High Inflation Takes a Toll on Employees’ Financial Well-Being

Inflation, which remains elevated as of Tuesday's CPI report, has led to increased stress, less financial preparedness and growing debt, according to EBRI.

Inflation contributed to an increasing number of workers expressing concern about their household’s financial well-being in 2022, according to an annual report from the Employee Benefit Research Institute and Greenwald Research.

According to researchers, 34% of employees were highly concerned about their household finances and 26% were moderately concerned, up from 29% and 20%, respectively, in 2021, according to Washington, D.C.-based EBRI’s Workplace Wellness Survey. Workers reported less overall financial preparedness, with one-quarter of individuals strongly disagreeing that they had the savings to handle a large emergency expense, a 10 percentage-point increase from 2021. Employees also stated that they have growing issues with debt, with 80% of individuals saying debt was a problem, compared to 65% in 2021.

That trend may continue this year, with the consumer-price index report on Tuesday showing that while inflation declined for the seventh month since June, it appears to be levelling off at a relatively high level, according to Bureau of Labor Statistics data.

The EBRI report revealed that employees increasingly struggled to manage multiple financial priorities, with the percentage of respondents admitting a struggle rising to 63% in 2022 from 53% in 2021. Workers cited saving for retirement as the leading cause of stress at 45%, compared to 39% the year prior.

In a Greenleaf Financial webinar on Tuesday, financial advisers Jim Hiles and Jim Dee of First Capital Advisors Group said that it is crucial for people to save for retirement, even if they do so at a level as low as 2% to start, while managing other costs.

Hiles and Dee said workers should consider that every year in retirement will require 70% of what an individual earns in an average year. With that consideration, saving 10% of a $60,000 salary over a 40-year working life would yield $240,000, which could cover six or seven years of retirement. The advisers also suggested building a spending plan following the 50/30/20 rule: 50% toward necessities, 30% toward discretionary spending and 20% toward savings and debt repayment.

With workers now managing higher discretionary costs, due to inflation, they also reported increased stress according to EBRI’s research. When considering their financial futures in 2022, 35% of employees strongly agreed that thinking about their financial future caused them stress, up 25% from 2021.

The 2022 survey of 1,518 American workers was conducted online July 13–29, 2022, and included funding from organizations including the AARP, Cigna, Fidelity Investments, Mercer, OneDigital, and Voya Financial.