The strain of financial debt is no longer considered just a personal problem for employees these days, as more attention tunes in to the notion that negative factors outside the workplace invariably find their way inside. Perhaps that’s part of the reason it’s called “carrying debt,” because it’s a burden that individuals bring with them wherever they go – one of those key places being work.
This makes employee debt very much a business problem that creates high costs for employers. To build greater awareness, we’ve gathered an overview of the surprising impacts caused by debt that company leaders need to know.
The Late Game
Debt affects employees of various generations in different ways. In the current economy, older generations are feeling the financial pinch acutely.
Earlier this summer, the New York Times (NYT) reported that debt among older Americans has increased over time, which may affect their retirement security and their health. Key figures from the U.S. Government Accountability Office (GAO) shows that older Americans held nearly half of the total debt in 2020. And among those older individuals, the ratio of debts to assets was about two times higher for minority households than white households.
“Older adults fare measurably worse on a range of health measures: fair or poor self-rated health, depression, inability to work, impaired ability to handle everyday activities like bathing and dressing,” wrote Paula Span in the NYT. “Those in debt were also more likely to have had two or more doctor-diagnosed illnesses like hypertension, diabetes, cancer, heart and lung disease, heart attacks, and strokes.”
In addition to affecting health, debt can also disrupt plans for retirement. About 46% of all Americans expect to retire in debt, according to a survey from MagnifyMoney by LendingTree. If retirement income and the tenuous safety net of Social Security aren’t enough to cover their debt payments, many retirement-aged individuals will choose to work for more years or find a supplemental part-time job.
All of this ultimately becomes a very expensive issue for employers. Debt combined with poor employee health and a need to work longer in life affects companies in all kinds of negative ways. There are direct costs like increased insurance premiums and major productivity losses caused by things absenteeism, stress, distractions, and a lot more.
The Young Ones
Debt among younger workers can also create its own unique problems for employers across several different fronts. Much like with older workers, the impact on young individuals in terms of financial stress and job performance can lead to negative health effects. Beyond that, there are strong ties between a company’s financial support offerings, or lack thereof, and employee turnover.
According to a 2022 survey of about 20,000 workers from management consulting firm Bain & Company, young workers are increasingly overwhelmed by a range of financial stressors.
“The combination of slowing economic growth, rising inequality, and declining housing affordability has made it far more difficult for younger workers to attain financial stability,” the survey findings said. “When we asked workers to share their biggest concerns for the next 5 to 10 years, 61% of respondents under 35 cited financial issues, job security, or failing to meet their career goals.”
This obviously has the potential to cause many of the same negative health and productivity problems as those found in other age brackets, which is certainly a problem for companies. But separately from physical concerns and stress, younger demographics are paying an increasing amount of attention to the levels of financial education and support that companies provide.
For these workers, financial wellness benefits have become just as important as traditional benefits like health insurance, retirement plans, and paid time off. Companies that offer things like financial literacy education, emergency planning assistance, or tuition repayment programs may have an advantage in the competition for younger employees. Those without may have a harder time hiring or may have a higher turnover rate as young people resign to seek employment elsewhere.
The same holds true for all ages of employees, actually. 72% of surveyed workers said they would be attracted to another company that cares more about financial well-being, according to data from professional services network PricewaterhouseCoopers.
Debt is Expensive
Employee debt can be an expensive issue for companies, even across the generational spectrum. It’s only through recognizing debt as a performance hinderance that employers can begin taking steps to mitigate its effects by providing financial literacy and support. Although employers cannot solve every employee’s debt issues, it will be important moving forward to establish a framework that lessens the impact of employee debt so companies can thrive.
