Even among Credit Union Employees, Debt Spiral Threatens Financial Wellness

By Safwan Shah04.04.2016

While credit unions, by their very charter, are committed to serving the financial needs of their member communities, a hard reality is that often, the community that is perhaps most important to the health of the credit union itself – its employees – is struggling with achieving financial wellness.

Many credit union employees find themselves among the more than 90 million American workers who still live paycheck-to-paycheck, and this financial stress has a real impact on credit unions from an HR perspective in the form of lost productivity, increased absenteeism, presenteeism (attending work while sick), accidents and turnover – and that is in addition to ever-increasing worker compensation, medical, legal and insurance costs.

Recent data show that nearly half of American households said they could not cover an unexpected expense of just $400 without borrowing or selling something. Notably, an annual salary of more than $100,000 resulted in no increase in financial security, where one survey found even those more affluent would have to pay the amount off over time.

Too often, an unexpected, relatively small-dollar expense is driving credit union employees, ironically, away from the safety of the financial institution that employs them and to short term lenders where they expose themselves to substantial financial risk through high fees and inflated interest rates.

There are currently more payday lenders in the U.S. than Starbucks and McDonald’s stores combined, and the Consumer Finance Protection Bureau (CFPB) found with payday loan borrowers, “the median borrowing amount was $350, for a 14-day term, and that median fees for $15 per $100, which computes to an APR of 322 percent.”

So how can credit union executives and HR managers better support their employees’ financial wellness?

It starts with providing workers with debt-free access to funds that they have already earned. Even though we live in an increasingly “on-demand” world, when it comes to the timing of our pay, we remain compliant in accepting the status quo of weekly, monthly or bi-weekly pay periods.

While the majority of Americans earn daily, they are forced to wait to access those earnings. In fact, every week in this country, more than $100 billion is earned but remains inaccessible, while almost $1 billion is collected in fees for overdrafts and payday loans on a weekly basis. As a result, workers are often unable to align their earnings with their spending due to the payroll timing gap and in turn, they carry that weight with them into the workplace.

Just as the mobile phone has revolutionized how credit unions and their members interact, the device can also provide a powerful tool for credit union employees to access already-earned funds – discreetly, with dignity and on demand – through credit union-sponsored programs for staff. This debt-free access, in turn, means that money that would ordinarily have gone towards fees and interest now stays with the employee in the form of savings. It is a relatively simple concept that can have a profound impact on the overall financial health of an individual.

Credit unions take great pride in distinguishing themselves in the marketplace through superior member service and have historically demonstrated a propensity to innovation and embracing new technologies to achieve this. This should apply not only to a credit union’s members, but to the team it has in place to serve that membership as well.

 Safwan Shah is the founder and CEO of Silicon Valley, Calif.-based PayActiv, a financial technology company that offers a comprehensive suite of turnkey, employment-based financial wellness offerings. He can be reached at safwan@payactiv.com or 408-676-6561. For more information, visit www.payactiv.com.

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