Economic Policies’ Impact on Employee Finances

Many employers underestimate the impact that global and national economic policies and indicators have on their workers’ financial well-being and futures. However, macro trends and issues like inflation, interest rates, and political tensions can significantly accelerate—or hinder—employees’ progress toward their financial goals. That’s because they impact everything from the price of goods and services to the availability and types of jobs, all of which affect people’s household budgets.

Responsible employers are stepping up to help their employees weather macroeconomic storms and build personal financial resilience. In this article, we’ll delve into some economic trends affecting employees’ financial position and consider what you can do to help.

Top Current Economic Trends Affecting Your Employees’ Pocket

Let’s start by considering some of today’s most significant economic forces impacting your employees’ financial wellness.

Higher Inflation and Interest Rates

Inflation refers to the rate at which the prices of goods and services rise over time. It impacts various aspects of personal finance and investments because it can slowly erode the value of money. When inflation increases, it costs more to buy the same goods and services, such as food, rent, utilities, and transportation, decreasing consumers’ disposable income and ability to save. Equally, inflation reduces the value of people’s retirement savings.

While US inflation has slowed considerably in the past year after reaching record highs, headline inflation crept higher in the summer of 2023.

Interest rates are the primary mechanism used by central banks to manage inflation. Unfortunately, interest rate hikes substantially increase the cost of borrowing, reducing your employees’ ability to pay down their debt and save over the long term.

Pandemic Recovery

Over the last two years, US real wages have fallen due to them not keeping pace with inflation. However, consumer spending didn’t slow down significantly due, in part, to households’ ability to dip into the pool of savings accumulated during the pandemic, which came from the government stimulus implemented during this time.

But today, little of those savings remain. A Federal Reserve Bank of San Francisco study estimates that excess savings reached$2.1 trillion in US in June 2021 but that only $190 billion remained as of June 2023. This means these funds will be depleted by the end of this year, constraining consumers’ ability to increase spending.

Political Conflict

Political stability and economic growth are intertwined. During times of political instability or conflict, countries’ economies can suffer, leading to unwelcome knock-on effects for consumers and businesses. Employers and employees continue to face significant financial headwinds from higher energy, food, and raw material prices.

What’s the Impact of Negative Economic Conditions on Your Employees’ Well-being?

It’s likely that the factors we covered above have had a significant impact on your employees’ finances and their ability to afford everyday purchases. This can cause them to feel stressed about spending and the state of the economy in general. In a recent Bankrate survey on money and mental health, 82% of respondents who said money negatively affected their mental health cited the economy as the primary cause. Among those economic factors, specific reasons given were:

· Inflation and rising prices (68%)

· Rising interest rates (31%)

· Not having a stable income/job security (29%)

Moreover, the study reveals that the rising prices of consumer goods are affecting other financial issues cited as causes of stress, including:

· A lack of sufficient emergency savings

· Being in debt

· Not having enough discretionary spending money

A financially stressed workforce isn’t good for employee productivity or engagement. Workers who are worried about money are more likely to be distracted, disengaged, and unproductive.

What Can You Do?

During tough economic times, when your employees feel their household budgets are impossibly tight, it’s vital to help them focus on what they can control. Here are some levers at your disposal:

On-Demand Pay and Financial Wellness Benefits 

Earned wage access, also known as on-demand pay, puts your employees back in control of how they spend, save, and invest. Rather than having to wait for their regular payday, they can access their already-earned wages at any time. This can be a lifeline when employees find themselves facing an unexpected or emergency expense in between paychecks.

With  Payactiv holistic Earned Wage Access benefit,  employees can transfer their earned wages to their bank account or Payactiv card or pick up cash at Walmart. The holistic approach to financial wellness provides tools to help employees plan, budget and access their money when they need it. 

Final Thoughts

The status of the economy has a significant impact on your employees’ financial well-being. Payactiv is here to help you support your people in weathering economic storms, getting on firm financial footing, and reaching their long-term financial goals.

Our earned wage access solution gives you a fast, easy, and secure way to allow them to manage their money on their terms, and they’ll also benefit from free financial wellness tools and resources to help boost their financial literacy. Learn more about how Payactiv can help your people and your business, or book your demo now.