In early 2018, the IRS announced something huge: It was redesigning the 1040, the form most Americans use to file their annual tax return. The IRS promised a new, simpler design. It was supposed to be the end of tax chaos each April 15. But it wasn’t.
Despite its best intentions, the IRS made the form far morecomplicated, as detailed in 540 “overwhelmingly unfavorable” comments collected by the National Association of Tax Professionals — and that’s tax professionals complaining. Now imagine how frustrating it must have been for the millions of people who don’t have in-depth financial training, trying to navigate this form and file their taxes.
A frustrating yet unavoidable tax system is a good metaphor for money management in general. It’s so complex and stressful that for many, it can feel like a second job. The amount of time it takes to understand and navigate one’s own money takes focus away from Americans’ real, day-to-day jobs. And that’s bad for businesses. So is there a way for employers to step in and help?
Imagine a working parent with two jobs, a checking account, a couple credit cards, rent, bills, a car payment, and an open payday loan. Now imagine that some of these things are past due, and it’s become clear that there just won’t be enough money at the end of the month to handle it. The convoluted intersection of all these pressures, not to mention the overly complex tools, apps, and websites needed to manage them, can quickly become overwhelming.
Take the story of Becky, someone we interviewed last year. Becky was part of a long-term “diary” study with eight participants, where we tried to learn more about how people manage their money. Like all of our participants, Becky could tell us the dollar amounts of her basic bills off the top of her head. She knew the exact date each bill was due, and which of her pay cycles each respective due date was associated with.
Becky told us about the personal loans she’d taken out to pay off credit card debt — including all the fees and individual interest rates — and the extended family members she supported financially. This is a lot to keep track of, and a lot hanging over the heads of people like Becky as they try to go about their days. As Becky told us, “The hardest part for me is just time management.”
Becky’s financial situation is a lot like the redesigned IRS 1040 form. Just like taxes that must be filed and paid, Becky’s money has to be managed. There’s no way around that. But the tools and services at her disposal are bad, or hard to understand — some of them are actually predatory. Dealing with it all takes more time than it needs to, and causes a great deal of employee financial stress.
All that wasted time and extra stress takes its toll. A recent survey from Northwestern Mutual revealed that money was the leading source of stress for Americans. PwC found that 59% of employees say personal finances are their top stressor; ranking even above work, health, and relationships. All that stress is linked with a myriad of harmful health conditions, including migraines, insomnia, and depression.
PwC also found that employees are distracted by financial issues while at work, and need to spend three or more hours each week dealing with finances because there isn’t enough time in their off hours. It’s estimated that, for a 10,000-worker company, this all costs up to $3.3 million per year.
Most employers do offer financial support through benefits like retirement plans, financial counseling, and even on-demand pay. But like the redesigned 1040, despite the best intentions of people behind these tools, they remain overly complex and hard to manage. 401(k) plans are a great retirement tool, but they don’t help the increasing number of employees who can’t afford to think about retirement. And on-demand pay addresses a symptom, but not a root cause.
What employees need is a set of tools to help them lift their heads above water, and stay there. And it’s in employers’ best interest to offer those tools — because when employees can shed stress and gain their time back, they’ll re-invest that energy and focus back into work.
To drive this kind of change, employers should look at solutions that put employees on the path to financial wellness by saving money. Multiple research bodies, from the Aspen Institute to the Financial Health Network, identify saving money as the key element to building financial wellness — thereby reducing financial stress. Employers can have real impact on the lives of their employees by offering solutions that empower employees to make progress while avoiding pitfalls such as short-term credit, payday loans, and overdraft fees.
Want to learn more? Download our newest e-book: A Guide to Financial Wellness: The Employer’s Handbook for Understanding On-Demand Pay and Financial Wellness Benefits.