Financial Wellness in a Time of Uncertainty: Employee Actions and Attitudes

Findings from PwC’s 2020 Employee Financial Wellness Survey

By Aaron Harding

COVID-19 is not only challenging the way we live on a daily basis; it is also posing significant short- and long-term economic threats that could have a lasting effect on personal financial well-being. I lead a group at PwC that coaches individuals on a wide range of financial concerns, so we see employees’ struggles during this time firsthand.

We conduct an annual financial wellness survey of full-time employed U.S. adults, and 2020 marks our ninth annual survey, with results released in May 2020. Traditionally, our report covers a wide range of financial planning topics, from cash and debt management to retirement and estate planning. This year, we have focused on the areas most relevant to the current crisis, and the results are telling in terms of where full-time employees’ financial lives were resting even before the drastic impacts of COVID-19 were felt on a large scale.

Many are unprepared for short-term cash needs

Our U.S. workforce population is vulnerable, even to a minor short-term cash need. Thirty-eight percent of employees have less than $1,000 saved to deal with emergency expenses. Gen Z employees are most likely to be at risk, with 62% having less than $1,000 for emergency expenses. While that makes sense given that they’ve only recently entered the workforce, we also find that more than one-third of employees in each of the other tracked generations (Millennials, Gen X, and Baby Boomers) also have less than $1,000 for emergencies.

To make this issue even more disturbing, as I wrote this piece at the end of May 2020, another 2.4 million workers had filed for unemployment benefits in the past week, bringing the total of new claims to more than 38 million over the past nine weeks. If we fielded this survey again today, it is likely that many more people would lack funds for short-term cash needs.

The gender gap is widening

Many employees overall lack the financial ability to withstand an extended crisis, but we see a marked difference based on gender. While 55% of full-time employed men would be able to meet basic expenses if out of work for an extended period of time, only 29% of women say the same. This may be exacerbated by current trends in unemployment, with women often overrepresented in some of the hardest-hit industries, such as those that are service-focused.

Student loans affect the ability to meet other goals

Our survey finds that 40% of Millennial employees have student loans; among that group, 39% say the loans have a significant impact on their ability to meet other financial goals and another 35% say the loans have a moderate impact on meeting other goals. While people have received some relief through the CARES Act, at least for federal loans, what will happen when all the deferred payments come due? If employees are allocating those funds to other expenses now, they may be at even more risk financially when they have to restart loan payments.

Retirement plan withdrawals could further damage already-underfunded savings

We found that pre-COVID-19, more than half of all Millennial and Gen X employees thought it was likely they would need to use money held in retirement plans for expenses other than retirement. Why? For the vast majority, it was to pay for unexpected expenses or medical bills. We fully expect this trend of retirement plan withdrawals to continue, and probably increase, particularly as deferred mortgage, rent, and other payments come due in full.

For many, the only place from which to draw funds may be their retirement accounts — and unfortunately, these retirement funds already do not have significant savings. Among Millennials, for example, the oldest of whom are in their mid- to late thirties, 71% have less than $100,000 saved for retirement, and pre-COVID-19, 53% already thought they would need to tap into these funds before retirement.

Financial matters are the top cause of stress

Employee financial stress is a big area of focus for our work. When we ask what causes the most stress in their lives, we consistently find that more employees say financial and/or money matters are a greater concern than any other life stressor combined (job, relationships, health, or other concerns). Pair that existing stress about money with the pandemic and unemployment stats, and it is not surprising that financial stress has increased dramatically, even for workers who still earn paychecks.

We coach people through employer-provided financial wellness programs, so our clients are all currently employed. At the same time, we see the pandemic’s impact on those whose household income has decreased due to a spouse or partner losing their job or experiencing reduced hours.

What is causing financial stress today

The top causes of financial stress today include a decrease in household income and paying for and prioritizing monthly expenses. Medical bills are a concern for many, especially those affected by COVID-19. Even if testing is free, doctor visits and hospital stays can certainly have a major impact on personal finances.

We also talk to many employees who need help with managing their debt payments, particularly at a time when their household incomes may be lower than in the past. For those who are investing, and particularly those employees closer to retirement, stock market fluctuations are a primary concern. The stock markets have rebounded considerably from recent lows, but there is much discussion in the financial press about this being a bear market rally, indicating that many believe another drop is in our near-term future.

Employers have a unique opportunity

Fifty-eight percent of employees in our survey admitted they were stressed about their finances. Interestingly, 50% of the financially stressed employees say that finances have been a distraction at work, while only 16% of the non-stressed employees say they have been distracted by finances at work. Being distracted at work certainly has major productivity implications for employers. Employees want help with their finances, and our results show that most seek financial guidance at key decision points or when they are already in crisis.

Employers have an important role to play in helping reduce employee financial stress. Employees need objective financial guidance and support to weigh their options as they consider the variety of employer and government benefits available to meet their rising financial needs and growing concerns. In the short term, they want help with prioritizing expenses, understanding available assistance programs, managing loan payment decisions, and evaluating implications of accessing retirement funds. In the longer term, they will need support to build emergency savings, plan appropriate investing strategies, re-evaluate goals put on hold during the crisis, and estimate retirement needs and savings sufficiency.

Not only is providing this support the socially conscious response from employers to employees reeling from the global pandemic, but it is likely to benefit the organization with a more-appreciative workforce that has greater financial resiliency and engagement.

Aaron Harding is the US Leader of PwC’s Employee Financial Education & Wellness practice.

May 2020, 20-06