The Importance of Promoting Small-Dollar Lending and Employee Wellness

By Ben Morales, CEO of QCash Financial

In a recent Prudential survey regarding consumers’ perspectives on financial wellness, only 22 percent of individuals in the United States described themselves as feeling financially secure. Employers such as credit unions have a stake in this because the impact of employee financial instability does not stop at the company door. Many credit unions were and continue to be founded to serve groups of people who had a common interest or bond, such as an employer. These were called select employer groups (SEGS). Promoting employees’ and SEGs’ financial wellness should be an important business objective for credit unions, since it has a negative impact on employee productivity in the short-term, and eventually employees’ retirement preparedness. Employees without sufficient financial stability often turn to expensive payday loans to manage their cash flow issues, which eventually creates a cycle of debt that adversely impacts their productivity, morale and financial wellness.

Benefits to credit unions as employers

Many credit unions and employers in general are unaware of the potential benefits of promoting employees’ financial wellness. According to Prudential, studies have shown that better financial wellness equates to increased productivity in the workplace. Roughly 44 percent of employees worry about finances at work, and 46 percent spend between two and three hours a week on personal financial matters; see “Power of the Wellness Effect” . Financial instability also impacts employees’ potential for retirement.  In 2012, employees withdrew $70 billion in from retirement accounts before reaching retirement age. This equates to 59 percent of employers’ matching dollars contributed to those accounts that same year; “Power of the Wellness Effect“. Even a one-year increase in retirement age costs employers about as much as sick and personal leave days combined. When credit unions promote employees’ short-term financial stability, it translates to cost savings when employees get closer to retirement.

What can credit unions do?

As providers of employee benefits, credit unions are viewed by their employees as trusted partners who can help employees achieve financial wellness.  Traditional workplace benefits programs are expanding to include new, complementary financial wellness approaches.  These programs focus on foundational financial issues, such as budgeting, debt management, saving and investing, and protecting against key financial risks. Credit unions may be familiar with offering SEGs paycheck advance programs, but many organizations are unable to support them. Alliances with trusted partners to offer employee small-dollar lending programs that provide an alternative to traditional payday lending can fill this need. According to PEW Charitable Trusts, more than 12 million Americans turn to payday loans annually, demonstrating a strong need for better solutions to these expensive products.  Employees with access to instant liquidity solutions, such as inexpensive small-dollar loan products are often able to budget and manage debt more effectively.

Defining these goals

In order to reach financial wellness, consumers must first be in control of their day-to-day financial needs. This often involves creating monthly and annual budgets based on income and expenses, then limiting their expenditures to remain within the budget. Controlling day-to-day needs also means consumers are financially prepared to cover an unexpected expense on short notice. Many times, a one-time unexpected expense of even a few hundred dollars can completely derail this financial stability, causing consumers to turn to payday lenders for their financial needs. Achieving important financial goals of saving or making the move from renting to owning a home can often get sidetracked by these unexpected expenses, which can be compounded by the cost of payday loans. This frequently causes the next unexpected expense to have an even more profound impact. The final element of financial wellness is protecting against key financial risks, such as an economic downturn, the loss of a job or a serious illness, which is extremely difficult when consumers are living hand-to-mouth.

Short-term stability is an important element of an employees’ overall financial wellness. Employees with access to small-dollar lending solutions through their trusted credit unions have better opportunities to manage their short-term financial goals, which enables them to achieve long-term financial goals. As financially stable individuals, employees are better equipped to focus on work and can retire on time. Small-dollar lending is an important part of this equation and can have a profound impact on employees’ financial health.

 

Ben Morales is the CEO of QCash Financial. QCash Financial is a CUSO providing automated, cloud-based, omni-channel small-dollar lending technology that enables financial institutions to provide short-term loans quickly to the people they serve. QCash Financial, a wholly owned subsidiary of WSECU in Olympia, Wash., started as a short-term loan solution for the credit union’s members in 2004. For more information about QCash, visit its website at Q-Cash.com.

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