Most—if not all— employees have short-term financial goals or face financial shocks during their careers.
College graduates want to work on eliminating their student loan debt; a young couple may be saving for a wedding or their first child; a Generation Xer may be saving for a child’s college education or an employee may face a major home repair or a major medical set back.
But, managing short-term and long-term financial goals doesn’t have to be separate, notes a recent report by the Aspen Institute Financial Security Program (Aspen FSP), “Short Term Financial Stability: A Foundation or Security and Well-Being.” “Stability promotes security because financial buffers protect consumers from shocks that would detract from progress toward their long-term goals, act as material foundations for growing assets, and reinforce the financial actions that move people towards broader well-being,” the report says.
“Short-term financial stability means having enough of a financial buffer—a cushion—to be able to cope with everyday financial stress, while still progressing towards longer-term financial goals,” says Sheida Elmi, research program manager at Aspen FSP. “People need both. They need that short-term stability but also that long-term security. Having that kind of buffer allows them to continue on to their goals and financial path.”
Employers are in a good position to help employees with short-term financial stability, through either education or benefits.
Benefits to help with short-term financial stability
Among one way to assist, mentions Elmi, is by offering hardship funds. The way that most of these funds work is that workers and the company contribute into a fund, and workers can then apply for cash grants from the fund.
“Workers that have better pay and better benefits end up having more financial stability, and so those hardship funds are able to help them as intended. It helps them return to normal after an unexpected crisis, and it helps them not have to [dip into] long-term assets,” she says.
A short-term savings vehicle can also help achieve an ultimate goal or address a financial shock.
Offering these types of benefits helps workplace productivity while boosting financial confidence. It should be of primary importance to plan sponsors, says Elmi. Just as a sick worker would concern an employer, a financially struggling employee should also be carefully noted.
Another Aspen FSP report described employee satisfaction with hardship funds as a seven or higher out of 10, but only 21% said it had a great financial impact. According to Elmi, this shows that plan sponsors can’t expect to achieve short-term financial stability with one or two benefits.
Sarah Newcomb, a behavioral scientist at Morningstar, describes how most employees struggling with short-term goals fall victim to predatory payday lenders. These lenders, while offering loans to those with falling credit, will also charge excessive interest fees, essentially creating a financial nightmare for those who take the loan but are then forced to pay high interest rates. Newcomb says, workers should have the opportunity to take out regular loans from their employers.
“Employers should make short-term loans against future income available to their employees confidentially, so they don’t have to report to predatory lenders,” she says. While employer-sponsored loans come with fiduciary responsibilities of its own, offering these benefits allows workers to borrow wages at lower interest rates, which can alleviate the stress of financial hardships through confidential and safe means.
Newcomb adds that offering a student loan repayment benefit—a benefit with amplified popularity given the number of younger workers graduating with large student loan debt—helps workers with short-term financial stability.
Educating about financial stability
One of the most important benefits, say Elmi and Newcomb, is creating personalized, educational awareness participants can understand.
One of the best paths to create this awareness is utilizing stories to illustrate lessons, according to Newcomb. Adding a picture to a number, either via visuals or stories, can significantly impact the way a participant thinks about his short-term spending, and eventually, long-term saving, Newcomb clarifies.
“It’s easy to think that we’re working for that day where we’re not working anymore, but it’s less common for us to think through, ‘If I’m dependent on someone’s salary, what happens if that person dies unexpectedly and that money is gone?’” she says. “For every financial story, coming up with a simple story or a real-life scenario is far more powerful than showing numbers.”
According to Elmi, employees should also be taught how to get from just getting by to getting ahead. And, she queries, “What are employers doing to help employees to grow their income so that they can get ahead?”
Employers should educate employees about the parallel relationship between short-term stability and long-term security, as well as advocate for employees’ financial stability through benefits and financial education. “[Both goals] are intricately connected,” says Newcomb. “Understanding the implications of short-term goals and how they relate to their financial future will lead employees to success, all they need is their employer’s help to connect the dots.”