In addition, low levels of financial wellness impact the following specific aspects of HR practice:
Staffing and Hiring. When employees who are eligible to retire and wish to do so cannot because of poor financial decision making, hiring opportunities will decrease. Data indicate that the financial knowledge of high school and college students is declining. When hiring young adults, the employer is increasing the portion of employees who will be “at risk” and cause harm to themselves and their employer.
Promotion. When employees who are eligible to retire and wish to do so cannot because of poor financial decision making, fewer promotional opportunities are available. Fewer promotional opportunities frustrate employees seeking and deserving promotion and may increase turnover of top-performing employees.
Compensation and Benefits. Employees who are distressed by financial problems are less satisfied with their pay and benefits. They make poor decisions about their pay and benefits and under-utilize programs such as 401(k) plans and flexible spending accounts. Under-utilization of FSAs increased employers’ FICA expenses. Employees who do not manage their finances well create payroll expenses for wage garnishments and 401(k) loans. When employees who are eligible to retire and wish to do so cannot because of poor financial decision making, the average wage and benefits costs of the employees are higher. This is due to the fact that there are a greater number of high wage earners than low wage earners at each job level in the organization.
Mergers and Acquisitions. The cost of merging or acquiring an organization with low levels of financial wellness is greater than the acquirers know. Financial wellness is not considered in due diligence calculations.
Succession Planning. When employees who are eligible to retire and wish to do so cannot because of poor financial decision making, there are fewer openings for new leadership talent. The organization runs a greater risk of turnover among the leadership talent that cannot advance in their careers.
Performance Management. Employees who are distressed by financial problems, or are frustrated about limited promotional opportunities or by an inability to retire will perform less well and are less engaged in the business than if those conditions did not exist. These performance problems reduce business productivity.
Although research on the effectiveness of financial wellness programs is limited, it does suggest that financial wellness programs increase financial knowledge and the well-being of employees and their families and, in turn, have a positive impact for the employer, including higher productivity, lower absenteeism, increased pay and benefits satisfaction, and greater employee engagement. Employers are increasingly recognizing the benefits of expanding their idea of workplace wellness to include financial wellness.