1.5 trillion student debt load is being shouldered primarily by younger people and people of color, restricting their ability to spend, invest and save in other areas. Filene’s research found 90% of 22-to-33-year-olds would commit to a job for five years if they received help with their student loans.

While Filene’s research outlined a number of other benefits and programs that can help employees keep their heads above water financially, it’s important to first determine the specific needs of your workforce, because there is an extensive range of financial needs and challenges among a credit union’s staff, as well as varying attitudes toward money and managing it. Credit unions can collect this information through anonymous surveys, focus groups, interviews and an internal advisory group.

To determine your staff’s current financial state, and identify which programs and benefits would best fit their needs, Filene recommended a three-part anonymous survey that measures workers’ current financial well-being, assesses the use value and use of your current benefits and program offers, and asks employees to identify which benefits and programs would best address their needs.

Filene recommended starting with the CFPB’s free online and ready-to-use questionnaire, as well as considering collaborating with an experienced partner that has a proven track record in helping organizations in developing benefits and programs that help employees achieve financial wellness.