Research
Employee Financial Distress
Financial Stress, Pay Satisfaction and Workplace Performance, Compensation & Benefits Review, 2004, Kim & Garman
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Most people experience financial
difficulty at some point in their
lives, and many have financial
troubles on a consistent basis.
With a sagging economy, millions
of Americans are financially insecure.
Twenty-seven percent of
those responding to a recent survey
conducted by the Los Angeles
Times characterized their personal
finances as shaky. Forty percent
reported difficulty paying
installment loans, car payments
or insurance premiums. 1 Many
employees experience financial
difficulty and seek ways to get the help they need.
Financial concerns spill over into workers' responsibility
at the workplace. Researchers estimate
that 15% to 20% of workers in the United
States are experiencing financial stress that impacts
their productivity. Research shows that financial
stress is associated with employees'
health and sometimes absenteeism.
Job performance, worker productivity, tardiness,
absenteeism, retention, turnover, work
commitment, job satisfaction, morale and loyalty
are human satisfaction indicators of employee
outcomes at workplaces. 2 There is limited research
on financial stress and work outcome variables,
although financial stress could be a more
valid measure than income in predicting these
work outcome variables. This study focuses on
the relationships between financial stress and
work outcome variables, which include pay satisfaction,
work time use and absenteeism.
Keywords: financial stress; financial education and advice; pay satisfaction; productivity; absenteeism
The data for this study were collected from
white-collar workers of an insurance company
with work sites located in three Midwestern
states. A self-report questionnaire was mailed to
all 476 employees in February and March 1999. A
total of 262 usable questionnaires were returned
for a response rate of 55%. About three fifths
(59.5%) of the respondents in this study were female.
Almost all of the respondents (97.7%) were
self-identified as white. About three fifths (60.5%)
of the respondents were married, and 16.5% were
never married. In regard to education, the largest
group (36.3%) had a bachelor's degree, 22.1%
were high school graduates, 14.1% had an associate's
degree, and 13.4% had completed some college.
The average age was 38.86 years. Household
income ranged from less than $20,000 to more
than $100,000. The median category for annual
household income was $60,001 to $70,000.
Method
Financial stress is conceptualized as the subjective
perception of one's personal finances. The
scales included satisfaction with present financial
situation, income adequacy, debt, savings
and investment. Half of the respondents were
likely to be satisfied with their present financial
situation. One fifth of the respondents indicated
that their incomes were not enough to meet
monthly living expenses. About two thirds (61%)
of the respondents worried about how much
money they owed. More than half of the respondents
(58%) were not satisfied with the amount of
their savings and investing for retirement. (See
Exhibit 1.)
The financial stress index was obtained by
summing the responses of four statements. A
higher score indicates a higher level of financial
stress. The index was used in the regressionanalysis. The mean of the index was 9.33, and the
standard deviation was 2.80 (range from 4 to 16).
Respondents were grouped into three financial
stress groups, low (4-8; 43%), moderate (9-11;
36%), and high (12-16; 21%) for one-way ANOVA.
Pay satisfaction was measured with a fouritem
pay satisfaction scale from the Job Satisfaction
Survey. 3 A summated rating scale was used
with a 4-point scale (from agree = 4 to disagree =
1). A sample item was, "I feel I am being paid a
fair amount for the work I do," "Raises from my
employer are too few and far between (reverse
coding)," "I feel unappreciated by my employer
when I think about what I am paid (reverse coding),"
and "I feel satisfied with my chances for
salary increases." (See Exhibit 2.)
Two thirds of the respondents were likely to
agree with the statement "I feel I am being paid a
fair amount for the work I do." Half of the respondents
were likely to feel that the raises from their
employer were too few and far between. Combining
the categories agree and tend to agree, 62.1%
of the respondents were likely to agree with the
statement "I feel unappreciated by my employer
when I think about what I am paid." About three
fifths (58%) were satisfied with their chances for
salary increases. The pay-satisfaction index was
created by summing responses to the four statements.
Higher scores mean higher levels of pay
satisfaction. The index ranged from 4 to 16 with a
mean of 10.39 and a standard deviation of 2.96.
Work time use was measured by the responses
to 11 behaviors related to financial stress that employees
exhibited at work. (See Exhibit 3.) The responses
to 11 behaviors were summed to make
an index. The 11 behaviors include "took time to
handle personal financial matters," "spent time
worrying about personal finances," "talked about
money problems," "talked about consolidating
debts," "made calls to family or friends to discuss
financial problems," "received calls from creditors,"
"asked about borrowing money from 401(k)
plan," "consulted with a credit counselor," "talked
to a collection agency about past due payments,"
"asked about obtaining a payroll advance," and
"consulted with a lawyer." The satisfaction with
work time use was obtained by summing the responses
of the 11 statements. The index score
ranged from 0 to 11 with a mean of 0.98 and a
standard deviation of 1.28. More than a half
(53.9%) of the respondents spent some work time
dealing with matters resulting from financial
stress.
Absenteeism was measured by self-report of
the frequency of absences. The question was
phrased, "Over the past year, how many days
were you absent (excluding vacation and holidays)
from work for personal reasons?" Responses
were none (0), 1-2 days (1), 3-4 days (2), 5-6
days (3), 7-8 days (4), 9-10 days (5), 11-12 days (6),
and 13 or more days (7). One third of the respondents
(34%) reported no absences over the past
year excluding vacation and holidays. The largest
group of the respondents (41%) reported 1 to 2
days absences. About one seventh of the respondents
(15.3%) were absent for 3 to 4 days. Only
1.1% of the respondents were absent for 13 or
more days. Mean was 1.88 and standard deviation
was 2.36. (See Exhibit 4.)
Health was measured by the self-report of personal
health. The respondents were asked, "Compared
to people your age, how would you say
your health is?" Responses ranged from better
than others to worse than others on a 5-point
scale. Slightly more than half of the respondents
(53.3%) reported above average, whereas 46.7%
reported average or below average (M = 3.68;
SD = .83).
Results
Correlation, ANOVA and regression analysis with
SPSS statistical program were conducted to determine
whether there exist any relationships between
financial stress and work outcome variables.
Significant statistical relationships were
found between workers' financial stress and three
variables: pay satisfaction, work time use and absenteeism.
Correlation,ANOVA and
regression analysis with
SPSS statistical program
were conducted to determine
whether there exist
any relationships between
financial stress and work
outcome variables.
ANOVA and
regression analysis with
SPSS statistical program
were conducted to determine
whether there exist
any relationships between
financial stress and work
outcome variables.
senteeism by the levels of workers' financial
stress (shown in Exhibit 5). Regarding pay satisfaction,
those who were in the high financial
stress group had significantly lower levels of pay
satisfaction than did moderate and low financial
stress groups. There was no significant difference
between moderate and low financial stress
groups. In terms of work time use, those who
were in the high financial stress group spent
more time handling financial matters at work
than did low and moderate financial stress
groups.
For the absences from work, high financial
stress group workers were more frequently absent
from their work than were moderate and low
financial stress group workers. There was no significant
difference between moderate and low financial
stress groups. In summary, those who experienced
high levels of financial stress were less
likely to be satisfied with their pay, used more
work time handling financial matters, and were
more frequently absent from their work.
Regression analyses were conducted if any significant
relationships existed between financial
stress and work outcome variables (pay satisfac-
tion, work time use and absenteeism), controlling
for the effects of individual variables such as
family size, age, work years with the current employer,
education, gender, household annual income
and health. Exhibit 6 shows the regression
results.
For the pay satisfaction, 6.1% variance of pay
satisfaction was explained by these variables. Financial
stress and work years were significant
factors in predicting pay satisfaction. Those who
had longer work tenures with the current employer
showed lower levels of pay satisfaction.
Workers who were highly stressed with their personal
finances were less satisfied with payment
controlling for their household income and other
variables. These results support previous studies
that determined that pay satisfaction is determined
not only by actual salary but also by workers'
characteristics.
Financial stress is also an important factor to
understand employees' work time use, while all
individual variables explained 25.5% of variance.
Holding other individual variables constant,
those who had higher levels of financial stress
were more likely to spend work time handling
financial matters. To understand workers' absenteeism,
financial stress and education weresignificant variables. Education was negatively
related to absenteeism. Those who had higher
levels of financial stress were more frequently
absent from their work, controlling for other variables.
These regression results support the ANOVA
findings. Those who were more financially
stressed showed lower levels of pay satisfaction,
spent more work time on financial concerns, and
were more frequently absent from their work,
with other variables such as family size, age, work
years, education, household income and health
being equal.
Conclusions
This study shows that some employees are financially
stressed and this negatively affects their attitudes
and behaviors at work. Some employees
feel that they do not have enough money for living
expenses. They also are worried about the
amount of their debts and are dissatisfied with
their savings for retirement and overall general financial
situation. About one fifth of employees in
this study were highly financially stressed.
All employers should realize that there is a
group of employees in their workplaces who are
stressed about their personal financial matters.
The number may be 10% or 30% or even higher. 4 The actual number of financially distressed employees
in a particular workplace depends primarily
on the makeup of the workforce, the educational
level of the employees, their incomes
and other variables. There is no reason to believe
that the white-collar employees in the present
study are substantially different than employees
in many other workplaces in the United States.
The results of this study show that those who
are financially stressed are more likely to have
lower levels of pay satisfaction, spend work time
handling financial matters, and be absent from
work. Financial stress is one of the key factors in
pay satisfaction, work time use dealing with financial
concerns, and absenteeism.
These findings are consistent with other research.
Some research found that financial stress
is a significant variable in understanding organizational
commitment and absenteeism. 5
The findings of this study also support the idea
that workplace financial education can help
workers handle their personal finances better
and reduce their financial stress. Employers can
increase workers' pay satisfaction and improve
productivity if they can reduce employees' financial
stress.
Researchers suggest that workplace financial
education programs could improve workers' productivity
by reducing financial stress. 6 Workplace
financial education programs have been found to increase the participants' confidence in their investment
decisions, change their attitudes in
positive directions, 7 and improve their personal
financial management behaviors, such as saving
more money. 8 Employees who attended workplace
financial education seminars and workshops
report less financial stress and higher financial
well-being than those who did not. 9 Moreover, employers are advised that they might
reduce absenteeism and improve productivity if
they can help employees reduce their financial
stress by offering access to effective workplace financial
education and advice programs that improve
personal financial well-being.
Recommendations
Based on the results, a number of recommendations
are offered for researchers, employers and
policymakers. Future research could include additional
variables such as the employee's salary or
health problems that may be related to pay satisfaction,
work time use and absenteeism. Also,
studies with different populations such as bluecollar
and diverse ethnicities are recommended.
Employers need to consider providing employees
access to financial education and/or advice
and counseling at the workplace so that
workers better deal with any financial problems
or challenges. These opportunities give employees
chances to improve their personal financial
well-being. Increases in employee financial well-ness also are likely to translate into improvements
in the employer's profitability through
greater pay satisfaction and less absenteeism.
Workplace financial education, as retirement
education, does fulfill ERISA guidelines for plan
sponsors. The U.S. Department of Labor regulations
require that plan sponsors be certain "the
participant or beneficiary is provided or has the
opportunity to obtain sufficient information to
make informed decisions with regard to investment
alternatives under plan" (29 CFR
§2550.404c-1(b)(2)(i)(B)).
The term workplace financial education implies
more than simply offering employees retirement
education seminars, workshops, written
materials and software. Traditional 401(k) educational
programs are quite valuable to employees
because they help improve employee financial
well-being. Although workplace financial education
is effective at increasing participation rates
in 401(k) plans, some employees need access to
additional services. However, employees have
different needs. Some experience difficulty meeting
basic needs, some have debt problems, and
many feel uncomfortable managing their retirement
plan and require professional help. Employees
may need more support than workshops
and written materials from employers. Many employees
also need more than retirement-planning
education. Financial counseling or financial advice
should be an option for many employees
who need professional help to manage their personal
finances.
Fiduciary Liability
Although concerns about fiduciary liability stop
many plan sponsors from giving workers financial
advice, 10 pending legislation such as the Pension
Security Act, H.R. 1000 could provide some
safety to employers in the future. The Economic
Growth and Tax Relief Reconciliation Act of 2001
made employer-provided retirement planning
advice a de minimis fringe benefit for employees
so long as such services are available on substantially
the same terms to all employees.
Qualified retirement-planning services are defined
as any retirement-planning advice or information
that an employer who maintains a qualified
retirement plan provides to an employee or
the employee's spouse. This exclusion is expected
to motivate more employers to provide retirementplanning
services to their employees.
However, the law does not cover general financial
planning or advice for employees or retirement planning services provided by independent outside
providers. Employees have a full range of financial
situations and needs. Qualified retirement-
planning services should be more
comprehensive than retirement-planning advice
or information. A comprehensive financial
checkup followed by appropriate advice could
benefit more employees. A recent study by Nationwide
Financial found that one in three 401(k)
participants surveyed (32%) report that they
would use a financial advisor to make their 401(k)
investment choices if such an option were available. 11
Policy makers also need to consider creating
additional tax incentives to both employers and
employees regarding workplace financial planning
and advice. Perhaps a dollar-for-dollar federal
income tax credit for employers and/or employees
for such services could provide that
motivation. This same discussion is going on in
the United Kingdom as the Association of British
Insurers is calling for government to provide incentives
to provide retirement-plan-related advice.
Notes
1. Atkinson, W. (2001, August). Drowning in
debt. HR Magazine, 46(8), 68-74.
2. Families and Work Institute. (2001). Feeling
overworked: When work becomes too much.
New York: Author.
3. Spector, P. E. (1997). Job satisfaction: Application,
assessment, causes, and consequences.
Thousand Oaks, CA: Sage.
4. Garman, E. T., Leech, I. E., & Grable, J. E.
(1996). The negative impact of employee
poor personal financial behaviors on employers.
Financial Counseling and Planning,
7, 157-168. Joo, S., & Garman, E. T. (1998).
Personal financial wellness may be the missing
factor in understanding and reducing
worker absenteeism. Personal Finances and
Worker Productivity, 2(2), 172-182.
5. Kim, J., & Garman, E. T. (2003). Financial
stress and absenteeism: An empirically derived
research model. Financial Counseling
and Planning, 14(1), 31-42.
6. Garman, E. T., Leech, I. E., & Grable, J. E.
(1996). The negative impact of employee
poor personal financial behaviors on employers.
Financial Counseling and Planning,
7, 157-168.
7. Fletcher, C. N., Beebout, G., & Mendenhall, S.
(1997). Developing and evaluating personal finance education at the worksite: A case
study. In E. T. Garman, J. E. Grable, & S. Joo
(Eds.), Personal Finances and Worker Productivity,
1(1), 54-59.
8. Bernheim, D. B., & Garrett, D. M. (1996). The
determinants and consequences of financial
education in the workplace: Evidence from a
survey of households. Palo Alto, CA: Stanford
University Press.
9. Garman, E. T., Kim, J., Kratzer, C. Y., Brunson,
B. H., & Joo, S. (1999). Workplace financial education
improves personal financial wellness.
Financial Counseling and Planning,
10(1), 79-88.
10. In 2003, "If approved by plan sponsor, participants
in plans serviced by Schwab Retirement
Plan Services will now have access to
[free] customized advice [from Guided-
Choice's GuidedSavings] either online, by
phone, or in person-including specific recommendations
among the core investment
fund choices available in the retirement
plan," according to PLANSPONSOR.COM
(http://www.plansponsor.com/pi_type11/?R
ECORD_ID =22206).
11. http://nationwidefinancial.com/nwf/CDA/
NWFFinancialNewsView/1,2404,1263,00.html.
Jinhee Kim is an assistant professor and extension specialist at University of Maryland, College Park. She
received her B.S. and M.S. from Seoul National University, Korea, and her Ph.D. from Virginia Tech. Research
from her doctoral dissertation won a national award for excellence from the Association for Financial
Counseling and Planning Education. Prior to joining University of Maryland, she was director of
research to Virginia Tech's National Institute for Personal Finance Employee Education and directed research
and published articles in academic and professional journals on workplace financial education.
Her research interests are financial stress, financial well-being and workplace financial education.
E. Thomas Garman is an advisor and author based in Orlando, Florida, and Professor Emeritus at Virginia
Tech. Research studies conducted under his direction have won seven national awards. Garman is
an elected Distinguished Fellow in both the American Council on Consumer Interests and the Association
for Financial Counseling and Planning Education. He has authored 200 academic articles and 28 books,
including Personal Finance (Houghton Mifflin).His work has been featured in Financial Counseling and
Planning, Journal of Compensation and Benefits, HR Today, Employment Relations Today, USA Today,
Wall Street Journal, The Washington Post, Los Angeles Times, The Chicago Tribune, and U.S. News &
World Report.
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