Hooked on Debt

As more young Americans max out their credit cards, employers are exploring ways to help them take charge of their personal finances.

Friday, June 2, 2006
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By the time Eric Holt reached his 25th birthday, he had already accumulated $14,000 in consumer loans and credit-card debt, which equaled nearly half his annual salary.

"I felt like I was drowning," says Holt, a lead specialist at AFLAC, a supplemental insurance company based in Columbus, Ga.

At the time, his employer was offering free "Lunch and Learn" money-management courses. Desperate to climb out of debt, Holt signed up for two courses and learned how to budget, pay off debt, increase his credit score and spend responsibly.

"Those two hours saved my life," he says. Since then, he paid off all his loans, purchased a house and has faithfully set aside money each month in a savings account.

Generation D (as in "debt") -- people in their 20s and early 30s -- are, indeed, becoming debt junkies. They graduate from college with a fistful of credit cards and school and consumers loans, land a low-paying job and continue to charge with no end in sight. Inevitably, they start skipping payments here and there, sinking even deeper. Soon, they have difficulty concentrating on work tasks. Their job performance slips. Even their marriages wind up in trouble.

The problem is a growing one. Though the latest figures from the Federal Reserve don't break down personal-debt growth by ages below 35, a recent report by Demos, a nonprofit research organization in New York, shows young adults are deeper in debt than ever before. The report, Generation Broke: The Growth of Debt Among Young Americans, documents the rise in credit-card and student-loan debt between 1992 and 2001 of young adults between the ages of 18 and 34. Key results include:

* The average credit debt soared 104 percent -- to an average of $2,985 -- for 18- to 24-year-olds. Among the general population, it increased by 55 percent to $4,088. 

* The average young adult household spends nearly 24 percent of its income on debt payments. But 20 percent of those with incomes below $50,000 spend more than 40 percent of their income on debt.

* The 25-to-34-year-old age group now has the second-highest rate of bankruptcy, followed by those aged 35 to 44.

The same trend is also occurring overseas. According to a recent report released by PricewaterhouseCoopers, almost 15 percent of all people declaring bankruptcies in England and Wales between April 2003 and March 2004 were 30 years old or under, which represents a 100 percent increase from 2002.

Likewise, a study called Financial Distress Among American Workers, published in 2005 by E. Thomas Garman, professor emeritus at Virginia Tech University, found that one in four U.S. workers are "seriously financially distressed." Up to 80 percent spend time at work worrying about it and dealing with it instead of performing their jobs. Between 40 percent and 50 percent also reported health problems resulting from related stress.

Some employers are taking evasive action. Besides offering free credit counseling and money-management courses, they go so far as to link completion of such courses to employee rewards. Many employees have been receptive to the idea -- even grateful -- and are returning the favor through higher productivity and retention rates.

Beyond Appreciation

The personal-finance courses at AFLAC, which are offered quarterly at two locations, are always filled and even have a double-digit waiting list, says Chad Melvin, manager of employee learning at the company. All topics are employee-driven. One such course, "Simple Abundance," teaches people how to identify their basic needs to avoid over-indulging.

Based on employee evaluations, e-mails and other feedback, these courses are in big demand among the company's 4,000 employees, half of whom are under the age of 35. One reason, he says, may be that many Generation D employees never took a money-management class in school, learned how to budget or understand how a bad credit score can haunt them for years.

But the indirect benefits are just as valuable.

"It makes [employees] feel that AFLAC cares about them," he says, adding that the company prides itself on being family-oriented. "Every employer has a responsibility to grow and develop its people -- not just the business side. There is the personal aspect as well. If they take the time to grow and develop their people, they'll see great things."

Indeed, the company's focus on helping employees with aspects of their personal lives is, no doubt, a contributor to its ability to recruit and retain top talent. AFLAC's retention rate -- 87.28 percent -- is slightly above the industry rate of 85 percent. Consider Holt, who has stayed with the company for eight years, partly out of loyalty. He says he's grateful to his employer because these programs helped him regain control over his life and motivated him to be more ambitious and productive at work. He now serves on several different committees, something he never considered doing in the past.

Says Holt: "If you take care of your employees outside of what their normal job duties are, they'll take care of you."

Wake-Up Call

While researchers have been churning out information that ties anxiety over financial issues to productivity, debt-stricken employees can also suffer physical and psychological side-effects such as high blood pressure or depression, says Jonathan Hefner, manager of legal and financial services at Ceridian, an HR outsourcing company in Minneapolis.

That can lead to absenteeism and increased use of health-insurance benefits, all of which are bottom-line issues.

"If [members of] this generation end up getting into a lot of debt or retaining their debt, their problems are going to be much more serious," says Hefner. "We like to get them right away, when they're relatively young and their debt is relatively small. Employers have a really unique opportunity to help with that."

But mandatory programs can be a tough sell. Employees may feel preached to or may feel their personal finances are none of their boss' business. Meanwhile, the effort of designing and promoting these programs can cost employers precious time and resources.

"If companies took an aggressive role with all of the things that get people into the state of being a poor-productivity worker, they wouldn't have enough time to . . . [operate] their own business," says Nan Andrews Amish, an HR consultant at Big Picture Perspective in El Granada, Calif. "Trying to find the people that need [help] and trying to play diagnostician without getting accused of playing shrink is a pretty tough [challenge]."

She suggests a variety of tactics. Companies can promote a group of "help" seminars on their Web sites or during employee orientations and open-enrollment periods. But be careful how these courses are titled, she warns, explaining that some titles can be embarrassing and fuel destructive gossip. For example, how many employees would walk into a class called, "How to Stop Drinking," or "Avoiding Bankruptcy"? Instead, use generic titles, such as "Planning for Your Future," which can include a section on debt.

Some employers are adopting a much stronger approach. Over the past two years, she says, several health-care and technology employers have implemented punitive measures. While Amish would not reveal their names, she says they're launching employee-lifestyle programs under the auspices of pay-for-performance.

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"They've taken a punitive stance on [being] overweight and smoking and are saying, 'You owe it to us to have your private life in order as well as your work life,' " she says, explaining that these companies are docking pay, limiting pay raises or writing up employees who aren't making attempts to get their health or finances into shape.

Many employees resent this approach, she says, which could easily backfire on multiple levels, such as causing a mass exodus of workers. A softer alternative is the brownie-point system, a carrot-and-stick approach whereby employees can earn up to 12 points a year for accomplishing certain health or financial tasks. For example, they can receive one point for losing weight or maintaining it at an optimum level, another point for quitting smoking, or one more for maintaining a high credit score or making progress toward it. 

If they earn nine or more points, then they receive their full pay raise or perhaps a bonus and are eligible for prized assignments. They're allowed three areas of "weakness," she says. The message here is they just need to show improvement, not perfection.

Model Behavior

If companies want employees to voluntarily participate in financial programs, they must be supported by top management. The president or CEO can introduce new money-management courses or related employee-assistance programs during a quarterly staff broadcast or employee orientation, says Barbara Brannen, president of Playmore, an HR consulting firm in Littleton, Colo.

"Companies can also talk to employees about their financial standing -- what they're doing to plan for the future, what they're doing to help with their own debt repayment," she adds. "They can explain and model these things to employees in annual reports and employee meetings. It would be good to parallel company finances with personal finances."

In the semiconductor industry, some supervisors receive training on how to counsel engineering or technical employees who are fresh out of school. Many are hourly workers and, on average, work an additional 20 percent in overtime, says Mike Fritsch, CEO of Prometheus Performance System in Austin, Texas, which helps companies improve employee performance, profits and sales.

But the industry is highly volatile. When business is good, he says, staff can earn as much as $60,000 in overtime in extreme cases. But when the pendulum swings the other way, overtime can plunge to zero, plants can close and staff salaries can be cut. So it has become the supervisor's responsibility to caution staff against basing this year's spending on last's year's income.

"A lot of the supervisors were engineers and came up through the ranks so there's a little bit more credibility as opposed to an HR person teaching a class," he says.

About three years ago, the CEO at HomeBanc in Atlanta approached Ike Reighard, the bank's chief people officer, about introducing a mandatory financial course to all employees and tying the completion of the course to its stock-options program. Reighard thought it was a good idea. As a former minister, he witnessed firsthand how debt can destroy families. So last September, the CEO relayed the news to the bank's nearly 1,400 employees during a monthly staff address.

There was little, if any, resistance to the mandate, says Reighard. The four-hour, online course called "Mastering Your Personal Finances" addresses a variety of financial topics ranging from how to develop a savings program to the differences between a 401(k) and a Roth IRA. Employees had up to five months to pass the course. While it could be repeated as many times as needed, he says, 90 percent passed it first time.

While it's too soon to tell, he suspects the course will impact the company's retention rate. With lower debt and increased savings, he believes employees will be less inclined to job hop for slightly better pay.

"You look around and you see the enormous difficulty that many people are having in their financial lives, which is going to follow them to work," Reighard says. "So one of the things we're committed to as an organization is to not just make our people better when they're here at work but we want to help them be better all the way around."

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