Financial Distress

By Paul Chong

2 minutes

If you don’t know what it’s like to struggle paycheck to paycheck—and especially if you do—read Neal Gabbler’s article, “The Secret Shame of Middle-Class Americans”,  in the May 2016 issue of The Atlantic.

Against the backdrop of Gabbler’s wrenching confession about his own financial hardship, he cites broad research showing just how financially strapped Americans of virtually every income level are—and how terrified they are of others finding out about it.

One lesson for employers from Gabbler’s piece: The need to provide financial wellness programs may not be apparent. Employees probably aren’t likely to admit they need help. And even if you don’t hear directly about your employees’ financial distress, you may be seeing its effects.

‘Scarcity Mentality’ Can Make Us Less Intelligent and Less Civil

In their 2013 book, Scarcity: Why Having Too Little Means so Much, Harvard professor Sendhil Mullainathan and Yale professor Eldar Shafir describe how a perceived lack of sufficient money can consume a person’s mind.

They present research showing how scarcity of money, time, food, etc. taxes a person’s ability to think logically and make good long-term decisions. They call these effects the “tunnel tax” and the “bandwidth tax.”

The authors cite an experiment in which subjects of different economic levels were asked a hypothetical question about how they’d decide whether to pay a $150 car repair bill or take a chance the car will keep running anyway. They were also asked whether this would be a difficult decision. Then the respondents were given a test that’s a common component of IQ tests. Rich and poor respondents did equally well on these tests.

But another group of respondents was asked the same hypothetical question, except the repair amount was $1,500. After considering that scenario, poor respondents did significantly worse than rich respondents on their IQ tests.

By triggering thoughts about money problems, the scenario had apparently taxed the lower-income respondents’ mental bandwidth.

By comparing other studies that used the same IQ test, the authors concluded that poor people in this study performed worse, on average, than people who took the test after being kept up all night.

They estimated the effect of thinking about money troubles was equivalent to 13 to 14 IQ points—that’s enough to drop a person’s overall score from the “superior” category to the “average” category, or from average down to “borderline deficient.”

Other experiments demonstrated how bandwidth-taxed people tend to lose some of their self-control, such as their ability to remain polite in a stressful situation.

It isn’t as simple as saying a financial wellness program can increase employees’ IQ or improve their mood so they’re more attentive and positive with members. But when you’re considering whether financial wellness programs are worth the investment, take into account some less visible, but significant influences that financial stress can have on performance.

Paul Chong is senior vice president at CUNA Mutual Retirement Solutions, a division of CUES Supplier member CUNA Mutual Group, Madison, Wis. He can be reached at, 800.356.2644, ext. 665.8382.

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