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iThink Twice-i It's Their Debt But It's Your Problem

October 28, 2002
Related Topics: Finance/Taxes, Featured Article
Unless you’ve got dead batteries in all your radios, you know what the hotadvertisements say these days: "Get Out of Debt." Advertisers are floodingthe airwaves because they’ve crunched the numbers and found that there’s abig market for their services. People are broke.

This problem dwarfs other money issues. Nearly four times as many employeescall Financial Finesse, a financial-education provider, about debt as call aboutstock options. You hear a lot about college costs rising, but 40 times as manyemployees call about debt. Eight times more people call about debt than aboutmortgages. Personal debt is hotter than Winona Ryder’s new clothes.

You’re thinking: Why should I care? What am I supposed to do, be myemployees’ parent? Are their personal lives really my business?

You shouldn’t be their parent. It shouldn’t be your business.Unfortunately, personal debt is not a personal issue. It’s a business issue.

Tom Garman is one of the leading experts on employee debt. For 25 years atVirginia Tech, he has studied how employees’ money woes end up haunting thecompanies they work for.

"Financially distressed workers are like a poison poured on the floor ofthe workplace," Garman declares. "You can’t see the poison, but it’sthere. It permeates more than just the employee who has a problem. It permeatesthe workforce. And most employers don’t give a damn."

About a third of employees say that financial problems are affecting theirjob performance, he notes. He has found this to be true with clerical employeesin Virginia, chemical workers in Louisiana, and white-collar employees in threemidwestern states. These employees are more stressed, less productive, andabsent more often than others. They make more personal calls about money, theysend more personal faxes, and they talk about the issue longer with coworkers.Their physical health is worse. They waste about 20 hours of work time a monthdealing with money problems, according to Garman’s research on employees in 25states.

Another study, by the Military Family Institute, shows that employeefinancial problems cost the U.S. Navy about $250 million annually (mainlybecause of the stress these problems bring).

Bill Pomeroy is president of The Edsa Group, a company in Baton Rouge thatprovides financial education to employees. He says that debt not only costscompanies money, but specifically causes a strain on HR departments. Whenemployees are in debt, HR spends more time garnishing wages. HR and benefitsprofessionals also spend more time handling 401(k)s, because employees borrowfrom themselves more often.

Pamia Guttenberg, a financial planner at Financial Finesse, compared thenumber of calls her company received in the third quarter of 2002 to the numberit received in the first quarter of the year. There were 40 percent more callsthat concerned debt.

Could debt cause turnover? Guttenberg says that some of her callers arespending work time looking for new jobs. "They’re just convinced a littlebit more money will help them out."

You can do something about debt. Talk to the financial-education vendor thateducates your employees about 401(k) planning. Chances are good that they haveworkshops and materials about money management, and they’d be glad to hostbrown-bag lunches at your company.

If your vendor doesn’t offer workshops, you could switch vendors. Or keepusing Fidelity or T. Rowe Price or whoever handles your 401(k), but hire anadditional vendor that works exclusively on financial education.

Let your employees know if your employee assistance program providesfinancial advice. Bill Arnone, a partner at Ernst & Young who calls debt a"dirty little secret" no one wants to talk about, says that before you relyon the EAP, be sure the program has experienced financial experts on staff.

There are also nonprofit credit counseling programs available, and yourcompany’s credit union may be a good source of information.

Education will pay off. Research by Jinhee Kim of the University of Maryland’sDepartment of Family Studies shows that four months of financial education andone-on-one advice results in improved employee health and work performance.Dorothy Bagwell, an assistant professor at Texas Tech, found a relationshipbetween a year of credit counseling and higher job productivity.

You could wait to deal with the issue of employee debt until the economypicks up. Then again, bankruptcy filings jumped 150 percent from 1983 to 1990,during a long expansion of the American economy. This tells us that it makessense to act now.

Workforce, November 2002, pp. 96 -- Subscribe Now!

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