Many Americans are struggling financially. Some of them are your employees. You want to help them. Your leadership team wants to help them. But how?
You’ve read about things like the paycheck to paycheck cycle, financial wellness, earned wage access, retirement readiness, financial preparedness — but gosh darnit, nothing that breaks the problem down in a way that tells you where to start.
We’re going to be friends, you and me.
Imagine, for a moment, you’re on the way to work and you get a flat tire. You call up roadside assistance and tell them what happened. They ask if you have a spare — nope, your car didn’t come with one. No worries, they’ll bring you a tire. They ask what kind of car you have. You tell ‘em. Aaaand... that’s the moment you learn that new tires cost $200.
They ask for a debit card, and you break out in a sweat. You check your bank app. You don’t have $200 in your bank account. Guess you’re not getting to work today.
It’s months later. Flu season, and your husband gets sick. He works hourly at the grocery store, so if he doesn’t work, he doesn’t get paid. You lose his income for a week, but rent is still due. You go to your bank’s website to check what you already know: You don’t have any money in your bank account. You spent all your income on bills already. Guess you’re not paying rent.
People struggle financially for lots of reasons. Almost always, those reasons end up creating the same problem: not having money in your bank account.
I’ve started referring to the problem as “not having money in your bank account,” instead of fancier phrases “living paycheck to paycheck” or “inability to withstand financial shocks” because using plain English words like “not having money in your bank account” makes it obvious why it’s bad.
It is easy to imagine why not having money in your bank account is a problem. People struggling financially often don’t have money in their bank account. This is the problem your people need help with.
Most tools that let people get money in moments of desperation are predatory — as an employer, it would be irresponsible to offer those to your employees. Take payday loans for example. They just feel wrong. But why?
Most tools for getting money in moments of desperation are predatory because they’re either insanely expensive, or worse, trap people in a cycle of dependency where they end up needing to use it all the time, paying out the nose as they go. People often end up worse off than they started, and this trap is why payday loans are dangerous.
On the market today, the most affordable tool for getting money quickly is earned wage access (EWA), a new financial service that allows people to access their own wages, before payday, for a small fee. But not all EWA tools are responsible, because most of them can inadvertently trap people in the same cycle of dependency that a payday loan can.
To avoid trapping your people in a cycle that leaves them worse off, you need to choose an EWA vendor that does not make more money when people use EWA to get money. Think of it this way: If people have money in the bank, they’ll just use it to pay rent. They won’t be in a rent money emergency, needing to use EWA, thereby helping the EWA provider rack up more fees off a desperate person. So you want an EWA vendor that helps people if and when they’re desperate, but doesn’t make money off their desperation.
People don’t have money in the bank because they’re using all of it. To always have money in the bank, you need to consistently spend less than you make.
We have this idea in our country that if people are spending all their money, they must be making irresponsible choices, like buying expensive sneakers or luxury cars or lifetime supplies of avocado toast or something. Basically, we tell struggling people that it’s their fault.
Yeah, that ain’t it.
People who are living close to the edge are very responsible with their money. They have to be. Research from nonprofits like the Financial Health Network, Aspen Institute, Financial Health Diaries, and many others shows that people spend all of their money because:
The fact of the matter is that people are struggling because they’re playing a game that’s impossibly difficult (which we never teach you how to play, by the way), not because they’re irresponsible.
Now let’s explore how to get started helping.
So you know at this point that you need to help your workers, and you know it’s going to take more than financial literacy programs to get you there. There are a handful of products and services that say they can improve your employees’ financial wellness:
But when you’re looking at these providers, what are you supposed to be evaluating?
The Financial Health Network and Consumer Financial Protection Bureau have both created frameworks for how to help people become financially healthy, and they both boil down to solving the four problems we just covered:
Using this framework as the foundation for your evaluation will ensure you choose a vendor that will help your people get money when they need it, and have the tools for always having money.
Here’s one other thing you need to know which may not be obvious: You’re going to be dealing with vendors in the financial services and education markets. These markets are… well, let’s just say it’s prudent to assume most products in this market do not actually work. You’ll need to investigate vendors along three lines:
Here are sample questions that align with the financial wellness framework and evaluation topics:
If you’re looking to assess an EWA vendor to provide on-demand pay for your workforce, we've created an RFP template to be your guide to help you get all the answers you need to evaluate the best EWA provider for your people.
If you focus on helping your people have more money in their bank account, and choose vendors to help based on this evaluation framework, you’re going to be miles ahead of other employers.
Jon Schlossberg is the founder and CEO of Even. He is a behavioral psychologist by training, and in his career has made websites and apps that millions of people use around the world. He has been researching and working to improve the financial health of Americans since 2014.
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