full version of Garman, Leech & Grable, 1996

Garman, E. T., Leech, I. E. & Grable, J. E. (1996). The negative impact of employee poor personal financial behaviors on employers . Financial Counseling and Planning, 7,157-168.

Copyright 1996 by AFCPE

The Negative Impact Of Employee Poor Personal Financial

Behaviors On Employers

E. Thomas Garman,(1) Virginia Tech

Irene E. Leech,(2) Virginia Tech

John E. Grable, (3) Virginia Tech

This article demonstrates that there are substantial costs to employers caused by the stresses associated
with poor personal financial behaviors of employees. Approximately 15% of workers in the United
States are currently experiencing stress from poor financial behaviors to the extent that it negatively
impacts their productivity. The proportion of workers experiencing financial problems that negatively
impact productivity for a single employer could range as high as 40 to 50% depending upon certain
factors. The costs of reduced employee productivity because of poor personal financial behaviors are
substantial. The full extent of the costs to employers is unknown.

KEY WORDS: absenteeism, employee assistance program, employee productivity, personal financial
behavior, stress, substance abuse

Seventeen years ago Brown (1979a; 1979b) reported that
the personal financial problems of workers negatively
affect their employers. As a pastoral counselor for a
large company providing well above national average pay
and benefits, Brown observed that the money problems
of employees were frequently costly for the employer.
Because of the poor financial behaviors of employees,
some compensatory measures employers are forced to
pay include “insurance premiums, hospital bills,
production down-time, materials that needed redoing, and
the training of an inexperienced replacement” (1979b,
p.32). Brown’s research revealed that the number of
employees experiencing financial difficulties was
approximately 10%.

Household spending, credit use, and stress have changed
enormously in recent decades. Anecdotal evidence and
media reports today suggest that a much higher
proportion of people are experiencing stress about
financial matters. A national survey revealed that 3 out
of 4 Americans faced at least one significant financial
problem recently, such as being unable to save for future
needs, delaying medical care, or having problems with a
collection agency (Chandler & Morin, 1996). Consumer
credit card delinquencies are at an historic high (Credit
card delinquencies rise, 1996; Singletary, 1996) and
frequent news reports indicate that personal bankruptcies
are expected to reach all-time highs in 1996–over 1.1
million (Greenwald, 1996; Hansell, 1996).

According to a survey conducted among corporate
human resource executives, the financial illiteracy of
workers “is considered the most critical unaddressed
workplace issue” (Cambridge Human Resource Group,
1995, p.1). Thirty-two percent of the executives ranked
the “toll on productivity caused by personal financial
problems as the most pressing overlooked workplace
issue” (p.1).

Employers today are taking the issue of employee stress
seriously as indicated by the facts that approximately
25% of workers feel stressed at work every day and
about 40% of employers offer on-the-job assistance for
handling stress (Schellhardt, 1996). However, employers
do not know how job stress and money problems are
related. Also unknown is the employer’s cost of their
employees’ personal financial problems. This study was
undertaken to review the literature to gain updated
information and insights about the frequency and severity
of personal financial mistakes and careless behaviors of
employees that may lead to serious problems negatively
affecting an employer.


The literature review began with an Internet search of
over 12,500 journals, dissertations and books using a
variety of key words and phrases. This was followed
with a similar computer search of additional thousands of
journals, newspapers, and the Congressional Record
using Infotrak. The computer searches used such key
terms as “finance,” “personal finance,” “credit,”
“bankruptcy,” “substance abuse,” “productivity,”
“accidents,” and “stress.”

Three manual searches of published books and
proceedings also occurred: one of various library
reference indexes which led to a number of journals, and
a second of the personal libraries of the researchers,
which included a number of unpublished conference
proceedings. A number of telephone calls were made to
selected researchers in order to find some of the more-difficult-to-locate publications. While several hundred
sources were reviewed, only about 200 were found to be
potentially useful, and from that only about 60 were
found to actually be useful.

Personal Financial Mistakes and Careless Behaviors

People travel the pathways of life experiencing a number
of normal events that cause stress, such as moving from
one home to another, hospitalization for an injury or
illness, marriage, death of family members, and
occasional loss of income while between jobs. Many of
these events which occur normally negatively impact
one’s personal and family finances. These events, while
common, also cause stress in people’s lives.a The media
often reports that at any point in time about one-third of
American adults are concerned about their ability to pay
the next month’s bills. Table 1 provides examples of
personal financial mistakes and careless behaviors of
employees that may lead to serious problems that
negatively impact one’s employer.

Table 1

Personal Financial Mistakes and Careless Behaviors

1. Occasionally spending too much money

2. Occasionally overusing credit

3. Occasionally reaching the maximum limit on a credit card

4. Occasionally running out of money

5. Occasionally writing a check with insufficient funds

6. Occasionally having a low or non-existent emergency fund

7. Occasionally being unable to pay due bills (e.g., utilities, rent,
child care, credit cards)

8. Occasionally being unable to repay installment debts

9. Occasionally receiving “overdue notices” from creditors

10. Occasionally paying late some due bills and installment debts

11. Occasionally relying on a second income to pay living expenses
and debts

12. Occasionally being denied additional credit, perhaps because of a
lack of a sufficient positive credit history

13. Occasionally borrowing, perhaps by obtaining a cash advance from
a line of credit on a credit card or advance pay from an employer,
to pay for living expenses and/or other debts

14. Occasionally obtaining a debt-consolidation loan

15. Occasionally having liabilities in excess of assets

16. Occasionally not contributing to a pension plan

17. Occasionally losing money to ripoffs and frauds

18. Occasionally losing money by gambling or buying lottery tickets

19. Allowing an insurance policy to lapse (e.g., vehicle,
renter’s/homeowner’s, medical, life)

20. Occasionally making a request for welfare (e.g., cash grants, food
stamps, subsidized housing)

21. Occasionally feeling emotionally stressed about money matters

22. Occasionally worrying about the security of one’s job

Factors listed in Table 1 do not necessarily lead to poor
financial behaviors. In fact, most people go through life
periodically experiencing many of these personal
financial mistakes and careless behaviors. In reality,
these are some of the normal and quite typical financial
practices, experiences, and concerns of living in a
modern society. However, when an excessive number of
these personal financial mistakes and careless behaviors
or factors occur or accumulate in combination with other
events and catalysts, they collectively can result in poor
financial behaviors.

Genuine Indicators of Poor Financial Behavior

Poor financial behaviors are personal and family money
management practices that have consequential,
detrimental and negative impacts on one’s life at home
and/or work. Writing a check with insufficient funds in
the account may be classified as a personal financial
mistake or careless behavior, however, when it occurs
along with similar mistakes this is poor financial
behavior. For example, a single episode, such as
gambling away one’s entire paycheck, could eliminate
any possibility of paying one’s monthly rent or making a
vehicle loan payment in a timely manner. In addition,
there are a number of other actions, such as garnishment
of wages, that are always indicators of poor financial

Table 2 provides examples of poor financial behaviors
that negatively impact one’s family life (e.g.,
relationships with relatives and friends) and/or one’s
employment (e.g., job performance). Note that the first
22 factors are the same as those listed in Table 1 as
examples of personal financial mistakes and careless
behaviors; however, here they occur in excess, as is true
of the remaining 14 behaviors.

Table 2

Poor Financial Behaviors

1. Regularly spending too much moneyb

2. Regularly overusing creditc

3. Regularly reaching the maximum limit on a credit card

4. Regularly running out of money

5. Regularly writing “bad checks” (e.g., ones with insufficient funds
in the account which results in additional bank/vendor charges
and perhaps other penalties)

6. Typically having a low or non-existent emergency fund savings

7. Regularly being unable to pay due bills (e.g., utilities, rent, child
care, credit cards)d

8. Regularly being unable to repay installment debts

9. Habitually receiving “overdue notices” from creditors

10. Regularly paying late some due bills and installment debts

11. Regularly relying on a second income to pay living expenses and

12. Being denied additional credit because of a poor credit history

13. Regularly borrowing, perhaps by obtaining a cash advance from a
line of credit on a credit card or advance pay from an employer,
to pay for living expenses and/or other debts

14. Regularly obtaining debt-consolidation loans

15. Typically having liabilities in excess of assets

16. Typically not contributing to a pension plan

17. Regularly losing money to ripoffs and fraudse

18. Regularly losing money by gambling or buying lottery tickets
and/or gambling in an attempt to “fix” one’s financial situationf

19. Regularly allowing insurance to lapse (e.g., vehicle,
renter’s/homeowner’s, medical, life)

20. Regularly making a request for welfare (e.g., cash grants, food
stamps, subsidized housing)g

21. Regularly feeling emotionally stressed about money matters

22. Regularly worrying about the security of one’s job

23. Regularly receiving communications from collection agenciesh

24. Being sued for financial reasons

25. Having property securing a debt repossessed

26. Having utility service cut off

27. Being evicted from rental housing or having one’s home

28. Having a lien placed on one’s personal or real property

29. Having one’s tax refund intercepted by a government agency or
court order

30. Having one’s wages garnished

31. Filing for personal bankruptcy

32. Being referred by an employer for credit and budget counseling
because of poor job performance associated with poor financial

33. Exhibiting unethical and/or criminal behavior (e.g., employee
theft, embezzlement, check fraud, income tax evasion, expense
account fraud, filing deceptive loan statements)

34. Being disciplined or fired by one’s employer for poor financial

35. Being imprisoned for financial reasons

Poor Personal Financial Behaviors that Negatively Impact Employers

There are many substantive areas of costs associated with
poor financial behaviors. Poor financial behaviors
negatively impact both families and employers. A
person’s poor financial behaviors impact on family life
and lead to losses of transportation, housing, ability to
obtain credit for needed goods and services, arguments
with relatives, heavy emotional stress, spouse/child
abuse, and divorce. Poor financial behaviors result in
extremely high costs that are incurred by employers,

1. Absenteeismi

2. Tardiness

3. Fighting with co-workers and supervisors

4. Sabotaging the work of co-workers

5. Job stress

6. Reduced employee productivityj

7. Lowered employee morale

8. Loss of customers who seek better service

9. Loss of revenue from sales not made

10. Accidents and increased risk takingk

11. Disability and worker compensation claims

12. Substance abuse

13. Suicide and murderl.

14. Increased use of available health care resources by
the employee and relativesm

15. Thefts from employers

16. Loss of security clearance

17. Nondeployment of employee to an overseas’

18. Lack of employee focus on the strategic goals of the

19. Greater use of employee assistance program
services, including those for spouse and child abuse

20. Employer time to deal with poor financial behaviors
of employeesn

21. Loss of trained personnel (both for workday losses
due to temporary suspension from duties as well as
for termination of employment).

Poor Financial Behaviors and Stress are Interlinked and Cumulative

It is apparent that the factors contributing to poor
financial behavior are interlinking and cumulative.
Holmes’ list of 43 stress producing items, cited in Holmes
and Rahe (1967), which is used to predict medical
problems, clearly illustrates the cumulative effect. As
stress increases the Holmes score increases, along with
the likelihood of the occurrence of major health

This relationship is also true regarding various personal
financial mistakes and careless behaviors. As the
number and intensity of personal financial mistakes and
careless behaviors escalate, the likelihood of serious
negative consequences, both at home and/or work,
increases. The widely accepted Hill ABCX family crisis
model (Hill, 1949; Hill, 1958), particularly as redefined
by McCubbin and Patterson (1983), shows that family
maladaptation is characterized by family instability and
deterioration of health that has both short- and long-term

It is crucial for individuals, families, and employers to
understand that most people go through their lives
effectively “handling” all the stressors of modern life,
occasionally exhibiting poor financial behaviors. Most
families struggle with change; adapt, and utilize creative
techniques to manage the demands of life. This is the
graphic circular flow of living where things attain a sort
of balance, graphically illustrated as “within the circle,”
as shown in Figure 1. Here individuals and families
experience a variety of financial difficulties as well as
health problems, relationship stresses, and problems at
work, but they continue living all the while generally
keeping life in balance.

Sometimes one or more of these factors becomes severe
enough to create an imbalance. Serious marital
problems, difficulties with a co-worker, harassment from
creditors, and unexpected medical expenses are some of
the things that can throw one’s life out of balance,
perhaps to an oblong, egg-shaped sphere, as shown in
Figure 2. These occasions may be the most advantageous
time for successful intervention–before the problem(s)
get totally out of control. Years ago, Brown (1979b)
found that financial problems comprise about one-fourth
of employee counseling cases, and this proportion may
be higher today.

Figure 1

Within the Circle

Figure 2

Out of Balance

When “financial problems arise, it is in the workplace
that they are likely to surface first” (Kellar & Nolf, 1984,
p. 1). Among five risk stressors in life (relationships,
work, health, crime/violence, and personal finance),
personal finance was rated by workers in one study as the
number one source of stress; concerns about personal
finance are five times those regarding health (Cash,
1996). Among one homogeneous population, 4 of the
top 10 identified needs were financial (Darby, 1996).
Such stress suggests that many people are experiencing
a substantive degree of economic insecurity, “where there
is considerable worry, fear, anxiety, and psychological
discomfort” (Rejda, 1984, p. 3).

When employees’ various life events and factors get out
of control, including personal, financial and work, the
high degree of economic insecurity can be graphically
represented as a spiraling sphere shape, as shown in
Figure 3. Here people experience failure in family life,
personal finances, and/or employment as their lives seem
to spin out of control. Events such as eviction, divorce,
wage garnishment, or loss of employment may occur.

Figure 3

Spiraling Sphere.

Factors such as failure of a personal relationship, poor
financial behaviors, and substandard job performance,
are related. While research may have not yet
demonstrated a statistical relationship of linearity
between variables, there certainly exists a substantive
correlation. Thus, while a direct cause and effect may
not be demonstrated, there is a great amount of evidence
that strongly suggests these factors are related. Brown
(1979b) found that 84% of employees with financial
problems also needed counseling for other problems.
Further, one-third of employees counseled for problem
drinking also had money problems.

Brown’s more recent research (RJR, 1991) shows that
problems of employees include family problems,
financial problems, substance abuse problems, legal
problems, worker compensation claims, and accident and
sickness disability claims. In an early study, Brown
(1979b) found “that 1 in every 30 employees at some
point becomes so desperate over a personal problem or
because of mental illness or intoxication that the
employee contemplates suicide, or homicide, or functions
as a hazard on the job” (p. 32).

Sporakowski (1979) observes that sex and money are the
two most frequently presented problems in a marriage
counselor’s office, and “that they frequently result from
a combination of ignorance or lack of information;
differing attitudes, values and expectations; sensitive
feelings; difficulties in interpersonal communication; and
factors external to the individuals or relationships that
result in a feeling of helplessness or lack of control” (p.

Some examples illustrate the combined and cumulative
aspect of poor financial behaviors that result in an out-of-control spiraling of life for individuals and families:

* When an employee is involved in an on-the-job
accident, fact finding may reveal that other factors are
involved, such as pending legal action due to
financial problems and/or substance abuse;

* When an employee steals from an employer, analysis
may reveal that other factors are involved, such as
overuse of credit, caused by uninsured health costs
and gambling to attempt to “fix” the financial crisis;

* When an employee’s work productivity drops off
sharply, analysis may reveal that other factors are
involved, such as emotional stress from financial
problems caused by marital instability and substance

* When an employee commits spousal abuse,
counseling may reveal that other factors are involved,
such as serious debt problems and emotional stress;

* When an employee’s wages are garnished,
investigation may reveal poor financial management
practices and marital problems.

Poor Personal Financial Behaviors Are Often
Manifested as Stress Which Reduces Employee Productivity

Stress has been documented as resulting in lower
employee productivity. According to Tang and
Hammontree (1992), stress costs businesses between
$100 and $150 billion a year in lost employee
productivity. Thirty percent of all adults report high
work stress; 11 million people report health-endangering
levels of work stress (Hickox, 1994)o

A key question is, “Which variables are related to
stress?” Literature on the question is actually quite clear.
According to Kirkcaldy, Cooper, and Ruffalo (1995), a
combination of mental and physical factors influence
work stress. These variables include alcohol, drugs,
gambling, absenteeism, family relations, hazardous
working conditions, threat of injury on the job, personal
health (Leigh, 1991), and poor financial management.
Interestingly, many of these variables not only cause
stress but result in stress as well.

A major source of lower employee productivity resulting
from stress is absenteeism (Bruner & Cooper, 1991;
Chaudhury & Ng, 1992; Garrett, 1993; Hager, 1994;
Mughal, Walsh & Wilding, 1996; Tang & Hammontree,
1992). Employee stress about personal financial matters,
as demonstrated above, is a reality in the workplace. A
survey of 301 employees of IDS Financial Services
found that “personal finance worries may indeed affect
the job performance of more than one-third of America’s
corporate workforce and may lead to unwanted turnover”
(Harris, 1987, p. 6). Thirty-eight percent said “money
worries sometimes hamper job performance,” and 33%
under age 35 said they “would have to change jobs to
meet financial goals” (p. 6).

Many employees take time off work to deal with their
financial problems. For example, workers take time
away from productive labor to telephone creditors, seek
sources of additional credit, converse with co-workers
about stresses, talk with supervisors about financial
problems, and place gambling wagers. They also take
occasional extended work breaks, supposedly to use the
toilet or to eat a meal, but instead spend the time dealing
with financial stresses. Employees sometimes even call
in sick to their employers so they can make court
appearances, talk with attorneys, and meet with others
concerning financial problems.

Since 1973 the number of lost workday cases, or
frequency per 100 full-time workers, has increased more
than 12% (Waddell, 1996). Unscheduled absenteeism
cost companies $688 per worker per year on average, and
last year unscheduled absenteeism rose for the fourth
time in a row (Waddell, 1996). A primary reason for
these trends is stress in the workplace (Kottage, 1992).
Chronic absenteeism has become the number one
workplace problem according to some experts (Perry,

It has been estimated that 70% or more of all job
absenteeism is a direct result of stress-induced illness
(Tang & Hammontree, 1992). These absences have a
direct and devastating impact on worker productivity and
customer satisfaction, according to Perry (1996). Costs
include lowered morale among other employees who
must shoulder extra work loads, lost revenue from sales
not made, loss of customers who flee to competitors for
better service, and decline in business reputation.

External responsibilities were the third most important
determinant on absenteeism in a study of Australian blue-collar employees conducted by Deery, Erwin, Iverson
and Ambrose (1995). Personal financial difficulties are
an example of external responsibilities.

The costs of absenteeism are staggering, and it is not
surprising that high costs are universal. According to
Rogers and Herting (1993), sick leave among employees
has increased from an average of 64.9 hours per
employee in 1975 to 73.9 hours in 1981. Results of
recent surveys indicate that only 35% of respondents use
sick leave when they are “really” sick (Rogers and

Absenteeism costs have been estimated to be between $9
and $13 billion a year in England (Watkins, 1994), and
in Canada absenteeism results in 53.4 million hours of
lost employee productivity (Chaudhury & Ng, 1992).
Fifteen years ago, in 1981 it was estimated that business
lost between $3 to $5 billion annually from family
violence-related absenteeism and $100 billion in abuse-related medical costs (Deming, 1991).

Direct costs of absenteeism in the U.S. are estimated to
be between $25 and $35 billion a year in lost employee
productivity, half of which is paid sick leave (Rogers &
Herting, 1993; Tang & Hammontree, 1992). Dalton and
Mesch (1991) report that the total productivity lost in the
United States each year to absenteeism is nearly $40
billion. Others have estimated these costs to be over
$300 billion per year, which represent between 9 and
15% of total wage bills (see Karasek & Theorell, 1990).
Losses associated with job stress are currently estimated
to be as large as $150 billion per year (Karasek &
Theorell, 1990).

Stress, Substance Abuse, and Employee Productivity

The relationship between stress, substance abuse, and
lost employee productivity is especially alarming. Stress,
including that caused by financial problems, leads some
people to abuse alcohol and drugs. Ten million persons
are addicted to alcohol and 3 million persons are addicted
to drugs. Of these, approximately 7 million are employed
(Callery, 1994). In other words, 12 to 15% of all
workers are experiencing some sort of personal problem,
and at least one half of these problems involve chemical
abuse (Callery, 1994). According to Callery there is a
consistent relationship between chemical abuse and poor
employee performance, including lowered production,
decreased efficiency, tardiness, as well as increased use
of employer fringe benefits such as sick time, disability,
and workers’ compensation. Substance abuse causes
absenteeism, accidents, health care costs, loss of trained
personnel, employee theft, and lost job productivity
(Minter, 1990).

Employers pay dearly for drug abuse problems in the
workplace. Drug abuse seriously erodes an employer’s
financial standing and reduces a company’s ability to
compete, costing businesses $60 billion each year
(Lipman, 1995). Further, recreational drug users are 2.2
times more likely to request early dismissal or time off;
2.5 times more likely to have absences of eight days or
more per year; 3.6 times more likely to be injured on the
job; and five times more likely to file a workers’
compensation claim (Lipman, 1995). Recreational drug
users are 7 times more likely to have wage garnishments
and they are one-third less productive on the job
(Lipman, 1995). Fifty-nine percent of financial costs
associated with alcoholism and drug abuse result from
losses in the work world (Goldberg, 1994). The annual
cost to society of substance abuse and mental illness is
more than $190 billion (Minter, 1990). Drug and alcohol
abuse cost the American economy at least $177 billion a
year, including $99 billion in lost employee productivity
(Staroba, 1990).

According to Scanlon (1986), employee alcoholism and
drug abuse are estimated to cost American business at
least $26 billion total; ($16 billion and $10 billion
respectively), with $16 billion of this total cost directly
related to lost employee productivity, absenteeism,
medical expenses, disability claims, and corporate theft.
Furthermore, more recent data show that drinking
problems cost employers $2,500 per employee per year
in productivity losses, absenteeism, and disability benefit
claims, amounting to $15 to $20 billion a year (Scanlon,
1991). All of these costs are ultimately passed on to
consumers in the form of higher prices and/or higher

Per capita expenses to both private and public
organizations are equally alarming (Scanlon, 1986).
Costs to all organizations works out to $4,200 per worker
per year in 1986 dollars. Inflated to 1996 dollars, the
figure is $5,600 per worker. Drinking, exclusive of drug
abuse, costs employers $2,500 per worker per year in lost
employee productivity, absenteeism, and disability
benefit claims. The total costs of corporate alcoholism
are estimated to be between $15 and $25 billion each

Stress, Poor Financial Management, and Employee Productivity

Stress-related variables tend to impact each other.
According to Williams (1982), financial problems result
from unexpected changes which necessitate reevaluation
of the use of resources. It is not surprising that many of
the “situations” outlined by Williams are also stress-related variables. For example, situations which may
create severe financial problems include: changes in
family income, changes in employment status,
unscrupulous or fraudulent schemes, adverse job politics,
loss of ability to fulfill home responsibilities, need to
support parent or other persons, premature death of
spouse, birth of child, illness or disability, accidents,
divorce, major unexpected bills, lawsuits, and changes in
consumer prices.

According to Williams (1982), specific situations that
cause financial stress include: underestimating expenses
because of inexperience or poor records, overestimating
income, lack of family communications, being
overwhelmed with bills and expenses to the point of
being afraid, inability to say “no”, lack of planning,
buying products and services on credit, poor money
handling skills, credit overextension, using money for
emotional reasons, not having a cash reserve for
emergencies, and not controlling expenses such as
gambling, alcohol, tobacco, and drugs.

Stress inducing variables eventually have an impact on a
family’s financial well-being, which in turn, influences
individual response to stressful situations. For example,
an individual who faces increasing levels of stress will,
according to the literature, be more likely to miss work
on a regular basis. This action tends to increase feelings
of guilt, resentment, and loss of hope. Many such
individuals turn to alcohol, gambling, tobacco, or drugs
to dampen the effects of stress in their lives. Factors
contributing to stress are cumulative and interlinking.
Consequently, when employees exceed their coping
threshold for stress, it is likely that workers’
compensation claims–both legitimate and
fraudulent–will increase (Gilmore, 1994).

Unfortunately, these activities force reallocation of
financial resources towards the maintenance of unhealthy
habits. In turn, poor financial management leads to
increasing levels of stress, which tend to support other
types of behavior, further reducing employee
productivity. In other words, the relationship between
stress, stress-related variables, poor financial
management, and overall reduced employee productivity
is not linear; it is, in fact, a spiralling sphere which
ultimately leads to physical, financial, and employment

Employers Pay the Costs for
Reduced Employee Productivity

Mental illness and substance abuse cost the nation an
estimated $273 billion annually in treatment expenses,
lost and reduced employee productivity, law enforcement
efforts, and other related costs. Mental illness costs the
country $129.3 billion; alcohol abuse $85.8 billion; abuse
of other drugs, $58.3 billion. Employers assume a large
portion of the costs attributed to mental illness and
substance abuse in the form of treatment benefits and
prevention programs, lost work days, and reduced
employee productivity (Caldwell, 1991).

For example, it is estimated that 25% of the chemical-dependent employee’s earnings can be applied to the cost
of lost employee productivity and poor job performance
(Scanlon, 1991). Six to ten percent of a workforce
abuses alcohol and other drugs to the extent that work is
disrupted. Employees who are problem drinkers cost
their employer approximately one-fourth of their average
annual salary per year (Brown, 1979b).

Brown (1993) reports that 10% is a very conservative
estimate of the number of employees in the workplace
with financial difficulties. Brown’s formula for
calculating the cost of employee financial problems to an
employer can be conservatively estimated as follows:
take the 10% of the workforce which is currently
experiencing financial problems and multiply that by a
10% average annual wage loss in employee productivity;
that equals the cost of an employer doing nothing (RJR,
1991). For example, consider an employer of 1,000
employees with an average wage of $30,000 who has 100
workers experiencing financial problems to the extent
that their productivity is reduced by 10%. That
calculates to $300,000 in annual lost productivity
($30,000 [annual employee wage] X .10) = $3,000 per
financially troubled employee] X 100 [current number of
financially troubled employees]). This $300,000 annual
productivity loss for an employer with 1,000 employees
is a conservative estimate.

Others also report that a proportion of workers have
difficulties with their personal finances to the extent that
it negatively impacts their productivity. Kellar (personal
communication with E. Thomas Garman, March 22,
1987) estimated that at any point in time at least 10% of
U.S. Navy personnel were experiencing financial
problems. Garman (1989) made a similar estimate of at
least 10%. A higher estimate was made by Cash (1996)
who found that 28% of workers report that personal
finances have negatively impacted their productivity in
the past year.

The estimates from the 1980s about the proportion of
workers experiencing significant financial problems must
be raised for the current times for a number of reasons.
Both the number of credit cards in circulation and the use
of credit cards for marketplace transactions have risen
enormously since the 1980s. Further, credit card
delinquencies are currently at an all-time high. Also,
personal bankruptcies are projected to reach an historical
high this year. Finally, as the proportion of individual
and family income required to pay interest and repay debt
increases, the margin of net income available for other
needs and wants, including any expenditures that might
stress one’s budget, becomes smaller. In short, the
greater use of consumer credit the less margin there is for
spending errors; thus, substantially more people today are
experiencing financial problems than a decade or two

Therefore, it can be conservatively concluded that
approximately 15% of workers in the U.S. are currently
experiencing stress from personal financial mistakes and
careless behaviors as well as from poor financial
behaviors to the extent that productivity is negatively
impacted. Depending upon such factors as employee
income levels, ranges of age and stage in the life cycle,
and the costs of living, the proportion of workers
experiencing financial problems that negatively impact
productivity for a single employer could range as high as
40 to 50%.

Furthermore, and very importantly, the productivity of
workers who are experiencing stress about personal
financial matters may drop by a factor or more than 10%
(the percentage used in Brown’s [1979b] seminal
calculation). If the decline in worker productivity is
actually 20%, for example, the amount of lost
productivity to an employer is much greater! Consider
again the above employer of 1,000 employees with an
average wage of $30,000 who has 100 workers
experiencing financial problems to the extent that their
productivity is reduced. This time, however, the
productivity loss is estimated to be 20%. That calculates
to $600,000 in annual lost productivity ($30,000 [annual
employee wage] X .20) = $6,000 per financially troubled
employee] X 100 [current number of financially troubled
employees]). This $600,000 annual productivity loss for
an employer with 1,000 employees is likely a more
realistic estimate of the types of costs that are incurred by
employers. An employee who misses four days of work
in one month, for example, causes a 20% loss in
productivity, and this does not include any related costs
for temporary labor, workers’ compensation, employee
medical care, and increased insurance premiums.

Employers Benefit When They Deal With
Employee Problems

A strategy based on the joint search for worker well-being and employee productivity is at the heart of the
entire quality-of-life movement (Karasek & Theorell,
1990). It pays for employers to be interested in the
wellness of their employees. For every dollar spent on
mental health and substance abuse treatment, $11.54 is
saved in social services costs (Hickox, 1994).

Employers find that there is a five-to-one return for every
dollar spent on an employee assistance program, with a
substantial savings on health care benefits (Goldberg,
1994). General Motors saves $3,700 per year for each
employee enrolled in its EAP, with total savings of $37
million; Northrop saves $20,000 per employee in job
productivity per rehabilitated employee; New York
Transit saved $1 million in paid sick leave in one year
(Campbell & Graham, 1988). Employee assistance
programs saved the U.S. Postal Service more than $2
million; the New York Telephone Company employee
assistance program saved $1.5 million (Garman, Porter
& McMillion, 1989).

A recent literature review (Williams, Lown, Haldeman,
Garman, Fletcher & Cramer, 1990) concludes that there
is justification for continued efforts to provide valid and
reliable evidence of the impact of financial concerns on
employee productivity and on the cost-benefit of
employers offering financial counseling and planning to
employees in an industry setting. Employers who believe
in primary prevention find it smart (when dealing with
drugs and alcohol in the workplace) to make help
available to all employees experiencing problems
impacting job performance (Campbell & Graham, 1988).
One of the new wellness trends is financial health
programs (Cash, 1996).

Once acquainted with financial education training at a
worksite, 63% of participants are more inclined to pursue
financial education on their own (Cash, 1996). In the
future, employers are increasingly likely to help their
employees deal with financial problems for very good
reasons–it increases job productivity, reduces costs, and
makes employees happier.

At Ameritech, for example, “helping employees deal with
financial issues falls under the umbrella of the Employee
Assistance Program (EAP)” (Cambridge Human
Resource Group, 1995, p.4). By placing the financial
counseling in EAP, Ameritech is assured of
confidentiality and it gives employees the chance to
maintain control. Ameritech’s human resources-research
manager says, “We’ve found that by giving employees the
tools–without any strings attached–they can work out
any problems. It’s a win-win situation for Ameritech and
its employees” (p. 5).

Research Needed

This literature review confirms that there are substantive
costs associated with the stresses associated with poor
financial behaviors. These impact the individuals
involved, their families, and their employers. The full
extent of the costs to employers is unknown. The costs,
especially the genuine costs of reduced employee
productivity, need to be quantified so that the real costs
to employers of the poor personal financial behaviors of
employees can be known and cost off-setting measures
can be considered.

Research is needed to carefully determine if people who
are writing checks with insufficient funds, having their
wages garnished, and experiencing marital difficulties are
likely to be the very same people who are performing
poorly on the job. Trends over time need to be identified
and tracked so that employers can recognize the needs
and the impact of assistance provided.

Research also is needed to further identify the specific
problems and the resulting negative behaviors of
employees. This should be done to better understand the
extent of interrelationships, to determine the associated
costs to employers, and to develop methods to identify,
weigh, and scale poor financial behaviors and the related
stress factors. Findings should be predictive so that cost-effective prevention efforts might be undertaken to
reduce the negative costs of the poor financial behaviors
of employees on employers. In addition to identifying
the costs, research needs to be conducted to ascertain the
return on investment to employers who establish
employee assistance program in personal financial

Practioners and researchers should work together to
conduct this research. Together they should design
studies which will allow practitioners, and others in
business, to easily collect needed data in the course of
their supervisory responsibilities. Because employee
problems are interrelated and tend to spiral in crisis, well
designed research studies will be required.


a There are other stressful events that also may result in negatively
affecting one’s employer which are not necessarily under the
control of the individual or family, such as having an exceptional
child, or other family member, who requires substantial financial
expenditures. Such factors are not examined in this literature

b. Consumers are spending $1.03 for every $1 they earn (Stern,
1995); consumers between ages 18 and 25 spend $1.17 for every
$1 they earn (Garman & Forgue, in press); poor money
management is identified as the main problem by 45% of clients
going to a consumer credit counseling agency (Williams, 1996); a
study by Visa shows that 29% of the people declaring bankruptcy
last year report that overspending was the major cause for them
filing bankruptcy (Singletary, 1996).

c. Two-thirds of adults have at least one Visa or MasterCard
(Fulkerson, 1995); the average American has 8 to 10 credit cards,
and the outstanding credit card balance for most people is over
$1,700 (Stern, 1995).

d. Credit card delinquencies of more than 30 days are currently
3.66%, the highest in history (Credit card delinquencies rise, 1996;
Singletary, 1996).

e. Every other telemarketing call to your home is from a crook trying
to steal your money (Garman, 1996).

f. State lotteries exist in 36 states and casino gambling is legal in
more than 20 states (Fulcher, 1991); there are 8 to 9 million
individuals pathologically addicted to gambling (Fulcher, 1991);
following the introduction of legalized gambling, the numbers of
problem gamblers tripled, from 1.7% to 5.4% (America’s gambling
fever, 1996); problem gamblers cost society $13,200 to $30,000
per gambler (Simon, 1995); problem gamblers cost between
$13,200 and $35,000 for government services (America’s gambling
fever, 1996): problem gamblers will write bad checks and reach the
point of bankruptcy . . . often turning to illegal activities (Simon,
1995); 85% of compulsive gamblers admit to stealing from their
employers, given the opportunity (Fulcher, 1991); 40% of
pathological gamblers lose their jobs, 23% become alcoholics, and
63% contemplate suicide (Simon, 1995); problems caused by
gambling reported by members of Gamblers Anonymous include
divorce or separation (26%), quit or lost a job (34%), stolen from
work to pay gambling debts (44%), bankruptcy (21%), gambling-related arrests (18%), contemplated suicide (66%), and attempted
suicide (16%) (America’s gambling fever, 1996).

g. Twenty-seven million Americans use food stamps (Holmstrom,
1994); workplace support was the most significant factor affecting
the degree to which mothers reduced their reliance on welfare as a
source of household income over a 3-year period (Parker, 1994).

h. Greninger, Kitt, Hampton and Achacoso (1996) determined this to
be the best single indicator of financial insolvency.

i. Increased personal financial pressures can lead to absenteeism
(Macadam, 1994).

j. The higher a salesperson’s stress the lower their job productivity
(Yeh, Lester & Tauber, 1986).

k. Automobile accidents cause $137 billion every year in medical
expenses, lost employee productivity, and property damage, and
this represents $50 billion in annual costs to employers (Chafee,
1995); accidents involving employer-owned cars cause disruption
to business (Cartwright, Cooper & Barron, 1993).

l. A recent example is the infamous Susan Smith, who drove her
automobile into a South Carolina lake drowning her two children,
reporting that she was greatly stressed about financial matters;
Smith also stated that she was separated from her husband and had
just broken up with her lover.

m. These occur for both mental health disorders as well as for physical
problems (Cash, 1996).

n. Time is lost by both the worker and the supervisor (Kellar & Nolf,

o. Victims of sexual harassment, another form of stress, can
experience severe anguish, tension, and depression which lead to
absenteeism, staff turnover, and low employee productivity
(Husbands, 1992).


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1. E. Thomas Garman, Professor, Consumer Affairs and Family Financial Management, Virginia Tech, HIDM Department, Blacksburg, VA 24061-0424.
Phone: (540) 231-6677. Fax: (540) 231-3250. E-mail: tgarman@vt.edu

2. Irene E. Leech, Associate Professor and Extension Specialist, Consumer Education, Virginia Tech, HIDM Department, Blacksburg, VA 24061-0424.
Phone: (540) 231-4191. Fax: (540) 231-3250. Email: ileech@vt.edu

3. John E. Grable, Doctoral Student, Family Financial Management, Virginia Tech, HIDM Department, Blacksburg, VA 24061-0424. Phone: (540) 231-6163. Fax: (540) 231-3250. Email: jgrable@vt.edu.

This research was conducted by the Virginia Tech faculty as subcontractors for the Personal Financial Management Project under the auspices of a
jointly administered project co-directed by the Military Family Institute (MFI) at Marywood College, Scranton, PA 18509 and the Bureau of Naval
Personnel, Office of Deployment Support and Personal Financial Management Programs (DS&PFMP). The Executive Director of the MFI is Dr. Peter
McNelis, and the PFMP effort is coordinated by Dr. Raminder Luther. The DS&PFMP Project Manager is Peter J. Darby.