Financial Wellness

7 things you’re getting wrong about your employees’ finances

Common misconceptions about saving, budgeting, and financial stress could be hurting your workers. Learn how to support your employees financially here.
The numbers one, two, three, four, five, six, and seven, each one filled in with the design of various denominations of U.S. paper currency.

Last year, a study conducted by Commonwealth showed that 80% of Americans felt that financial insecurity is a major problem, and a majority felt that employers have a responsibility to help. However, this survey was conducted in the summer of 2019 — a time of relative economic stability, with unemployment at 3.7% and a healthy stock market.

One year later, we find ourselves still in the midst of a global pandemic that’s disproportionately impacting the finances of lower-income hourly workers and families. The focus on financial insecurity among workers — and the onus on employers to help — has intensified, with organizations like JUST Capital tracking and publicizing corporate responses to employees’ pandemic-related financial struggles.

For many, the takeaway here is clear: Employees need help, and expectations for employers to provide that help are higher than ever. But increasing services and benefits doesn’t come without obstacles; for example, decision-makers within organizations who don’t understand why workers are struggling in the first place, and resist the idea that employers should do more. To help you win over anyone within your company who might be holding on to some misconceptions about employee financial insecurity, we did a little mythbusting.

1. Only the lowest earners live paycheck to paycheck

As an employer, you may feel confident that you’re paying market value. So if people are making what seems to be a good wage, why aren’t they able to get by? What's behind survey results revealing that 85% of Americans believe that financial insecurity can happen at any income level? The truth is, the data shows that making ends meet is far more difficult than it used to be.

For starters, the costs of life’s basic necessities have skyrocketed, and wages simply haven’t kept pace. Since 1980, medical expenses have gone up by a factor of five, while housing costs have risen 200% and college tuition has doubled.1 Workers struggle to meet these rising costs because despite some growth, Pew Research Center reports that “today’s real average wage has about the same purchasing power it did 40 years ago.”

This helps explain why it’s not just low earners who are susceptible to living paycheck to paycheck. In fact, of families making $150,000 per year or more, 25% live paycheck to paycheck. The number increases roughly to 33% for families earning between $50,000 and $100,000, and about 50% of families earning less than $50,000. All this means that many of the highest earners at your company could be struggling.

2. The best financial benefit you can offer is a 401(k)

Having a 401(k) is about as American as apple pie — and much like apple pie, saving for retirement is widely regarded to be a good thing. But for many of your employees, saving for retirement might be completely out of reach, or they might be withdrawing from their own 401(k)s in emergencies.

70% of workers with less than $45,000 in household income can’t afford to save for retirement.

PLANSPONSOR, a publication for retirement benefits decision makers, found that 70% of workers with less than $45,000 in annual household income say they can’t afford to save for retirement. The Economic Policy Institute also found that high-income families are 10 times as likely to have retirement savings accounts as low-income families, and CareerBuilder says that 38% of workers don’t participate in their company’s 401(k) plan.

What about employees who do manage to put some money away? Over three quarters of Americans live paycheck to paycheck (even high earners, as we saw above), and 40% couldn’t cover a $400 emergency. Instead, when people can, they raid their retirements: Around a fifth of people with 401(k) plans currently have active loans against their account. And of the $294 billion deposited into 401(k) plans each year, about $70 billion is siphoned off for non-retirement expenses. So while 401(k) plans are certainly an important part of your employees’ overall financial stability, they’re only one piece of a larger puzzle.

3. People don’t understand how to save money

If this thought has ever occurred to you, you’re not entirely wrong: Having savings is a critical component of financial stability. But Americans’ saving activity has been dropping for decades. In the 1980s, the savings rate for the bottom 90% of earners was over 10%. After 2011, it dropped to about 2%. A 2018 study found that 58% of Americans had less than $1,000 in savings, and 25% don’t set any savings aside at all. And while it might be tempting to dismiss these numbers as the results of poor discipline or frivolous spending, research shows that this simply isn’t the case.

The U.S. Financial Diaries’ Savings Horizons research shows that people are saving money — but it gets wiped out over and over again by income fluctuations and unforeseen expenses. Saving account balances don’t reflect how hard Americans are trying to save, because those savings accounts look more like checking accounts. The Financial Diaries calls this “high-frequency saving.” People save, then withdraw; they save, then withdraw.

“Life has its ups and downs, and you gotta pay bills, so it’s hard to save.” – Even member

Anything people are able to budget and save is hard fought, to say the least. Emory Nelms, a senior behavioral researcher at Duke University’s Common Cents Lab, explains that there are multiple psychological factors at play that affect all humans: Things like “present bias,” cause us to address immediate needs over long-term goals, our mental accounting strategies fail us, and environmental challenges make everything more difficult. In other words, it’s one of those things that might seem easy, but loads of scientific research proves that it really isn’t.

4. No one knows how to stick to a budget anymore

Much like misconceptions around saving, there are two issues at play with budgeting: First of all, it’s harder to do than many people think. Second, people do create and use budgets — but when there simply isn’t enough money, there’s not much a solid budget can do to help.

In its research on helping low-income people build savings by creating “slack” in their budgets, Commonwealth notes that “people with low income and high debt levels practice strategic bill payment as a tactical budgeting tool.” This level of detail isn’t uncommon: In a 12-week study conducted by Even in 2019, we found people routinely and diligently track their spending and expenses. Participants knew the exact dates their bills were due, and could accurately indicate how much of each of their paychecks were and when to expect them.

Read the study: Money Struggle Myths

People manage to budget despite how difficult it is. Living paycheck to paycheck is inherently unstable, which is a significant cognitive burden to begin with. When you factor in well-known reasons why budgeting is hard for humans to begin with — parting with money is psychologically easier in a cashless society, humans are notoriously bad at following through on plans — it becomes easier to see just how hard it is.

5. There are always credit cards and loans to fall back on

For a large percentage of Americans, an everyday thing like a flat tire can spell financial disaster. While it’s true that a credit card or even a payday loan can be a lifeline in the moment for someone without spare cash, they come with big problems down the line.

Payday loans are something we’ve all heard of, but not everyone understands just how perilous they can be. Richard Cordray, former director of the Consumer Financial Protection Bureau (CFPB) has referred to payday loans as “debt traps.” The average borrower ends up paying $793 for a $325 loan. This is largely due to the fact that over 80% of payday loans are rolled over or renewed because borrowers can’t pay them back in time.

Learn more: How do payday loans work?

While payday loans often come with interest rates akin to up to 667% APR, credit cards can seem like a much safer option. And comparatively speaking, they are — but they can be problematic. Low introductory interest rates can be tempting, especially to someone in a crisis. But those rates can quickly jump to 24% or higher. For example, if someone borrowed $1,000 at an 18% APR, and made the minimum monthly payments, after one year they’d still be paying $175 in interest alone and still owe $946 on the initial purchase.

6. People spend money on things they don’t need

There’s a common theme in American culture that you must buckle down, work hard, and sacrifice if you want to succeed. At some point that morphed into “people without a lot of money don’t deserve nice things.” The thing is, people struggling to make ends meet are working very hard, and they deserve to enjoy life just like anyone else.

“I bought McDonald’s for around $6. I know I’m gonna be really really broke, but I wanted to spoil myself.”

One of our study participants, Esmaralda, was employed but trying to get a better-paying job for herself to improve her situation. She expressed deep concerns about being able to afford the gas to get to the interview and then to her existing job. After her interview, she wanted to do something nice for herself: “I bought McDonald’s for around $6. I know I’m gonna be really really broke, but I wanted to spoil myself.” (Oh, and she got the job. Go Esmeralda!)

Some people live a life where treating themselves to McDonald’s could cost them their last dollar. We look harshly on these moments in part because of the attitudes of our leadership. For example, Republican Congressman Jason Chaffetz once said that people should “invest in their own healthcare” rather than “getting that new iPhone.”

Arguments about universal healthcare aside, in this day and age, people need a reliable way to be connected to the world around them: to apply for jobs, manage their money, and to be a responsible employee and parent. So people should be free to enjoy their lives, eat food they like, and buy the “nice” versions of things that will work properly and last a long time — be it smartphones, cars, or shoes — without having it used against them.

7. If you want to earn more money, go to college

We already know that college is becoming more expensive. To be precise, the cost of a degree is increasing almost eight times faster than wages. To be even more precise: In 1989, the average cost of a four-year degree was $26,902 ($52,892 adjusted for inflation). In the 2015-2016 academic year, that cost was $104,480. During that same approximate timeframe, real median wages grew as well: but only from $54k to $59k.

This is one of the reasons that Americans are drowning in student debt, to the tune of nearly 1.5 trillion as of 2019. The economic returns on degrees have flattened, and many of those in debt never even finished: Between 2014 and 2016 alone, 3.9 million college students with federal student loan debt dropped out. Those who take out loans, but never finish their degree, are three times more likely to default on their loan — something that precludes them from getting more financial aid to resume their education later in life.

Avoiding loans by “working your way through college” is also no longer realistic. In 1979, students could earn enough to pay for a year of college during a single summer. Now, it would take over a year of full-time work to pay for a degree, leaving no time for actual classes (or other living expenses). To summarize: Going to college is far more difficult and expensive than it used to be, often leads to debilitating debt, and doesn’t necessarily guarantee a better station in life.

Myths keep us from offering help when it’s needed

If we don’t have a good understanding of what people are going through, it’s hard to empathize or offer constructive help. By taking a closer look at what hardworking Americans deal with in their everyday lives, institutions — especially employers — can see where existing tools, services, and systems are failing employees, and be better prepared to step in.


  1. Consumer Price Index-All Urban Consumers (Current Series), Bureau of Labor Statistics, Retrieved for 1979 – 2018 from https://data.bls.gof/PDQWeb/cu on August 22, 2019