The Bible, Shakespeare and even Popeye cartoons caution us against borrowing money. We’ll lose friends, become an outcast to those around us. This may be accurate in some cases, but – and this is a big “but” – borrowing money, with a solid strategy to pay it back, is almost core to our daily lives and keeps our economy humming along.
There are three main reasons why people borrow money.
While businesses – and governments – borrow regularly, personal borrowing is often considered a sign of fiscal failure. “So you can’t handle your money!” we might be told. “If you’d budgeted your money better, you wouldn’t be in this predicament.” Hmmm.
Why do people borrow money? I believe there are three main reasons:
- They have a need (appliances, vehicle, supplies) that they can’t pay for right now, but they have enough income to pay back a consumer loan so they can buy it immediately.
- They have a want (television, vacation, furniture) that they didn’t budget for, but they can access credit to allow them to indulge the purchase now and pay for it later.
- They have a financial emergency (the car breaks down, the roof leaks, a medical crisis) and don’t have the funds available to cover the cost.
Wants should be budgeted for, and individuals must have the self-control to manage a budget for those items. On the flipside, needs and emergencies are immediate and typically present minimal opportunity for planning. They require financial assistance NOW.
Financial heart attacks are inevitable.
Among working Americans, 67 percent have difficulty paying their household expenses on time and, according to a 2017 Google Consumer survey for GOBankingRates.com, 57 percent have less than $1,000 in their savings accounts (this is not good) and 39 percent have $0 saved or available for an emergency.
Financial emergencies – I refer to them as “financial heart attacks” in The New Productivity Engine – are inevitable.
So, for over half of the workers in the U.S., when the transmission falls out of the family car or a child breaks a leg playing soccer, they are potentially in deep trouble and will no doubt immediately need to borrow money. Where can they go? Friends, relatives, church, raid their 401(k), credit card, payday or title loan stores? What about a repayment strategy?
Companies are paying for unproductive hours every week.
Oh, and what about their employer? Who is capable of doing their job while they are online, on the phone or in the HR office trying to raise that cash? Here’s a depressing stat from The New Productivity Engine: 46 percent of employees spend, on average, two to three hours a week dealing with their personal financial problems.
If a company has 1,000 employees, they’re paying for 920 to 1,380 non-productive hours a week. If everyone works a 40-hour week, the employer could save the cost of 23 to 34 people every year if they could get this time back. Something to think about.
A practical financial wellness employee benefit program.
Enough negative news.
If there was an available employee benefit that offered employees easy, confidential, quick access to an affordable emergency short-term loan with a built-in repayment strategy, would that make sense?
The book outlines a practical financial wellness employee benefit program offering employees an affordable, quick, confidential loan solution that (and this is the functional repayment strategy) is repaid through payroll deduction over several months. Plus, a real-world financial wellness platform includes financial education modules, personal financial dashboards and other benefits to help employees manage and save their money more effectively.
Borrowers need a sensible repayment strategy.
There’s also a big benefit for employers. A financial wellness benefit like this would help recover hundreds of hours of unproductive time employees are currently spending trying to solve their personal financial problems. It would also help with employee recruitment, retention, loyalty and engagement, increasing overall productivity even more.
Borrowing money is certainly not evil. It’s an essential part of making progress. And borrowing with a sensible repayment strategy can make good sense.