As 2023 comes to an end, many Americans are struggling to achieve the goal of living without financial liabilities as credit card debt in the U.S. hit a new record high, surpassing $1 trillion, according to the New York Federal Reserve Bank. Credit card balances have seen seven quarters of year-over-year growth.
“Despite the many headwinds American consumers have faced over the last year—higher interest rates, post-pandemic inflationary pressures and the recent banking failures—there is little evidence of widespread financial distress for consumers,” New York Fed researchers wrote in a blog accompanying the data release. They noted, however, that rising balances may present challenges for some borrowers, and the return of student debt payments may add financial strain for many student loan borrowers. The data from the Federal Reserve Bank of New York shows the average debt balance in America amounts to $59,580 spread among mortgages, auto loans, credit card and student loan debts. It’s worth noting that this average figure excludes medical debt that may be incurred through credit cards or other personal loans.
Likewise, amidst inflation and rate hikes in 2022, Canadians are more likely to feel their situation deteriorating rather than improving. According to the 2023 Consumer Debt Report prepared by the Credit Counselling Society, a third of Canadians feel worse about their financial position compared to last year. Tim St. Vincent, the Credit Counselling Society’s financial educator, wrote in his article, “Financial Stress and the Workplace: What Are We Doing About It?” in the September/October issue of Plans & Trusts, that spending money on just the essentials has become an ever-larger reason for Canadians’ financial situation. More than 50% rank it as the No. 1 contributing factor.
Everyday expenses have created a challenging environment, adding pressure on not just employees but also employers, benefit providers and plan sponsors.
“Many of us have seen the reality of financial stress in the workplace, said St. Vincent. “Employees and management know there is a problem, yet many in both groups resist taking the necessary steps to go beyond discussing the issues surrounding financial stress and move towards a solutions-based approach.”
St. Vincent pointed out that corresponding with The Credit Counselling Society’s 2023 Consumer Debt Report, those hardest hit financially over the past year include those carrying nonmortgage debt from month to month (62%), with 43% of the respondents experiencing an increase in year-over-year debt. Respondents also noted the following:
- 63% plan to cut back on expenses, with food being a primary item.
- 67% are not paying much more than the minimum payment; 31% make the minimum payment or less.
- 77% with nonmortgage debt have sought financial help in the past year.
- 82% of Canadians say spending on essentials is causing a worsening of their finances.
“Money is still the great taboo topic of our culture, and debt is seen as the worst aspect of that great taboo,” St. Vincent said, noting that many see inflation as the culprit behind our financial woes and stresses. However, St. Vincent claims our primary enemy is a lack of knowledge. “We aren’t educated in debt management, yet debt is a primary source of financial stress.”
St. Vincent added that these levels of debt-induced stress can significantly impact our mental and physical health, and that carries over into the work environment. Nearly 50% of working Canadians say financial stress has impacted their work performance.
A 2023 mental health survey conducted by TELUS Health and a recent Manulife report noted the correlation between employer support of physical health and positive mental health.
“Our analyses consistently show that mental health is a top driver of overall health, well-being and work productivity. That said, physical and financial well-being are also critically important,” Paula Allen, TELUS Health Global Leader, Research & Client Insights, commented in a prepared statement regarding the survey results. “The current data shows that the connection between physical and mental health is not just recognized by academics but also well understood by workers. We see a clear comprehension of the value behind employer-led support of physical well-being and positive mental health. Employers should take note of this when considering their programs and services.”
What Can Employers Do?
St. Vincent recommends that if organizations want to help their employees, then setting aside time for financial literacy—whether through optional informal training sessions, lectures (like lunch and learns) or other educational opportunities—will help educate and destigmatize financial challenges.
Providing financial literacy in the workplace allows employers to be proactive and reactive, enabling employers to take preventive and corrective action, reducing presenteeism and allowing for informed decision making. St. Vincent cites a study conducted by Rand Research that found that over five years, companies offering financial literacy wellness programs experienced a 60% decrease in health care costs, and 80% experienced reduced absenteeism and increased productivity. Improving productivity and health also raises employee morale, lowers health benefit expenditures and boosts employee retention.
A wide range of providers offer workplace financial education, according to the Workplace Wellness and Financial Education Programs: 2022 Survey Report from the International Foundation. Organizations utilize a number of approaches, which include: plan record keepers/administrators (47%), EAP/LAP/EFAPs (46%), financial planners (30%) and investment managers/providers (30%). One in four responding organizations uses in-house staff as part of its financial education strategy (25%).
A program’s essential characteristics should include unbiased information, St. Vincent suggested, as well as accessibility, confidentiality, expertise, employer support, organization-wide promotion, customized individual support, partnerships with established providers and employee measurements. Additionally, the program should be nonstigmatizing and continuous.
“Financial stress affects everyone, and it’s important we deal with it quickly before another generation is impacted. Yet the best financial literacy education tools mean nothing if nobody picks them up,” St. Vincent added.
Are your finances causing you stress? Take a ten-question quiz to better understand your financial situation and plan your next steps. https://www.ifebp.org/pdf/Am-I-Financially-Secure.pdf