COVID-Induced Income Volatility Is Hurting Worker Productivity. This 4-Point Plan Can Help.

More than a year into the global public health crisis, questions remain about the scope of the economic recovery. To what extent has the pandemic exacerbated financial fragility among Americans? How are workers weathering COVID-induced financial disruptions? How is income volatility affecting the US workforce?

Prudential recently released its Financial Wellness Census, which gauges the pandemic’s financial impact on Americans. The results reveal seismic shifts in workplace demands and demonstrate the harsh impact of the pandemic’s pressures on health and productivity.

When asked whether they found it challenging to keep pace with financial obligations, 61 percent of respondents to our census said yes. This statistic highlights the financial instability felt by so many Americans. This fragility makes it nearly impossible for Americans to secure their financial futures, as they’re consumed by immediate money worries.

Respondents navigating income disruption report that the global public health crisis caused them to take steps to address immediate financial needs:

• 35 percent indicate they’ve sold some of their possessions.
• 33 percent say they withdrew money from savings.
• 31 percent report they applied for or used government benefits.
• 31 percent state they borrowed money from family or friends.

The Financial Wellness Census also points to how the pandemic is changing the nature of work. For example, 15 percent of Americans indicate they’re working more hours, and 8 percent report they are not compensated for this additional time spent on the job. In addition, 15 percent of workers have suffered a decrease in their compensation since the beginning of COVID-19.

The survey results reveal that Americans are struggling to gain control of their financial futures due to COVID-induced income volatility. While the role of government stimulus and other macro-level solutions have been widely reported in the media, one untapped avenue to help employees navigate income uncertainty is their employers. Below is a four-point plan companies can use to address this issue and, in doing so, create a culture that’s conducive to talent acquisition and employee retention.

1. Offer Disability Insurance as an Income Safeguard

One of the most meaningful steps employers can take to address income volatility among their employees is bolstering benefits packages with disability insurance. While workers who are furloughed or laid off have the option of enrolling in unemployment benefits, those who cannot continue working because of caregiving pressures or illness don’t have this option. Instead, their only options are employer-sponsored disability insurance and/or paid leave programs.

The problem? Too many employees in the US still don’t have access to either. The onus is on employers, especially amid the pandemic, to step up and provide disability insurance and paid leave to protect employees’ paychecks in the event of chronic illness or injury. Employers that understand the business case for this income safeguard will no doubt be looked upon favorably by prospective applicants and current employees.

2. Educate Employees About the Repercussions of Using 401(k) Loans for Short-Term Needs

As workers seek funding sources to address emergencies and other immediate needs, they often turn to their 401(k) accounts. Employer-sponsored retirement plans are the most liquid and sizable savings vehicles for a substantial number of American workers. When a financial emergency strikes and an employee takes a loan or withdraws from their retirement plan, it might provide a short-term fix. However, retirement plan leakages can prevent workers from retiring on time, wreak havoc on their financial futures, and postpone retirement. In addition, workers will face penalties associated with dipping into 401(k) plans prematurely.

Employers should continue to offer retirement planning resources and educate their workers about the consequences of 401(k) withdrawals. In doing so, they can help employees identify other ways to address short-term savings and ensure workers are positioned to retire on time.

One solution employers can offer employees is an emergency savings plan which allows workers to set aside after-tax dollars — alongside their 401(k) plans — they can tap without penalty when needed. This reduces the need for employees to withdraw from before-tax 401(k) savings.

3. Foster Candid Dialogue About How Financial Health Impacts Physical and Mental Health

The Financial Wellness Census underscores the extent to which the COVID-19 crisis is taking a toll on workers’ mental and physical health:

• 51 percent of respondents say they want more affordable health care as a result of the pandemic.
• 19 percent say their household has medical debt.
• 15 percent indicate either a reduction or stop to health and medical spending for themselves or family members caused by a COVID-induced income disruption.
• 14 percent report seeking mental health support due to the global public health crisis.

Given the intricate ties between fiscal, mental, and physical health, employers must initiate proactive, candid conversations with their employees about how money stress can impact employee well-being on and off the job. From lost productivity to costly accidents to absenteeism, the impacts of financial stress on employee performance are far-reaching.

4. Provide Employees With Nontraditional Financial Wellness Offerings Like Debt Management and Caregiving Solutions

The pandemic has blurred the lines between work and home, creating new obstacles for many employees, including caregiving challenges. Many working parents found themselves balancing remote work with homeschooling and childcare during business hours. Employees who were already caregivers to elderly or disabled loved ones presumably experienced even greater stress — mentally, emotionally, and financially — during the pandemic. For employees whose household income may have been reduced by half as a result of their spouses losing jobs, debt management issues have likely become more common.

Employers can lighten their workers’ loads by offering nontraditional financial wellness benefits, like caregiving solutions — e.g., digital caregiving concierge services, caregiving educational resources — that can reduce the administrative, financial, and emotional burden of caregiving. Debt management offerings that help workers develop actionable plans for reducing debt may also be appreciated by employees.

The pandemic put many Americans into financially precarious situations, but employers can help them get back on track by following this four-point plan.

Vishal Jain is head of financial wellness strategy and development at Prudential Financial.