The Evolving Nature of Debt Across Generations

During its recent Spring Policy Forum, the Employee Benefit Research Institute hosted a panel discussion of experts who gave insight into how debt has changed across generations and how financial wellness programs can help address the issue.

According to the panel, debt is a particularly challenging factor when it comes to balancing financial wellness and retirement savings. The panel examined the levels and types of debt held by American workers and retirees, including how debt has changed from prior generations.

Speakers on the panel included Craig Copeland, EBRI’s director of wealth research; Alex Smith, the City of Memphis’ chief human resources officer; Jay Washington, Voya’s diverse markets associate vice president; and Liz Varley, Ameriprise’s federal government affairs vice president.

Recounted below are some of the highlights from the discussion, in which panelists offered new debt statistics and examined survey responses related to people’s evolving attitudes and experiences with debt.

Copeland on American Attitudes and Experiences With Debt

“The majority of workers in America agree with this statement, 58% of them to be exact: ‘Preparing for retirement makes me feel stressed,’” Copeland said. “Even if you take away debt in general, people are feeling significant levels of stress in preparing for retirement. They don’t feel like they know exactly what they are doing. They don’t know how to do it, or they don’t have the resources to plan as well as they feel they need to.

“When we start talking about debt in general, we actually ask them specifically whether their debt is negatively impacting their ability to save for retirement. We have 46% of workers saying that they either strongly agree or somewhat agree that this is happening. We get almost half of workers saying that their debt is impacting their ability to save for retirement. So again, this debt issue is really affecting a large percentage of American workers in preparing for retirement.

“What’s one of the major sources for people taking a loan withdrawal once they even have retirement savings? The number one reason people cite for why they have taken money out of their plan, whether it be a loan or withdrawal, is to pay off a credit card bill or other debt. That consistently comes out as the top reason.

“What financial wellness programs can do is help by teaching people and supporting them with different solutions as they get debt under control.”

Washington on Improving Workplace Financial Wellness

“When you start to take a look at the actual statistics around student loan debt, it is pretty staggering, but of course this is not surprising to Americans today. The most stress is experienced by those who don’t finish college. They don’t have the credential, but they still have the student loan debt,” Washington said.

“What many people do not realize is that, if you don’t finish, six months after you leave, those student repayments still start. You can imagine, if you have not finished your degree, the chances are your earnings will be lower relative to those who have graduated. The cycle of debt becomes more of an issue there.

“The vast majority, or 96%, of employees with student loan debt say they would save more for retirement if they did not have student loan debt. As far as workplace options, people are 63% more likely to work for an employer that is going to help them pay their student loans. For ages 22 to 33, 86% of employees say they would commit to a company for five years if they had an employer that helps them pay it back. I think that is such a powerful incentive, and it can be helpful in the fight for talent.

“Today, when you break the data down by race, some 53% of white Americans report having at least three months of expenses saved, but when you look at African Americans, it drops to about half of that, at 27%, and for Hispanic Americans the figure is 29%.

“As a service provider, we strive to partner with industry leaders to deliver solutions that help to solve the typical debt problem. One is emergency savings. In our case, we partnered with a group called Millennium Trust to allow for employee payroll deductions into emergency savings accounts. We also give the employer the ability to match into a savings account. When the solution is in place, we find that it typically will drive better retirement plan participation.

“On the student loan side, we partnered with a group called Vault. They deliver an online advisory tool on how to manage student loans. If you have multiple loans from multiple different areas, you can aggregate them. The program will advise you and guide you on whether or not you should look at refinancing, for example.

“In addition to being able to advise you on it, employers can set it up such that they can either pay down student loans for their employees or tie student loan contributions to a retirement plan match. As an employer this is a great way to be able to set yourself apart, and more importantly, as employers, most of us want to see our employees in the best light possible financially.”

Smith on Employee Debt Management Strategies

“One of the main goals of the City of Memphis, and particularly for our HR division, is to build an engaged workforce to improve the quality of life for all Memphians, every day,” Smith said. “To build an engaged workforce, we focus on both attracting talent and retaining talent. Most importantly, we look at programs that help better the lives of our employees, so that they don’t necessarily have all this sense of stress that they would typically have working for other employers. We must do what we can to ensure that they can focus on serving our citizens.

“What we have discovered over the years is that, in order to focus on building that engaged workforce, we have to understand our employees’ needs. Financial literacy has come up as a key component. To measure where our people are at, we have done employee engagement surveys, and we have engaged them in town-hall-style meetings and discussions. We ask them directly if they have, in general, a concern around their finances, and we let them know that we want to help them manage their finances to the best of our ability.

“Our strategy has been to focus on working with a number of partners to create a compelling total reward offering for employees to help them with all of these issues, as well as provide general support.

“By having this intensive focus, it has absolutely made a difference for us in our ability to attract and retain talent, especially in this challenging marketplace that we’re in right now. Our overall attrition rate is still around 11%, which is relatively low in comparison to employers similar to our size.

“You can’t be afraid to challenge the status quo, and part of this is being very innovative and creative and listening to your employees. We need to understand their needs to be able to develop programs and solutions that can make a difference for them.”