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J.D. Power found in its recent survey report that, as inflation reaches a four-decade high of 7.5%, consumers are experiencing heightened stress over their financial health. It’s no surprise that 62% of all survey respondents indicated that the price of goods is increasing faster than their income, and 30% revealed they worry about money while at work.
The study is a monthly pulse study complied from 4,000 respondents in the US.
Inflation is impacting vulnerable, stressed, and overextended banking customers the most, the study found. Vulnerable customers are defined as individuals who struggle month to month to meet basic needs such as bill payments. Stressed customers make monthly payments but can’t plan for future finances, and overextended customers have a future plan — like a 401K through their work — but struggle to meet monthly needs.
The study found that 75% of stressed customers and 71% of vulnerable customers indicated the price of products are outpacing their income. While at work, 40% of vulnerable customers worry about their finances, and indicated that getting paid more frequently would alleviate some of that stress.
Employers struggling with employee retention and staffing their businesses could solve these issues, and lessen the financial burden of their employees, by looking beyond the standard pay cycle.
According to the study, a whopping 76% of hotel and food workers indicated they’d switch employers if it meant getting paid more often, with 51% of all workers indicating they’d also make the switch.
“I do believe the winds have shifted, and [employers] that aren’t making plans to give consumers and their employees greater control over the money that they earn, with more frequent deposits, are going to add that to a list of reasons why they’re losing employees during the great resignation,” Jennifer White, a senior consultant in banking and payment intelligence with J.D. Power, told ZDNet.
As payment technology advances and payments become more streamlined — like with FinTechs such as Venmo, Square, and PayPal — the standard weekly, biweekly, or monthly pay cycle begins to look outdated.
When employees have greater control over their finances, they experience heightened levels of empowerment. White said those levels of empowerment are the lowest now that they’ve been since February 2021.
Different payment systems, such as on-demand pay, could give employees that sense of empowerment back at a time when financial stress weighs heavily on them. As inflation increases, so too might the demand for on-demand pay or other systems that give employees more control over their finances.
“The sentiment among the workforce, particularly in industries like hotels, service, or retail, [is that the palate] for more frequent pay is growing,” White said.
Also: Ceridian redefines how employees get paid with its Dayforce Wallet
However, it’s not all up to the employer to promote financial wellness in consumers. According to the study, 83% of respondents said that it is at least “somewhat important” that banks offer financial health programs to clients. More than one-fourth of respondents said their banks performed inadequately in supporting financial health.
White said banks need to support financial health with a “three-tiered” approach: How helpful are these programs or products? Are the programs and products reaching the appropriate consumers? And how effective are the programs once the consumer is using them?
“Once consumers are using those products, the banks need to make sure they’re working seamlessly. Tthe chance to delight is right there on the surface, but so is the chance to disappoint,” White said.
Banks could help relieve some of the stress consumers are currently feeling by offering programs that provide clients with faster access to direct deposit or access to emergency funds to help bridge the gap between paychecks when bills are looming.
“The banks need to make sure they are being helpful, having the right products in its product suite, and that [they’re] mindful of consumers’ need for support. It’s not only about transactions anymore,” White said.
If clients feel their financial needs aren’t being met by the large financial institutions, they could start to shift toward neo-banking options like Chime or SoFi. American Express also introduced an online only, consumer checking account as a banking alternative.
Also: SoFi announces new checking and savings account with industry-leading APY
These digital banks typically offer very few fees — something vulnerable consumers might find more attractive — and transparent systems. But the impact this shift could have on big banks remains to be seen, White said.
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