Employees’ Debt-stress eats away at your bottom line

28 April 2016 Shelley van der Westhuizen, MMI
Shelley van der Westhuizen, Head of Business Financial Wellness and Client Experience at MMI Corporate & Public Sector.

Shelley van der Westhuizen, Head of Business Financial Wellness and Client Experience at MMI Corporate & Public Sector.

How indebted employees can affect your company’s profitability – and what you can do about it.

According to the findings of the recent MMI Unisa Consumer Financial Vulnerability Index (CFVI), the South African consumer is financially “very exposed” in terms of debt servicing, which has been the most prevalent financial vulnerability factor since 2009.

“Our CFVI research reveals that we are experiencing a period of nearly 50% debt servicing arrears rates which leads to negative savings and decreases financial wellness,” says Shelley van der Westhuizen, Head of Business Financial Wellness and Client Experience at MMI Corporate & Public Sector. Van der Westhuizen answers some questions around the issue of indebtedness and its effect on the bottom line of your business - and how employers can help lessen the impact.

What is the overall impact of indebted employees on a business?

Indebted individuals affect the financial wellness of businesses through decreased productivity – which in turn feeds back into the economy. In other words, a vulnerable consumer translates to a vulnerable economy – and so the vicious circle continues. A debt-stressed employee is unlikely to bring his or her full focus and attention to work. In fact, the existence of high indebtedness in individual consumers results in “presenteeism” – being at work, but not being productive. So even if people are present physically, they may not be fully engaged. We are acutely aware that as many as one third of companies have severe employee indebtedness problems leading to absenteeism and presenteeism. The current state of employee indebtedness exacts a high toll not only on the productivity of employees but on other company resources - in particular in the human resources area.

Can the financial impact of employee indebtedness on a company be measured?

We can compare the impact on employee productivity for companies where employees are highly indebted relative to those where they aren’t, and see this effect in action.

How can a business help its employees who are struggling with debt?

Businesses can certainly help to alleviate the problem at ground level by addressing the current inability of employees to service their debts and high indebtedness levels. This requires going straight to the root of the problem: the CFVI research revealed that poor financial planning, consumers obtaining too much debt and consumers spending more than they earn are the top three consumer behaviour reasons resulting in being financially vulnerable. These behaviours are directly linked to poor financial literacy and discipline.

By empowering employees with sound financial literacy and planning skills, employers can facilitate a lasting change in their organisations’ financial wellness and that of their employees:

• This requires taking stock of where employees are at and providing relevant information that supports the pillars of income, expenditure management, debt servicing and savings. This can be done in-house by means of educational workshops, or bringing in the expertise of a financial adviser that can be made available to consult with employees.
• Information that a business provides to its employees regarding good financial planning needs to be holistic and take into account needs, risks, goals and circumstances.
• Businesses should seek solutions for their employees that enable them to meet unplanned expenses (to manage risks) in a way that is relevant to their affordability and situation. Managing risks around possessions, health, income, death and disability all fall into this category.
• In terms of dealing with debt, it is appropriate for employers to recommend debt management for those whose levels of indebtedness is causing them to feel financially stressed or preventing them from meeting other financial objectives.

In conclusion

People who feel in control of their lives will be productive workers, which brings reward for them and prosperity for the company and the increased cash flow generates more consumption in the economy. Businesses can help by positively influencing employee effectiveness in their places of work, thereby beneficially impacting individual financial wellness, business profitability and sustainability.

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