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Financial Stress and Employees

posted by Katie Porter

I recently ran across a study with interesting implications for the question of who should care about consumers in financial distress. Elizabeth Warren has argued we should think of debt as a family issue; others have highlighted the religious or moral component of debt; still others are pointing to racial disparities in overindebtedness and predatory lending. The study that I describe below suggests a new and powerful constitutency that should be working to reduce financial stress on Americans--businesses that have employees. Perhaps the Chamber of Commerce and the businesses that it represents (Wal-Mart, McDonalds, Dell, etc) need to be aware of the dollars at stake in financial hardship in a different context--not the costs imposed on a business by customers that don't pay but the costs imposed on a business by employees who can't pay.

In 2003, Dorothy Bagwell and Jinhee Kim published Financial Stress, Health Status, and Absenteeism in Credit Counseling Clients. They report on an analysis that they conducted using a random sample of consumers who contacted credit counseling agencies. These consumers were asked questions about their financial stress, absenteeism, and demographic qualities. Bagwell and Kim peform a regression analysis that indicates that financial stress is strongly correlated with missed work days. The effect of financial stress was more profound than many other factors, including marital status, gender, age, household income, and even health.

The study's findings suggest that companies would improve their balance sheets by helping their employees with their balance sheets. Employee absenteeism has high economic costs; businesses interested in reducing such costs ought to consider whether they should be supporting legislation or programs that seek to reduce the incidence of financial stress. Many companies offer Employee Assistance Programs; given that approximately 3 million households seek credit counseling annually, it would seem crucial that these programs have reliable resources to help employees with financial problems. The study's findings also reinforce why the U.S. military is alarmed about the number of military families experiencing financial trouble; the military is a huge employer and it may well be ahead of private industry in recognizing the costs that financially stressed employees impose on an employer.


People must realize that they cannot spend more than they earn. Seems like a basic concept but it today's society, credit is so easily available that people tend to overspend and find themselves into deep trouble. People should have a budget and keep score of their personal finance.

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