It’s fair to say that consumers took a beating in 2023 – with no relief coming in this year’s budget speech. You need to look no further than the amount of debt consumers are struggling with – DebtBusters saw a significant increase in debt-counselling enquiries, which jumped 41% year-on-year to January 2024.

Of course, a sizeable proportion of these consumers are employees, and if they have high levels of debt they are struggling to service, that holds serious consequences for both them and their employers.

The multifaceted effects of debt

“Understanding the dynamics of this issue is crucial for businesses aiming to foster a healthier and more productive work environment,” says Kathryn Main, CEO of the Money Savvy Group. She adds that the impact of employees’ debt on their employers is multifaceted, and financial stress can lead to decreased productivity, absenteeism and even lower morale among the workforce.

Nobuhle Mfeka, Senior Consultant at Old Mutual Corporate agrees: “Most employees find themselves trapped in financial obligations, unable to meet their debt obligations. This predicament, largely a fallout of the Covid-19 pandemic, is wreaking havoc on employers. The impact of debt-related stress on workplace mental health cannot be overstated.

Main points out that employees grappling with debt may find it challenging to concentrate on their tasks, affecting their overall job performance. Furthermore, the burden of debt often translates into increased requests for salary advances or loans. “These issues not only strain the workplace but also hinder the potential growth of the organisation,” she notes.

“Contrary to popular belief, it’s unquestionably in the best interests of employers to help struggling employees overcome their financial challenges,” she adds. “A financially secure and satisfied employee is more likely to contribute positively to the workplace, leading to increased productivity and reduced staff turnover rates.”

Main says employers who invest in the financial wellbeing of their staff are likely to witness long-term benefits, including a positive company culture and enhanced employee loyalty. She emphasises that financial education and wellness should be a focus for employers, given that we live in a world where the cost of living keeps rising and salaries keep falling or fail to keep pace with inflation.

Absent employees

Mfeka says a key indicator of something being amiss with an employee is absenteeism. “Unscheduled absenteeism, a direct result of stress-related illness due to overwhelming debt, poses a severe threat to the company’s financial health,” she says. “These negative economic implications hinder the human resource manager’s efforts to maintain a healthy, engaged and productive workforce.”

Employers stand to gain much by implementing programmes to help employees struggling with debt she notes: “The programmes will not only assist employees in regaining their financial freedom but will also increase the company’s bottom line and improve the level of engagement, allowing employers to focus on improving the business.”

One of the key roles an organisation can give to a manager is to make it safe for employees to talk to them about finances, says Main. “Creating a supportive and transparent work environment can encourage employees to seek help without fear of judgment. Money problems carry a lot of shame and guilt, and employers need to be approachable.”

Implementing initiatives to help employees

Main says employers can implement various initiatives such as offering financial literacy programmes, providing access to financial counselling services and establishing partnerships with financial planners to assist their employees as and when needed.

“Financial stress is often not a function of how much money people earn, but rather how well they manage their income and expenses. Introducing financial literacy support to all employees, regardless of the level or category of indebtedness, will help employees with debt counselling and budgeting and improve their wellbeing,” says Mfeka.

“Financially rehabilitated employees are more productive and happier at work. Studies show that employees appreciate the benefits that support financial wellness and reap the benefits of such initiatives. This means that the employer is also reaping the benefits from their engaged workforce. It’s also interesting to note that the compensation claims and healthcare costs are reduced for those employers offering financial wellness benefits.

For example, Old Mutual launched Smart Salary® provided by PayCurve, which aims to prevent employees from getting into debt in the first place, as well as Right Track®, which aims to get them out of debt. These free up cashflow back into the pockets of employees, so they have breathing space, without dipping into long-term savings vehicles like retirement funds to solve short-term, everyday challenges – which ultimately has a harmful long-term effect on their financial wellbeing.

The effectiveness of these initiatives over the long term depends on the commitment of employers to sustain and evolve their support systems, says Main. “Continuous financial education, regular check-ins with employees and adapting assistance programmes to changing economic landscapes are crucial for lasting impact.”

Addressing the issue of employee financial wellness is not just a matter of corporate social responsibility; it’s an investment in the overall success and sustainability of the business, she concludes. “By recognising the impact of financial burdens on employees and taking proactive measures to support them, employers can foster a more resilient and thriving workforce.”

Ready to empower your team financially? Read more on Old Mutual Financial Wellbeing Programme and find out how Old Mutual can support you, and your employees.