Help Your Employees Avoid These Top 5 Financial Mistakes

Everyone wants to make good financial decisions, but that’s often easier said than done. It’s not always about how much money you make, it’s also about how you manage it.

Unfortunately, not many people are given the learning tools they need to help them make the most of their money. Today, however, there are more resources than ever available for people to increase their financial literacy and develop responsible budgeting, spending, and saving habits. That’s where you, as an employer, can make a huge difference.

5 Common Money Missteps

Let’s explore five common financial errors that might be holding your workers back financially and how you can help them avoid them.

1. Not Having an Emergency Fund

An emergency fund is a financial safety net that your employees can tap into should unexpected events arise, such as unplanned medical bills or vehicle repairs.

When your employees don’t have any extra cash set aside, often their only option in a crisis is to turn to expensive alternatives, such as high-interest credit card debt, cash advances or relying on payday loans.

Why not set up a mechanism that encourages employees to set aside a small amount each paycheck to go into an emergency savings fund? Explain to them that even saving a small amount, such as $25 a week, would yield $1,300 over a year. Another strategy to recommend is using the proceeds of financial windfalls, such as tax refunds, to establish and grow their emergency fund.

2. Drowning in Credit Card Debt

Following on from our previous point, one of the worst things your employees can do for their financial futures is to let their debt accumulate to the point where it becomes unmanageable.

Credit cards are convenient, but they can also be dangerous if not managed properly. When your workers carry a balance on their credit cards, they pay high interest rates every month, which can keep them in debt for years to come. Encourage your employees to pay off their credit cards in full each month. If they already have accumulated debt, they should focus on paying it down as quickly as possible.

Another option to recommend is that your workers consolidate their debt to make payments more manageable. They may also want to look into debt relief to see if there’s anything they can do to reduce their burden.

3. Regarding Loans as “Free Money”

When your workers are short on cash, their instinct might be to borrow from a lender. But a loan isn’t free money. Those lenders are running a business and looking to make a profit.

Some of the interest rates lenders charge are so high that the amount your employees pay back ends up being significantly more than the amount they borrowed, trapping them into a cycle of debt.

By offering Earned Wage Access¹ (EWA) services (which allow your employees to access pay they’ve accrued but not yet received,) you can help alleviate the effects of unexpected demands for cash on your workforce and give them a practical alternative to taking out high-interest loans. With Payactiv’s EWA service, employees can access their earned wages in several ways. The funds can be loaded onto a debit or prepaid card, transferred to their bank account, or even picked up as cash at Walmart. Alternatively, they can use their earned wages to pay for services like Uber and Amazon and pay their bills directly in the Payactiv app².

4. Not Following a Budget

Following a budget will put your employees on track to make the most of their money. Budgeting allows workers to save for important milestones, like buying a house or taking a vacation, making investments, and enjoying their money more. Things that once seemed out of reach can become realistic goals.

Budgeting also ensures that they’re always able to cover their bills on time. No matter how much money your employees make, budgeting can help them understand their money and make it work better for them.

As an employer, you can promote the discipline of budgeting by offering smart digital saving and budgeting tools. These tools give workers a complete picture of their total income, expenses, and savings, and they do all the number crunching on their behalf so they always know how much is safe to spend or set aside each month. They’re a great way to help your workers automatically save³ toward short or long-term financial goals.

5. Spending More When They Make More

Some people earn hundreds of thousands of dollars a year yet still find themselves living paycheck to paycheck. That can happen when people think a higher income means they need a lifestyle that matches it. It’s a phenomenon often referred to as “lifestyle creep” or “lifestyle inflation.” Money gets spent on items that aren’t necessary: a new watch, car, or name-brand shoes.

If your employees get a raise, their savings rate should also increase. You can help by offering to make a direct deposit of a portion of their wages into a high-yield savings account so that the extra money is automatically set aside.

Summing Up

For employees, the key to building financial wellness is to spend less than they earn, save and invest wisely, and always keep learning.

The best way you can help them avoid the common financial blunders we’ve covered in this article and advance toward financial security is to establish a workplace financial literacy and wellness program.

In addition to EWA services, Payactiv offers a free financial management app complete with handy saving and budgeting tools, discounts, and access to 1-on-1 financial counseling.

Collectively, these initiatives will go a long way to helping you put your employees on the path to financial freedom and avoiding costly money missteps.

Interested in learning more about Payactiv’s service?  Book your demo now.

¹ Earned Wage Access requires employer participation. Employees can only access a portion of the wages they have earned to date.

2 Standard data rates from your wireless service provider may apply.

3 Goal-based saving is a set-aside account, and you will not receive interest or other earnings on the funds within the goal-based account.

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