Three Steps to Help Employees Improve Their Financial Standing

Financial concerns—including potential job loss, income reduction, and gaps in retirement and emergency savings—were rampant among U.S. and Canadian workers even before COVID-19, but the economic challenges of this global pandemic have greatly increased the uncertainty. Employers and plan sponsors can help workers ease their anxiety and better prepare for the financial challenges ahead by encouraging three steps for immediate action: (1) Take stock of financial situations, (2) review current and potential sources of income, and (3) create a financial emergency kit.

Three Steps to Help Employees Improve Their Financial Standing

These steps, along with more detailed information, were presented in the webcast “Helping Employees Manage Finances Through the COVID-19 Pandemic” with Roland Chiwetelu, CFP, a financial wellness consultant with Eckler Ltd. in Toronto, Ontario.

1. Take Stock of Financial Situations

Encourage employees to review their financial situations on an annual basis and when major milestones or events occur. Given the global impact of COVID-19, everyone should review their finances this year. A good place to start is to track spending through online banking tools, spreadsheets or budget templates.

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Most people were living paycheck to paycheck before the pandemic, so it makes sense to reduce discretionary spending to increase flexibility during this difficult time, Chiwetelu noted. A financial review also should include updating net worth, identifying assets, and assessing liabilities such as credit card debt, personal loans, mortgages and lines of credit.

A financial review may help people discover new tools to help them manage their finances. “Part of the federal response has been to reduce interest rates,” Chiwetelu said. “There may be options to negotiate or create flexibility with debts.”

2. Review Current and Potential Sources of Income

Federal policies in Canada and the United States continue to evolve, but current legislation is already aimed at helping people get through this crisis. “Take advantage of federal funding legislation if you are eligible,” Chiwetelu said.

Legislation has included one-time payments in the United States and monthly payments in Canada for those who qualify. There also are supports for parents (e.g., an increase in child benefits), students (e.g., interest-free moratorium on payments for federal government student loans) and seniors (e.g., reduced minimum withdrawals). Some homeowners have also been able to defer mortgage payments, though Chiwetelu said that deferrals of any kind should be used with caution.

“Deferring your debt payments isn’t a get-out-of-jail-free card,” Chiwetelu said. “With your debt lenders, you will have to pay interest once you start making normal payments again. Talk to your lender about other alternatives before you make payment deferrals.” Alternatives include switching to a credit card with lower interest rates, making smaller payments instead of deferring outright, reamortizing a loan or mortgage at a lower borrowing cost, and applying for a line of credit.

One source of immediate savings could come in the form of premiums on car insurance. Chiwetelu said it’s worth a call to an insurance provider to see if they are reducing premiums during the pandemic. In turn, these savings could be used to bolster emergency funds.

Employees who can afford it should keep contributing to workplace retirement plans. Historically, there have been great gains in stock following bear markets. “It can be very difficult to time reentry into the market,” Chiwetelu said. “If you take money out, you might miss out on significant recovery.”

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3. Create a Financial Emergency Kit

Because of the uncertainty of COVID-19 in the months ahead and the potential for more shocks to personal finances, employees should start preparing for possible job loss, hour/pay reduction, health expenses and caregiving needs.

Ideally, employees should try to build up an emergency fund of three months’ earnings (or a time frame that better suits their circumstances) for unexpected repairs and expenses, loss of income, and protection from debt and depleted savings.

Chiwetelu suggested the use of online tools to create a virtual inventory that lists important personal documents and where they can be found. Examples include birth certificate, Social Security/Social Insurance card, driver’s license, passport, will and estate information, power of attorney, marriage certificate, computer passwords, email addresses, social media accounts, emergency contact names/numbers, bank accounts/institutions and real estate.

Employees also should check their pension statements and update their beneficiaries.

For More Information

For more detailed information on this topic, listen to the full on-demand webcast here.

Visit the International Foundation Coronavirus (COVID-19) Resources page to find information for plan sponsors, including these upcoming free member webcasts:

Robbie Hartman, CEBS

Robbie Hartman, CEBS
Editor, Publications, for the International Foundation

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