As we move farther away from the height of the Great Recession, many employees appear to have put it behind them, since we are seeing stress levels due to financial concerns steadily decreasing over the past few years. This drop in financial stress levels is based on recent trend analysis research that I wrote about last month for our 2012 Special Report on Financial Stress.
In general, this is a positive trend, but there are some signs that complacency may be settling in. Most notably, of employees who reported no financial stress, 68% reported being unprepared for retirement, a majority did not have estate plans, and only half indicated that they had enough life insurance to adequately protect themselves and their families. Since some degree of stress is needed to motivate employees to make improvements to their finances, it is disconcerting that the group that reported having no financial stress still had serious deficiencies in their financial plans.
Research has shown that there is an optimal level of stress between no stress and high stress called eustress that is actually good for mental and physical health. Employees need to have some financial stress to be motivated to make improvements to their finances. Stress creates a sense of urgency, and there’s nothing like urgency to change behavior.
When employees lose that urgency about their finances, they are prone to get complacent and backslide into old habits. Employees across all stress levels reported a lower tendency to have an emergency fund, down six percentage points from Q1 2011, and fewer employees were paying off their credit card balances in full in Q1 2012, also down six percentage points from last year. It appears that overall, we are seeing a backslide, with the Federal Reserve reporting that consumer debt rose by $21.4 billion in March 2012, which is the largest monthly increase since November 2001.
So what is causing financial stress? Employees reporting significant financial stress cite internal factors as the main cause of their stress. For those reporting high or overwhelming financial stress, the two main causes cited are “I don’t think that I will meet future financial goals” and “I feel like my current financial situation is not under control.” By contrast, those with less financial stress were much more concerned about external factors, most notably worries about the U.S. economy and/or stock market. This implies that employees can actively reduce their financial stress by better controlling their personal finances, even in the face of major concerns about the stock market and economy, or the trustworthiness of financial institutions and professionals.
Look at your own workforce for signs of this potential backslide. Just yesterday, I spoke to an HR manager who was beginning to see an increase in 401(k) loans, requests for payroll advances, and calls from the local payday lending company verifying employment for payday loan applications even though business was picking up and employees were feeling more secure about their jobs. With the economy recovering, employees need education more than ever on basic money management skills so they don’t go back to the old habits of spending more than they make, which is what got our economy into trouble to begin with.