Lifesavers for workers in debt

Una Morabito

By Una Morabito
Una Morabito is Head of Client Management for the Workplace Solutions unit of MassMutual.
Posted on May 6, 2020

Before America began its struggle with the coronavirus, many workers were already struggling financially with too much debt, too little savings and a lack of knowledge about their personal finances.

Six in 10 Americans (59 percent) of adults who owned credit cards – 110 million people – already had credit card debt before the coronavirus struck, according to an annual poll by CreditCards.com.1 More than half of those with credit card debt have been carrying it for more than a year.

As the pandemic subsides and nonessential workers return to work, many are facing new financial challenges as they dig out of debt and repair their personal balance sheets. Those who have postponed longer-term financial goals such as saving for retirement are trying to figure out how to get back on track.

Fortunately, employers can help by throwing employees a variety of lifesavers to help prevent them from drowning in debt. Many employers, especially those who sponsor retirement savings plans such as 401(k)s, are turning to financial professionals for assistance in bolstering workplace financial wellness programs. There are many ways to help rescue employees from sinking further in debt and even bailing them out of their predicament – without incurring significant costs:

  • Educate employees about the dangers of debt. Many retirement plan providers such as MassMutual offer financial educational programs in the form of seminars, webinars or even one-on-one counseling for employees. Virtual programs are also available. Educational sessions can range from retirement planning and making the most of Social Security to managing your money and handling debt. MassMutual’s client engagement managers are available to provide educational sessions.
  • Restock the toolbox. There are many financial planning tools available through the workplace with the goal of helping users make better decisions about their employee benefits and overall financial wellness. MassMutual’s MapMyFinances* provides users with a personalized financial wellness score to help them assess their overall financial situation and then draw up a game plan with simple, actionable steps to improve their score over time. Understanding that not every employee can afford to take action to meet every financial need, any tool worth its salt should prioritize needs and steps for each employee based on his or her family situation and budget. MapMyFinances is available at no cost through employers that sponsor a MassMutual retirement plan or voluntary benefit.
  • Make debt management available through the workplace. These programs educate employees about debt, from avoiding high credit-card interest rates to securing a low-cost mortgage. By learning more about the pitfalls of debt, including both good debt and bad debt, employees can improve their household balance sheets over time and avoid financial problems caused by falling deeply into debt.
  • Encourage employees to accumulate emergency savings . Three out of four American workers lack enough savings to cover at least six months of expenses in case of an emergency, according to the MassMutual Financial Wellness Survey.2 One in four workers has less than a months’ savings or no savings to speak of. The lack of emergency savings can trigger bad financial habits such as going into credit card debt, missing payments for other financial obligations or even drawing money from retirement savings. In many instances, the lack of emergency savings can simply discourage many workers from even contributing to their retirement plan. Emergency savings accounts complement retirement savings plans by allowing workers to divert some of their paycheck to build emergency savings over time.
  • Help workers better manage their budgets . Some companies offer not only education but resources to help workers better manage their income and expenses on a monthly basis. Introducing discipline and prioritization to the monthly budgeting process can help many people get on track to achieving their financial goals, avoid debt and be better prepared for emergencies. It can even help some people find money to save for retirement.
  • Attack student loan indebtedness. Workers who report having student loan debt say they have an average loan balance of $42,075, data from MassMutual’s MapMyFinances shows. 3 So much debt can siphon money needed to save for retirement, not to mention more immediate financial needs. Employers can help workers combat the problem of student loan indebtedness by offering two types of loan management programs: loan refinancing and loan repayment. The most effective student loan management programs enable employers, parents, or both to provide financial assistance to extinguish debts. Some employers elect to provide student loan repayment assistance to employees with the goal of enhancing their employees’ overall financial wellness and freeing up money for longer-term financial goals. Many programs help borrowers better manage their loans by providing consolidated reports, including payment updates, to help workers determine if it makes sense to consolidate their loans through refinancing, another program some employers are offering.
  • Provide Health Savings Accounts (HSAs). Healthcare expenses, which can easily run into five and even six figures for treatment and care of serious medical or chronic conditions, are a big concern for many people, even those with healthcare plans. Workers covered by high-deductible healthcare (HDH) plans typically are responsible for more of the cost of care before their healthcare insurance kicks in. HSAs enable workers who are covered by HDH plans to put aside money on a tax-favored basis for eligible healthcare expenses during their working years as well as retirement. Contributions to the account may be made by the employee, the employer or both and the account is owned by the employee.

Of the many financial problems employers cite as problematic for their workers, debt is easily the biggest. The corrosive effects of debt, especially over years and even decades, create both short- and long-term financial troubles for workers as they struggle with their monthly bills and forgo important financial goals such as saving for retirement.

Helping workers solve their debt issues can be a real lifesaver for many people. There are many solutions to preventing, reducing and even eliminating debt, all of which are being introduced to some extent at the workplace. The efforts are part of the larger trend of employers attempting to help workers improve their overall financial wellness.

More by Una Morabito ....

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* Guidance may not be available for certain products. Guidance is based on MapMyFinances assumptions and information provided by the employee and employer .

1 CreditCards.com Long-term Debt Poll, March 2020, www.creditcards.com

2 MassMutual Financial Wellness Study, 2019, https://retire.massmutual.com/retire/pdffolder/rs47968.pdf

3 MassMutual proprietary MapMyFinances data, March 31, 2020