It is difficult to overlook the growing number of reports and studies documenting the downward spiral of personal financial wellness within the United States. The American Psychological Association, for example, indicates that finances have become a more frequently cited source of stress than work, family, or health concerns. The Federal Reserve Board further reports that half of the population does not have $400 in the event of an emergency, while spending equals or exceeds income for many households.
As Neal Gabler summarizes in The Atlantic, “In the 1950s and ’60s, economic growth democratized prosperity. In the 2010s, we have democratized financial insecurity.”
Assistant Professor Jirs Meuris
Although rising debt and stagnating incomes are often ascribed as the main culprits for this turn of events, the impact of historic changes in employment relations and the organization of work on these trends tends to be understated if not go unmentioned. Research suggests that companies have increasingly relied on contingent workers, adopted variable pay and scheduling schemes, laid off employees, and increased employees’ share of the costs and risk associated with fringe benefits since the mid-1970s, which in sum has created a context for financial uncertainty and precarity to thrive among a substantial segment of the population.
Given the contribution of changing work practices to the current crisis in personal finance in the United States, an open question that has not received much attention is whether these trends carry economic implications for employers.
We set out to answer this question by collaborating with a national transportation company to collect survey data from over 1,000 short-haul truck drivers and track their accident rates for the subsequent eight months.
Performance implications of financial precarity
Analysis of this data revealed that financial worry was associated with a higher probability of a preventable accident by decreasing drivers’ available cognitive capacity at work. In fact, data from a subsample of drivers indicated that finances were a more frequent source of worry at the beginning of their work day than health or family issues, echoing the findings reported by the APA.
Based upon the average cost of a commercial truck accident, we estimated that financial worry was associated with $1.3 million per year in company costs due to the higher rates of preventable accidents.
To replicate our findings, we subsequently moved to a laboratory setting. As part of these lab sessions, participants imagined that their car had a break down with an attached price tag of $150 or $1,500 and were asked to write about how this expense would affect their life. Afterward, they completed two cognitive tests and a driving simulation.
Random assignment to the $1,500 expense condition evoked financial worry among participants who reported having objectively less money at their disposal to meet their expenses. Because of the primed worry about their personal finances, these participants had more traffic violations in the driving simulation, which were attributable to decreases in their cognitive capacity during the session.
What does this mean for employers?
The findings of these studies suggest that companies not only have played a role in fostering the current crisis in personal finance, but also have an economic interest in reversing it.
Whenever debates arise surrounding these trends, arguments for company action are often framed from a moral perspective where employers are proclaimed to have a responsibility to ensure their employees enjoy an existence that mirrors the middle class of the 1950s and ‘60s. Yet, this does not solely need to be a question of social responsibility but can also be approached from an economic perspective.
The premise of an economic interest is that people spend much of their time at work and worry about finances can have a negative effect on their ability to be productive and perform up to their full potential. Indeed, a recent report by consulting company Mercer found that employees on average spend approximately 150 hours per year thinking about their finances at work, which translates into roughly three weeks’ worth of work time annually.
Our findings demonstrate that companies who are unresponsive to the financial welfare of their employees therefore may neglect to derive the full benefit of their human capital.
What can be done?
One means through which employers could address this crisis is to think about how their work practices may be creating a context for financial precarity and uncertainty. Companies could ask themselves whether they are paying employees a wage that allows them to live and provide for their families, do their fringe benefits (medical, retirement, sick days, etc.) place too much costs and risk upon the shoulders of individual employees, and/or have they implemented pay or scheduling schemes that are introducing detrimental uncertainty into people’s lives? This introspection could open some effective avenues of decreasing employees’ financial precarity.
Beyond evaluating work practices, employers can also address financial concerns in their employee population directly through targeted interventions. For example, if affordable housing is a significant source of concern for employees, organizations may offer a mortgage assistance program or partner with financial institutions to offer better rates. Many companies are starting to take steps in this direction, but there is still much room for expansion.
Regardless of the way employers choose to promote financial welfare among their employees, the studies noted above suggest that their businesses will be better off for it.
Read the paper “The Price of Financial Precarity: Organizational Costs of Employees’ Financial Concerns,” published in Organization Science.
Jirs Meuris is an assistant professor in the Department of Management and Human Resources at the Wisconsin School of Business. This post originally appeared in “Work in Progress,” a blog published by the American Sociological Association (ASA).