Any company that is bleeding money without knowing how to stop or deal with it will find some sort of reckoning in the near future, whether in the form of layoffs or simply going bankrupt. In the same vein, employees and their financial health are integral to a company’s success as well.
That is why most financial wellness programs focus on an employee’s financial health. In today’s fast-paced world, well-being and being able to take a break is critical, and someone who is always on the verge of going bankrupt and living paycheck to paycheck is unlikely to take that break. These are among the myriad of reasons that employee financial well-being matters, so let’s dive into it.
Financial Wellness – What Is it?
Financial health and well-being can be exemplified by your personal health–to an extent. If one part of you is unhealthy, it can have an effect on the rest as well, and if you eat unhealthy, do not exercise, ignore proper sleep schedules, etc., you can further harm your health as well.
Whether speaking of a company or an individual, financial wellness has little to do with how much money one has and everything to do with how the money you have is used and managed. A person earning $50k per year who manages to save a few thousand every year has better financial wellness than one earning $100k per year but not managing to save anything.
Of course, that isn’t the only factor, but it does give an idea of what it means. Other factors, such as whether the person earning $100k is spending on assets or liabilities, matter as well.
Even from an organizational perspective, financial wellness has to do with how effectively the yearly figures show the financial prospects of the organization. In an organization, not every part of the business is a money-maker. For example, research and development incurs a significant cost subsidized through the business’s sales earnings. The yearly cost of R&D and sales should not exceed the total earned by the latter, or else the business is operating at a loss.
Loss vs Cost
Losing money is not the same as cost, as exemplified by the above example. The money spent on R&D can improve products, add new ones, and lead to a competitive edge in business. It is only a loss if R&D doesn’t provide anything. A business is only losing money if the collective R&D and sales do not earn enough to subsidize each other in their respective methods. By being in the red (losing money), the business might have a more uncertain future, as it either needs to reduce spending or optimize processes to reduce costs through R&D.
In the same vein, an individual employee is capable of spending more through credit, borrowing, and more. They have a cost of living, which includes rent, food, fuel, and more. However, spending on unnecessary luxuries through borrowing can incur more spending where they might spend more they earn. That debt incurs a loss, as that money has to be paid back. Debt is also counted in student loans, car payments, mortgages, credit debt, etc.
Why is Financial Wellness So Critical for Employees
Think of it like this. If you had more bills to pay than what you earn each month, would you be able to work as effectively? Would you be able to work at all?
Even if the answer is yes, chances are high that it will have some kind of negative effect. A stressed employee never performs as well as when they are happy and satisfied in their personal and work lives. Financial stress can be incredibly taxing on an employee’s long and short-term well-being, as it directly relates to their quality of life and whether or not they can put food on the table.
Protecting Your Finances
Even if someone borrows money or takes on debt to afford food and basic necessities, it still carries the burden of debt or a lower quality of life. The situation is exacerbated by the fact that most full-time employed people do not qualify for benefits or social security.
In fact, the more you earn, the more limits you have on financial security unless you take steps to protect yourself financially. Someone making $300k per year will not qualify for any benefits, but they might get assets and get them insured. That way, you have an asset you can sell for a set value, providing financial security and insurance to make sure you get at least some of that value back in case something happens.
The Effects of Financial Stress
However, if you do incur plenty of financial insecurity, it won’t just affect your professional life but your personal one as well.
First, you can afford a lot less, whether it is food, luxuries, or extra activities from going out with friends or eating out a couple of days per month. By being unable to unwind after a long day, you have fewer outlets to release tension, which can cause it to build up.
A lack of finances can also mean rationing food, minimizing fuel usage, etc. All this can lead to a worsened nutritional diet, less energy throughout the day, etc. All these issues directly relate to how well an employee performs at work. With a worsened personal life due to financial issues, they won’t be able to perform as well, be less social, and might inadvertently cause their work performance to suffer even if they want to work harder to earn better.
How Employees Can Improve Your Financial Health
Financial health directly influences employee well-being. If financial security is compromised, it can lead to worsened employee performance. Similarly, higher financial security leads to a more satisfied and well-rounded employee who is willing to give it their all at work so they can enjoy their time at home.
Organizations Can Play a Part–and Benefit from It
Employee financial health directly relates to their personal well-being, physical health, and more. An employee who has better financial health is more likely to be healthy, thus being less likely to require medical treatment, which leads to lower healthcare costs. Employers that provide health insurance can get better deals if they have to use less insurance for employee treatment.
If you ask for financial advice for your business, an expert capital group will likely look at factors other than just your finances, and while employees are on the payroll, many don’t look there for the improvement of a business’s financial health.
Employers can even offer consultation to help employees with their fiscal responsibilities. Moreover, employees that are benefiting from a healthy financial outlook will prefer to stay at the company as well, improving workplace retention–a sign of employee loyalty and professional recognition.
Employee Wellness Leads to Organizational Wellness
Hiring a top-level talent is not an end goal. Getting the ‘best in the biz’ means they will cost more and return more, but it also means that those organizations need to retain their top talent. Offering benefits, which can include financial wellness programs, can be one among many that help retain employees and keep them within the organization.
A high retention rate not only points towards stability–and therefore financial wellness–it also keeps them away from your competitors and ensures you have the talent to expand, seek new ventures, and pivot to other industry sectors if necessary.
The boosted morale that comes from better wellness helps other employees as well. Better individual performance leads to better team performance and thus creates a pattern of desirable results reoccurring.
Everything about an organization is tied to everything it does, from spending extra cash on employee benefits such as parties and dinners, executive-level bonuses, company cars, expansion, and more. If a company wants constant growth but tries to make up for it through layoffs, it leads to financial mismanagement. If talent is kept to find new ways to do business, it keeps its growth and brings in new avenues for profits as well.