The Real Cost of Financial Stress

Before the current crisis began, we wrote about the surprising number of Americans whose low wages kept them struggling financially despite low unemployment rates. A recent study released by Salary Finance shows that the problem is even more widespread: serious financial stress is not limited to low-wage workers. In fact, the survey revealed that nearly one-third of American workers routinely run out of money between paychecks. And, the problem was nearly as widespread among those earning more than $100,000 per year as it was among lower-income workers. 

Please keep in mind that this study was released prior to the COVID–19 pandemic and unemployment rates have since increased significantly. As a bankruptcy attorney, I have been helping people facing financial challenges in Alabama, Mississippi and Tennessee for over 30 years and I have never seen the level of financial stress that exists currently.

42% of those surveyed reported living with financial stress, and that percentage was consistent among those earning less than $100,000 per year and those earning more than $100,000 per year. For both groups, a higher percentage reported financial stress than reported stress related to their relationships, careers, or health.

Living Paycheck to Paycheck

40% of those surveyed who earned $25,000 per year or less said they ran out of money between pay periods. At $40,000 per year, the percentage drops to 28%, and remained relatively stable through the $100,000 per year mark. Then, surprisingly, the percentage of wage earners whose pay checks didn't stretch until the next payday increased again. ⅓ of those who earn between $130,000 and $160,000 per year reported running out of funds before payday. 

The Toll Financial Stress Takes on American Workers

It's no surprise that running out of money between paychecks is stressful. However, you may not realize the full extent of the harm those struggling financially suffer. In addition to practical concerns, such as access to healthcare and good nutrition, the study revealed that people suffering financial stress:

• Are 11 times as likely to have difficulty sleeping
• Are 10 times as likely to fail to complete daily tasks at work 
• Are nine times as likely to have difficult relationships with their coworkers
• Are six times as likely to experience anxiety and panic attacks
• Are seven times as likely to be depressed

These issues impact a high percentage of those workers who are affected by financial stress. 62% reported sleepless nights, 46% said the quality of their work had suffered, and 47% reported not being able to complete daily tasks. Each of these percentages increased year-over-year. 

Obviously, that's a rough way to live. Lack of sleep and continued stress has been tied to a wide range of health problems, including heart disease, high blood pressure, and even obesity and diabetes. But, you may have noticed that some of the results of financial stress have an impact beyond the individual worker undergoing that stress. In fact, financial stress among employees costs employers -- according to this study, lost time in productivity due to financial stress eats up about 13% to 18% of the employers investment in salaries. That's up from 11% to 14% in 2018. 

The Economic Impact of Employee Financial Stress

The 13-18% loss employers are taking on salary due to employee stress breaks down like this:

• Employees suffering from financial stress lose an average of three work hours per week due to financial concerns 
• As noted above, these employees are less likely to complete their daily tasks at work
• About 1.6 sick days per employee per year are attributable to financial stress 
• Troubled relationships with coworkers impact efficiency and company culture
• Quality of work suffers

In total, each employee who is impacted by financial stress loses the equivalent 29 to 39 productive days per year. These employees are also twice as likely to be seeking alternative employment. That means additional recruitment and training costs as those employees are replaced. 

The Vicious Circle of Short-Term Solutions

People who are living paycheck-to-paycheck and are confronted with an unexpected expense or gap in income often see no alternative but to borrow money or use credit cards to cover expenses. Unfortunately, these “solutions” often make the underlying problem worse. The same survey showed that 38% of employees regularly carried credit card balances from month to month. Nearly half of those who did so had balances of $3,000 or more after paying their bills each month. Those with the highest income levels also carried over the largest amount of credit card debt from month to month. 

Some of the other short-term solutions referenced in the report include:

• Payday loans 
• 401K loans
• Bank overdraft

It's easy to see how these high cost options often lead to a long-term cycle of debt. High interest credit card debt and payday loan debt means that more income goes to servicing debt rather than to lowering balances and paying living expenses. And, taking loans against retirement accounts that are exempt from collection action can use up a consumer's safety-net without actually improving his or her financial situation. 

Seeking Long-Term Resolution to Financial Stress

If you are one of the 42% of working Americans who is living with financial stress, it may be time to seek a longer-term solution. The right solution for you will depend on your income, your expenses, your goals and priorities, your family situation, and perhaps other factors such as your age. 

The best time to consult an attorney experienced in debt resolution matters is before you make a decision to deplete your retirement account, take out a home equity loan, or otherwise alter your financial security for what may be a short-term fix. You can schedule a free consultation with one of the experienced attorneys at Bond and Botes right now by calling 877-581-3396 or filling out the contact form on this site.