Financial strain refers to both the perception and experience of living under financial pressure and lack of resources.

Individuals or families may become financially strained through life circumstances which occur, such as a large, unexpected and uninsured medical emergency, or through poor skills in managing personal finances, such as building up excessive levels of consumer debt.

Whatever the cause, financial strain has serious consequences both in families and in the workplace. A study by Vonnie C. McLoyd at the University of Michigan found that poverty and economic loss have a negative impact on adults, frequently resulting in mental health problems, anxiety, depression, and reduced ability to cope with problems. Additionally, the negative emotional state of parents associated with financial difficulties is directly linked to parental punitiveness, inconsistency and unresponsiveness. Numerous studies confirm these findings of emotional distress and parental harshness.

Productivity losses due to poor financial management behaviors of employees may be one of the most overlooked issues in the workplace today. A review of the literature conducted in 1996 by Thomas Garman and others, found that employers pay a high price for the stress induced loss of productivity of financially distressed workers.

Lowered productivity is caused when workers lose time from work to tend to financial crises or when emotional problems interfere with work or interpersonal relationships at work. Employers may experience increased disability and workers compensation claims, substance abuse, thefts, loss of revenue from poor quality work or sales not made, errors made on the job causing waste of materials and time, lack of employee focus and concentration on goals of the employer and increased use of employee assistance programs including increased spousal or child abuse, accidents and lower output. Some researchers have estimated that as much as 15% of the workforce is experiencing financial problems at any given time.

Citing studies that report lost productivity ranging from 10 ? 25% depending on the degree and nature of employee distress, Garman proposes a formula for calculating the actual dollar cost to employers.

Annual employee wage x 15% of workforce x .20 (loss of productivity)

If the assumptions are correct, the following may be a reasonable estimate of the actual cost to an employer operating a company with a workforce of 150, and an average annual employee wage of $30,000.

$30,000 x 22 (15% of 150) x .20 = $132,000

References:

Bristow, Barbara. 1997 Promoting Financial Well Being: Running a Successful Money 2000 Campaign.

McLoyd, V. 1990 The impact of economic hardship on black families and children: psychological distress, parenting and sociaoemotional development. Child Development, 61.

Personal Finances and Worker Productivity. 1997 Proceedings of the Personal Finance Employee Education Best Practices and Collaborations Conference, Roanoke, Virginia. Volume 1, Number 1

For more information:

For more information, contact William McLeod at bmcleod@barracksrow.org or 202-544-3188

Department of Policy Analysis and Management
Department of Human Ecology
Cornell University
Ithaca, New York 14853