Why an over indebted workforce is bad for business

Ronelle Kind, General Manager Employee Financial Wellbeing from Momentum Corporate explains why it’s in the best interests of businesses to empower their employees to get on top of their personal finances.

After a year-long economic lockdown, a growing number of households are in a desperate struggle to keep their heads above water. But what does this mean for businesses whose workforces are made up of these financially stressed individuals – and how can more businesses become part of the solution?

Kind explains that personal financial struggles can take a nasty toll on workforce performance, which may result in absenteeism or even presenteeism (when you are at work but preoccupied and unproductive), as personal financial issues start to overshadow work responsibilities.

According to the Momentum/Unisa 2020 Household Financial Wellness Insights report, disposable income in 2020 decreased by R27.5 billion. This is mostly due to households not being able to earn enough of an income from work.

In addition, the latest results from the Momentum/Unisa Consumer Financial Vulnerability Index (CFVI) revealed that South Africans are in a very vulnerable state and are simply unable to cope financially. The main contributor to the low score was a significant increase in debt servicing vulnerability.

A recent PayCurve survey supported these findings by revealing that almost 80% of South Africans are seeking expensive unsecured loans to help them meet their monthly financial obligations. Another study has also shown that unscrupulous loan sharks have infiltrated businesses across the country – recruiting company employees to act as agents between the loan shark and employees, adding much fear and desperation to an already tenuous work environment.

“Add to this rising fuel prices, an anticipated third wave of Covid-19, and economic uncertainty, and you’ll see why the perpetual pay-day debt trap will continue to push South African employees into the red. The companies they work for will suffer in turn as increased absenteeism and presenteeism as a result of financial stress will hamper productivity and affect the bottom line,” says Kind.

So what can employers do?

The CFVI results highlight the need for financial discipline and literacy, but is it realistic to expect companies reeling from the impact of the pandemic to dedicate precious resources to this? Kind believes that the avenues already inherent in company benefits like retirement funds can provide employees with much needed financial stability and contribute to mitigating employee overindebtedness.

“As part of their employee benefits, many businesses offer their employees group insurance benefits to help the individual and their families overcome the potentially catastrophic impact of unexpected life-changing events, such as critical illness, disability or death,” says Kind.

“Covid-19 has reminded people how uncertain life is and elevated fears of these unexpected life-changing events – all of which can quickly catapult households into a debt spiral,” explains Kind.

Kind says, however, that the right group benefits for employees should alleviate much of this concern by instilling the confidence that these needs will be well taken care of.

Further to this, Kind says nowadays a progressive package of employee benefits should include an Employee Assistance Programme (EAP), to support employees dealing with the many mental, emotional, financial and physical stressors that permeate the workspace. This is why all Momentum Corporate clients have access to an EAP, which also provides debt counselling to help employees overcome overindebtedness and manage their relationship with debt more constructively.

In addition to the role group insurance cover and an EAP plays in helping employees to be more engaged and focused at work, Kind says that the default retirement regulations require all retirement funds to offer benefit counselling for members. “Some umbrella funds have taken the service a step further by expanding the offering to include financial coaching, proactively reaching out to members and, where appropriate, actively linking members to financial advisers,” says Kind.

Kind says that some progressive umbrella retirement funds are also leveraging digital platforms to help members improve financial literacy levels. A good example are the member webinars hosted by the FundsAtWork Umbrella Funds. Last year, over 5 000 members attended this inaugural series of online events, with more planned for this year. “The platform is designed to improve financial literacy and encourage members to use available resources, such as benefit counselling and the services of financial advisers to help deal with personal issues like debt.”

Kind says if employees are better equipped to manage their finances, they will be able to better service your business.

“In the end the idea is simple: Employees who feel cared for, appreciated and protected are more likely to invest emotionally in the success of your business. This should result in greater loyalty and engagement, and elevate productivity levels.”

ENDS