The stress cycle: Finances and employee wellbeing 

In this blog

Stages of the stress cycle

How to enable better employee wellbeing

Conclusion and key takeaways

Financial stress has a negative impact on employee wellbeing at all levels. However, this situation not only affects the individual concerned but the wider team and, ultimately, the organisation too.

Stages of the stress cycle

1. Higher living costs

Despite lower inflation rates and some wage growth, many households are still experiencing financial anxiety due to tax increases, rising interest rates, and high household costs. This includes mortgages, food, and utilities.

According to the Financial Fairness Tracker, in April 2020, 28% of households were in ‘serious financial difficulties’ or ‘struggling’ financially. But by May 2024, the figure had jumped to nearly two-in-five (39%).

The ICAEW [Institute of Chartered Accountants in England and Wales] predicts that households are unlikely to feel materially better off over the year ahead either. This is due to ongoing inflation and the still-high cost of living.  

2. Mounting debt situation

One of the biggest causes of financial stress is debt, which includes mortgages and credit cards. Over the last 10 years, average UK household debt, excluding mortgages, has increased by 82% to £17,076. These figures are based on analysis of Bank of England data by insurance provider, NimbleFins.

3. Mental health impact

Unsurprisingly then, more than three quarters of employees (77%) are suffering some form of financial stress, a report by Zellis indicates. Based on a survey of 2,500 employees in the UK and Ireland, 45% of people who feel under financial pressure are subject to disrupted sleep patterns.

This data is backed up by a study by management consultancy PwC. It also showed that money worries had a negative impact on sleep (56%). Some 55% of respondents likewise said they were experiencing mental health challenges and half pointed to self-esteem issues. A further 44% were suffering from physical health challenges.

4. Resultant workplace challenges

Employees with financial concerns don’t leave them behind on starting work. In fact, according to Zellis’ report, a huge 77% find the situation has a detrimental impact at work, resulting in poorer performance.

For instance, some 54% believe it affects their personal productivity. Another 35% found themselves less able to focus and concentrate. Around 22% said that tasks took longer to do and they were unable to get as much done.

In fact, a study by Scientific American Mind indicated money worries can have such a big impact that the IQ of affected individuals temporarily drops by 13 points. This is more significant than either losing a night’s sleep or chronic alcohol misuse.

Financial stress likewise results in employees being less able to make sound decisions or control their emotions. But on top of marring cognitive ability, it can also lead to mental health issues, such as anxiety and depression. This situation inevitably has a negative effect not just on individuals themselves but also on their colleagues and the wider team. 

5. Poorer work performance

Money worries also bring about other challenges to financial wellbeing in the workplace. These include disengagement, absenteeism, and presenteeism.

A recent report showed that affected employees spent nearly 14 hours per week fretting about their finances. More than half of this activity (8.2 hours) took place during working hours.

People also said they felt less motivated and interested in pursuing their own professional goals (26% of those questioned). This would appear to indicate a lack of engagement in their own future due to their attention being focused elsewhere.

But there are other ramifications too. A CERB study found that 12% of financially stressed employees take time off work each year. This amounts to an average of nearly five days per employee per year at an estimated cost of £237 per day.

In fact, issues, such as sickness and presenteeism, cost UK business a vast £103bn in 2023. This is a £30bn increase since 2018, according to the Institute for Public Policy Research.

Repeat: how the cycle worsens

Once employees start to struggle financially, they can end up going into a downward spiral. For instance, poor performance due to financial concerns could result in missing out on a much-needed promotion or pay rise. This, in turn, only deepens the negative cycle.

How to enable better employee wellbeing

Employers can disrupt this damaging sequence of events by putting tools and programmes in place to underline the importance of employees’ financial wellbeing. In fact, making proactive interventions here is vital, believes Jacqui Summons, an experienced Chief People Officer and HR consultant:

“A very cyclical relationship exists between all pillars of wellbeing, but financial wellbeing sits in the middle of that…So, we can pretty confidently say that if we stop people worrying about money…it creates better business outcomes for employers as well.”

Effective financial wellbeing solutions include:

• Providing financial education programmes to help employees manage their money more effectively. One of the best ways of doing so is to offer informative, easy-to-understand payslips. Other options include group workshops and online training.
• Signposting educational resources on budgeting and financial planning.
• Implementing payroll savings schemes to help employees build up a savings pot to boost longer-term financial security.
• Giving access to earned wage access or flexible pay. This enables people to withdraw some of their wage or salary before payday for work they have already completed to cover any temporary shortfalls
• Offering low-cost loans and grants to help employees manage short-term emergencies
• Ensuring employees are aware of all company and state benefits they may be eligible for

Arranging for employee discounts from third parties and introducing other cost reduction schemes, such as travel card loans. The aim here is to help with the high cost of living. This approach can be particularly useful if large pay rises are not feasible

Conclusion: Break the cycle, reap the rewards

Employers who commit to looking after their employees’ financial wellbeing will reap the benefits. Their workforce will be more engaged, more focused, and more productive and as a result.

Not only does this make for more committed individuals, but also higher-performing teams, and ultimately a more successful organisation.

Key takeaways

• More and more employees are struggling financially and the situation isn’t likely to get any better any time soon.
• There is a clear link between financial stress, which is being experienced by more than three quarters of employees, and poor mental health.
• Poor mental health has a negative impact on employee performance, which includes lower productivity, higher levels of absenteeism and presenteeism, and lower engagement
• Employers can reap clear benefits from taking effective action to support employee financial wellbeing.

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Help your people do their best work

Get detailed strategies to break the stress cycle in this guide: From stress to success. How to enhance workplace financial wellbeing.