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date: 01 October 2022

# Financial Precarity and Business in the Modern Era

### Summary

Financial precarity—the persistent worry about money and not having enough of it—is widespread, even in developed economies. It is a particular affliction of the poor, but it describes many people across the income distribution. Financial precarity is harmful not just to the individuals who experience it but also to the organizations in which they work. For individuals, financial precarity can negatively affect cognitive functioning, emotional stability, and social functioning. It is also associated with worse physical and psychological health, as well as depressed performance, both on and off the job. For employers, there are direct costs in the form of decreases in performance at work, as well as indirect costs in the form of increased absenteeism and health care costs. Private-sector companies are taking notice and have initiated a variety of programs to address employee financial precarity, including enhancing wages and offering financial assistance programs such as financial counseling, incentivized savings plans, and enhancements to retirement plans. Many of these programs have not been subjected to rigorous analysis (e.g., incentivized savings programs), and for some, there is little evidence of their effectiveness (e.g., financial literacy programs). Other programs (e.g., opt-out retirement plans) have a strong track record of success. Overall, private-sector employers are increasing their investments in employee financial wellness, which is a positive step in terms of providing needed supports to employees.

### Subjects

• Human Resource Management

### Introduction

Financial precarity—the persistent worry about money and not having enough of it—is widespread, even in developed economies. An often-cited report from the U.S. Federal Reserve Board shows that 4 in 10 Americans could not come up with $400 to cover an emergency expense without having to sell something or go into debt (Federal Reserve, 2019). The American Psychological Association (APA, 2019) reports that money is consistently a more frequent source of concern than work, family, or health issues, and national surveys show that nearly two thirds of Americans worry about paying their bills. A quarter of Americans report that they are stressed about money most or all of the time. And one in five Americans say they have skipped or considered skipping going to the doctors when they needed health care because they were worried about paying for it. Financial precarity is a particular affliction of the poor, but it describes many people across the income distribution. Indeed, 1 in 10 Americans making over$100,000 a year describe themselves as living paycheck to paycheck. Financial precarity is also prevalent across the life cycle. College debt is a significant source of worry for many students and disquiets recent graduates. Parents of young children struggle to meet the escalating costs of child care and mortgage payments. The the middle-aged—who are at the peak of their earning power—worry about affording college for their children. Insufficient retirement savings keep older Americans in the workforce long after they have depleted enthusiasm for their jobs. And health expenses are a major contributor to financial precarity across the life span.

In short, financial precarity had been “democratized” in the United States and other developed economies in that it affects large swaths of the population, even among those who had previously thought themselves safe from its grasp. The COVID-19 pandemic of 2020 escalated the already alarming rate of financial precarity in the United States and other developed economies. At the same time, it has focused public attention on issues like income inequality, outsized health care expenses, and inadequate retirement plans, which have been largely neglected by policy makers over the past two decades. Within the private sector, employee financial wellness has become a major concern as employers struggle to offset the cognitive, emotional, and social costs of persistent financial precarity.

This article describes financial precarity and its corrosive effects on people’s lives, as well as on the communities in which they live and the organizations in which they work. The accumulated evidence indicates that financial precarity is not only bad for people and society but also bad for business. The private sector has begun to take measures to address the adverse effects of financial precarity among employees. The focus here is deliberately on developed economies, particularly the United States, although clearly financial precarity is even more prevalent in other parts of the world. One reason for this focus is that if it is difficult to be financially precarious in a developed economy with some social safety nets, it is a nearly impossible hardship in less-developed and less-munificent environments. Thus, by focusing on developed economies like the United States, we provide a more rigorous test of the difficulty of precarity, even under circumstances that can be seen as relatively favorable. For the same reason, we also pay particular attention to those who are considered “middle class” or above. Additionally, this group traditionally has not garnered the attention of researchers and reviews that focus on poverty or the working poor (e.g., Leana et al., 2012).

### Why Is Financial Precarity So Bad for People?

What happens to people when they are financially precarious? Why does it have such detrimental effects? First, there is the objective state of financial scarcity—not being able to buy what one needs. Everything from access to health care to neighborhood safety to the availability of healthy food is determined largely by one’s financial standing (Leana & Meuris, 2015; Leana et al., 2012). But in addition to the burdens imposed by a lack of objective financial resources, the persistent worry about money alone erodes cognitive, emotional, and social functioning. Indeed, a considerable literature has suggested that people’s subjective appraisals of their personal finances often diverge from their objective financial circumstances because of differences in the reference point that people assume (Clark et al., 2008; Leana & Meuris, 2015). Luttmer (2005), for example, shows that a person’s evaluation of their own financial state is a function of social comparisons with neighbors. Clark and Senik (2010) found that people are most likely to compare their finances to that of their colleagues, which influences how they feel about their own situation. Consequently, various studies have documented a positive but only moderately sized correlation between people’s objective financial state and their subjective appraisals of it (see Leana & Meuris, 2015, for a review). Other literature (e.g., Ackerman & Paolucci, 1983) has shown that subjective perceptions are a more powerful predictor of quality of life than is objective financial standing.

Thus, worry about money—or the subjective state of financial precarity—can be equally damaging to individual functioning and well-being, and there is evidence that the subjective experience of precarity can be more damaging than the objective state of financial inadequacy. This subjective construal is obviously related to objective resources, but it need not be. As Khaneman and Tversky (1979) have noted, “The same level of wealth may imply abject poverty for one person and great riches for another” (p. 277). Objective financial standing is filtered through a subjective lens, and it is this subjective lens that can have an adverse effect on individuals’ cognitions, emotions, and social functioning.

#### Cognitive Functioning

Financial precarity can erode cognitive functioning. Mullainathan and Shafir (2013) describe a process they label “tunneling,” in which the financially precarious home in on their immediate financial problems and, consequently, do not have as much cognitive bandwidth to devote to other aspects of their lives such as work and family. This tunneling is adaptive in that it focuses one’s thoughts and energy on solving the particular problem at hand (e.g., figuring out how to pay incoming bills), but at the same time it takes attention away from other concerns. In short, financial precarity is cognitively taxing. Individuals have limits to their cognitive bandwidth—how much information they can process and combine at any given time. If much of that bandwidth is taken up with worry about money, that leaves less to focus on other aspects of life like family, jobs, and other responsibilities.

Several studies support the tunneling hypothesis. Leana et al. (2018) found that nursing aides who take care of the frail elderly were less likely to notice safety concerns among the patients in their care if they were financially precarious. It was not that the financially precarious aides were less conscientious generally or cared less about their patients or their jobs, but it appeared that they were simply less likely to notice safety concerns when they were preoccupied with their financial problems.

In another study, Meuris and Leana (2018) directly tested the tunneling effect on job performance in a sample of over 1,000 U.S. truck drivers These drivers were solidly “middle class” with good pay and benefits from their employer. Still, many of the drivers worried about money. In addition to measuring their financial worry, the authors tested the drivers’ cognitive functioning using standardized tests and, indeed, found a negative relationship between financial worry and cognitive test scores, and this was after controlling for a variety of personality, demographic, and performance factors. They then followed the drivers for 8 months and tracked the number of preventable accidents the drivers incurred during that period. The results showed that drivers who were more financially precarious scored lower on cognitive tests and had more preventable accidents in the following 8-month period. This provided direct evidence not just of the tunneling hypothesis but also of the spillover effects of financial precarity on work performance.

In addition to the incursions on cognitive bandwidth associated with financial precarity, chronic worry can erode self-efficacy: the feeling that one is able to overcome obstacles and make things happen (Bandura, 1982). It has also been associated with overreliance on heuristics for making decisions and engaging in behaviors that may be short-sighted in terms of solving longer-term financial problems (Haushofer & Fehr, 2014; Vohs, 2013), such as taking out payday loans. For this reason, people who are financially precarious can find themselves in “scarcity traps” whereby even short-term setbacks can become lifelong struggles.

#### Emotional Functioning

The Dictionary of the APA defines negative affect as the internal feeling state that occurs when one has failed to achieve a goal or to avoid a threat, or when one is not satisfied with the current state of affairs (APA, n.d.). Such negative emotions include fear, anger, guilt, sadness, shame, and despair. The financially precarious experience more frequent and more intense negative emotions. Fear, hopelessness, and even anger are common. Shame may also be common, with people blaming themselves for being in their precarious state. These are distinct emotions with different consequences for people’s behavior. Some emotions, like fear and hopelessness, inhibit action, while others, like anger, prompt action, but often of the wrong kind.

Such negative emotions are aversive, and thus individuals try to suppress them. This emotional suppression can be cognitively taxing, further eroding individuals’ ability to make good decisions and perform in other aspects of their lives. Such emotional suppression appears warranted: Meuris (2019) found that when potential employers receive information that a job candidate is experiencing financial problems, the candidate is judged to be less competent (regardless of job-relevant qualifications), and as a result, they are more likely to be excluded from professional opportunities. And in the study with truck drivers described earlier, Meuris and Leana (2018) measured emotional suppression and found that it, too, had a dampening effect on performance, both in cognitive testing and in subsequent driving on the job. Drivers who were more financially precarious were more likely to suppress their emotions, introducing further cognitive load on individuals who were already overtaxed.

#### Social Functioning

Financial precarity narrows social circles. People hide their financial precarity from others, which requires emotional labor that can further tax cognitive capacity. In addition, the financially precarious may withdraw from social situations both because the negative emotions attached to precarity may make them disinclined to socialize and because they cannot afford to engage in many social activities that cost money, such as going out to eat and attending concerts. Research from several academic disciplines has also documented the adverse effects of financial precarity on social and family relations. Studies show that for the financially precarious, marriage rates are lower, births outside of marriage are higher, and child development can be stunted (Carlson et al., 2005; Dahl & Lochner, 2012; Small & Newman, 2001).

### The Effects of Financial Precarity on Well-Being

#### Physical Health

There is a sizable body of research showing the negative effects of financial precarity on well-being. Financial precarity takes a toll on people’s physical health. Studies find that persistent worry about money is associated with a variety of health problems, ranging from sleep disturbances to elevated cortisol levels. As noted by Leana and Meuris (2015), the financially precarious tend to be sicker and die younger than their less precarious counterparts. Chetty et al. (2016), for example, have documented a significant association between income and longevity across the income distribution between 2001 and 2014, with men in the top 1% living 14.6 years longer than those in the bottom 1% (10.1-year difference for women).

This disparity is due to a number of factors. First, chronic worry about financial issues is a significant source of stress. Stress, in turn, is associated with a variety of negative health outcomes, including suppressed immunity, cardiovascular disease, and upper respiratory problems (Schneiderman et al., 2005; Thoits, 2010). Second, and related to the first point, stress may lead to less healthy coping behaviors in the form of increased alcohol consumption, smoking, and eating unhealthy foods. Third, Case and Deaton (2020) have documented what they label “deaths of despair”—premature deaths associated with suicide and substance abuse—particularly among White working-class males in the United States.

Finally, those with fewer resources are less likely to have easy access to medical care and more likely to be reluctant to seek it out because of costs. Indeed, health care costs are the major reason for personal bankruptcy in the United States, with two thirds of those filing for bankruptcy citing health-related expenses as a major contributing factor. And passage of the Affordable Care Act (ACA) in 2010 has not significantly changed the proportion of bankruptcies due to medical expenses (Himmelstein et al., 2019). Although more people in the United States now have health insurance than before the passage of the ACA, many bankruptcy filers were unprepared for the high deductibles, lifetime limits, and other uncovered health care expenses that can accompany a major illness or health event. Uncompensated time off work puts people further behind, with illness-related work loss as a factor in over 40% of personal bankruptcy claims in the United States.

#### Psychological Health

Financial hardship erodes subjective well-being. Here there is evidence from a variety of studies. In a cross-sectional study across 31 European countries, financial hardship explained over a third of the variance in well-being across countries and time periods (Annink et al., 2016). Financial precarity has been shown to have a significant, negative effect on mental health as well (Ridley et al., 2020). Numerous studies have found financial precarity to increase the risk or severity of symptoms of anxiety and depression (Catalano et al., 2011; Marshall et al., 2021). For example, a meta-analysis found that those with substantial credit card debt were three times more likely to have mental health problems, after controlling for demographics, socioeconomic status, and income (Richardson et al., 2013). There is also compelling evidence that financial stress is a major reason for attempted suicide. Using the National Epidemiological Survey on Alcohol and Related Conditions, Wang et al. (2012) examined the frequency and types of stressful life events that occurred in over 34,000 individuals in the 12 months prior to the assessments. After controlling for preexisting mental health disorders and sociodemographic factors (e.g., age, income, ethnicity, education), they found that financial stress (being fired or laid off, being unemployed for more than a month, or serious financial crisis or bankruptcy) had the largest impact on attempted suicides out of the 25 different stressful life events they examined.

What is the cost to business of having large swaths of the population experiencing financial precarity? One could argue (and many economists have) that when people do not have money to buy things, consumer demand falls and, with it, sales of products and services. Henry Ford famously priced his Model T so that it would be accessible to the middle class, thus ensuring that he would sell a lot of cars. But is there a more direct cost to business in the form of depressed job performance?

Psychologists have been studying the effects of financial scarcity for almost a decade. For example, a natural experiment with Indian farmers demonstrated that they performed better on cognitive tests after the harvest, when they were relatively affluent, compared to scores on the same tests conducted before the harvest when they were more precarious. Other studies have shown that the mere imagining of financial hardship can dampen cognitive performance (Mani et al., 2013). This work suggests the detrimental effects of financial precarity on people’s cognitive functioning. A few studies, however, directly address the question of whether and why this may be bad for business. Leana and her colleagues set out to answer this question in their research.

As noted earlier, in a yearlong study with over a thousand short-haul truck drivers, Meuris and Leana (2018) found that financial precarity is associated with a higher probability of preventable accidents (and this is after controlling for alternative explanations such as overtime hours, general conscientiousness, etc.), which cost the company millions of dollars a year. In another study mentioned earlier, Leana et al. (2018) showed that nursing aides who are more financially precarious are less likely to notice threats to the safety of patients on their watch. Similar effects are found even among younger people preparing to enter the workforce. A study examining SAT scores and grade point averages of thousands of college freshman found that students who are worried about paying for college do not perform up to their potential once they enter (Meuris et al., 2020).

The results of this body of research suggest that not only is financial precarity bad for individuals, but it is also bad for business. This is not because the financially precarious are less motivated or less conscientious. Instead, financial precarity dampens an individual’s ability to perform because of the increased cognitive load it imposes upon them. It not only taxes their mental ability but also imposes more emotional labor in the form of suppressing the associated negative emotions that accompany chronic financial worry, as well as the associated shame and threats to status. Finally, the financially precarious are more prone to socially isolate, further eroding well-being.

These costs to organizations are direct, in the form of incursions on employees’ cognitive, emotional, and social capacity as they carry out their work every day. But they are also indirect, in the form of increased health care costs. Since the financially precarious have higher rates of physical morbidity and mental health problems, they are more costly employees to insure. They may also have higher rates of absenteeism because of illness, as well as higher rates of turnover. These are other ways in which the costs of financial precarity may be borne by employers as well as their employees.

### Private-Sector Interventions

The growing recognition of these costs has prompted action in both the public and private sectors. There have been many treatments of public-sector and nongovernmental organization interventions across a variety of disciplines, so we focus here on the emerging private-sector financial wellness initiatives. Here there is burgeoning interest, with 62% of U.S. employers reporting in the Bank of America/Society for Human Resource Management survey in 2020 that they feel “extremely” responsible for their employees’ financial wellness (Bank of America, 2020). This represents a very sharp rise in a short period of time, up from only 13% in 2013. That survey also found that employee satisfaction, retention, and stress reduction were the primary reasons employers listed for offering financial wellness initiatives (2020 Workplace Benefits Report; Bank of America, 2020).

Organizations can offer an array of financial wellness programs to employees, ranging from relatively low-involvement educational initiatives (e.g., online resources) to activities that require behavioral commitment from employees (e.g., “opt-in” savings programs) to financial commitments from employers (e.g., raising wages). It is useful to consider this array of programs in terms of their level of employee engagement. More specifically, financial wellness programs can be (a) information-focused activities whose primary goal is to educate employees about their personal financial situations or (b) problem-focused activities, which are those that provide employees with avenues to directly address their issues of financial concern. Information-focused activities are meant to provide employees with better knowledge about their financial position (e.g., credit standing, review of retirement savings) and are often referred to broadly as “financial literacy” initiatives. In the United States, 69% of employers report offering some form of financial literacy benefit to employees (2020 Workplace Benefits Report).

Financial wellness programs can also include problem-focused interventions. These may include activities like debt reduction programs and enhanced contributions to a short-term savings account or to longer-term retirement savings. As problem-focused activities are meant to directly address employees’ financial challenges, these sorts of initiatives should have a stronger effect on employees’ financial state. In contrast, when interventions are limited to information-focused rather than problem-focused activities, we would not expect a very strong effect because information-focused activities by themselves do not address employees’ financial challenges.

Participation in more problem-focused activities offers psychological benefits to employees as well (beyond changes in their objective financial position). The first psychological benefit is reductions in employees’ worry about financial insufficiency. Problem-focused activities can reduce employees’ financial worry because it provides them with a means of improving their financial situation and developing a financial safety net, thus reducing the uncertainty of their well-being in the future. As employees engage in activities that provide a means of improving their financial welfare, it should reduce employees’ experience of financial worry because negative economic shocks become less impactful. Indeed, Haushofer and Shapiro (2016) show that the mere ability to handle unexpected shocks reduces stress even if these shocks do not occur.

In addition to reducing worry, participation in more problem-focused activities can further enhance employees’ well-being by increasing their financial self-efficacy. As people grow more confident in their ability to maintain and improve their personal finances, they are more likely to view financial challenges as manageable when they arise. Given the impact that financial setbacks can have on people’s welfare, those who feel more efficacious about managing finance-related problems should be less likely to be affected by these setbacks. That is, self-efficacy can buffer against the negative impact of financial obstacles and setbacks. As Bandura (1982) suggests, a lack of belief in one’s ability to overcome financial obstacles “creates stress by diverting attention from how best to proceed with the undertaking to concerns over failings and mishaps. In contrast, persons who have a strong sense of efficacy deploy their attention and effort to the demand of the situation and are spurred to greater effort by obstacles” (p. 123). Thus, as employees participate in such financial wellness activities, their progress toward better financial health through this participation is likely to improve their overall financial self-efficacy as well.

#### Compensation

Before discussing financial wellness programs offered, it is important to discuss the most obvious way in which employers have an impact on their employees’ financial precarity: through compensation. As Leana and Meuris (2015) have observed, income is a strong driver of employee attitudes, affect, and behavior. As noted earlier, financial insufficiency, and the chronic worry that accompanies it, can erode cognitive functioning on the job, impose emotional labor on employees at work, and impede social interaction. All three are important aspects of any work, although clearly the types of tasks that encompass a job affect which aspect will more severely undermine performance. For truck drivers, concentration and focus are important determinants of safety on the road so the cognitive incursions of financial precarity may be the biggest underminers of performance. In so-called care work (e.g., education, health care), emotional and social aspects of work may be more important. All jobs, no matter how tightly controlled, can be “crafted” by employees (Wrzesniewski & Dutton, 2001), whereby employees alter the tasks they do, the relationships they form, and their own conceptualizations of the boundaries of their work to align with their own preferences and beliefs. Wrzesniewski and Dutton (2001) demonstrated this among hospital cleaners who reconceptualized their jobs to encompass patient and family care roles. In another study, Leana et al. (2009) show how inherently improvisational work, even that which is low status and low paying (in this case, childcare work), is crafted to encompass both the preferences of the employee and the needs of clients. Such job crafting requires cognitive, emotional, and social bandwidth, all of which can be constricted when employees are feeling financial precarity.

A number of studies also examine increases in wages and their effects on employment. Appelbaum et al. (2003) found that higher wages reduce employee turnover and the costs associated with the socialization and training of replacement employees. Other studies have examined differences when the state-mandated minimum wage rises in some areas in the United States but not in adjacent ones and find little effect on employment levels (e.g., Card & Krueger, 1994, 2000; Dube et al., 2010). Thus, the productivity costs associated with scarcity-level wages can outweigh the dollar increases that are incurred by employers when wages are increased.

Another way that compensation can offset financial precarity is not directly through wage rates but through overall compensation based on the standardization in hours worked when individuals are compensated by the hour. As Susan Lambert and her colleagues have noted, stable work schedules are critical for maintaining financial stability. At the same time, they observe that “variable schedules are now the norm for part-time workers in a variety of industries” (Williams et al., 2018, p. 5). This is particularly true for early career adults aged 26 to 32 years, for whom they found that almost half (47%) received 1 week or less of advanced notice of their schedules for the upcoming workweek (Lambert et al., 2014).

In a variety of experimental studies, Lambert and her colleagues have shown that schedule stability is not only important to employees but also beneficial to employers in the form of increasing productivity and reducing turnover. For example, in a yearlong study with a retail clothing chain in which some stores were randomly assigned to a scheduling stability condition and some were not, they found that schedule stability sharply increased median sales with an overall increase of almost $3 million in revenue in a 35-week period for the 19 stores that participated in the study (Williams et al., 2018). Thus, schedule stability is not only desired by employees, in no small part because it offers stability in compensation, but can pay substantial financial benefits to employers—benefits that far outweighed the costs of the program implementation. #### Financial Literacy Programs There is a booming industry now in “financial literacy”—educating individuals on how they can better manage their spending and investments. The underlying assumption is that if people only knew better, they would not be so prone to financial precarity. But the research on such interventions is not promising. A meta-analysis of over 200 studies found that less than one tenth of 1% of changes in financial behavior can be attributable to such programs. And even these tiny effects degrade over time or when one considers individual differences in the analyses (Fernandes et al., 2014). Thus, despite their growing popularity in organizations’ benefits portfolios (and even in high school curricula), there is little evidence that financial literacy does much to offset the corrosive effects of financial precarity. #### Savings Programs Lack of emergency savings is a pronounced problem for many individuals in the United States, even those working full-time and in jobs that are in the middle or above of the income distribution. Worry about lack of savings for unexpected shocks is also a major driver of financial worry. Thus, a number of employers have instituted emergency savings programs for employees with the goal of reducing precarity and avoiding destructive employee borrowing behavior like payday loans or large credit card debt. Such emergency savings programs usually take the form of automatic paycheck deductions for employees who sign up and sometimes also involve some sort of employer-provided incentive. Research on the efficacy of such programs is scarce, however, and we do not yet have a good understanding of the effects of such programs on employee attitudes, attachment, or work performance (Beshears et al., 2019). In their research with the truck drivers, Meuris and Leana (2018) found that the strongest predictor of subjective precarity was how much employees had in emergency savings. Thus, Leana et al. (2022) worked with the company to institute a “Rainy Day” savings program. But in this case, they wanted to track the effects of the program not just on savings behavior but also on employee well-being and job performance. The program was voluntary, and drivers who decided to participate contributed$19 per week into a credit union account. After 12 months, a driver could receive a 12% match from the employer if they continued to contribute each week and did not make any withdrawals from the account. Thus, a driver could accumulate approximately $1,200 in an emergency savings account, which they could spend as they wished after the 12-month period. After controlling for any differences between those who volunteered for the program versus those who did not, they found that the program significantly enhanced emergency savings, particularly for drivers who were most worried about money and savings before the start of the program. The program also had a positive effect on driving safety for this group in that they significantly reduced the number of traffic citations they received for up to a year after the program initiation. Thus, the study provides evidence that savings programs do not just have positive effects on employees, but their employers can benefit as well in the form of enhanced job performance. #### Retirement Savings Retirement in the United States went through a revolution in the 20 years between 1980 and 2000. It began with the passage of the Revenue Act of 1978, which included a provision—Section 401(k)—that allowed employees to put pretax earnings toward retirement. Prior to that, defined benefit pensions were the most common retirement plan in the private sector. Under such plans, employees were guaranteed a fixed income in retirement, so long as they were vested in the plan. By the 1990s, most employers realized that by moving to defined contribution plans such as the 401(k), they could pass a good part of the cost of retirement savings, along with all of the risk of market fluctuations, onto employees. One study found that companies that changed from defined benefit to defined contribution plans cut their own contributions to employees by half (Ghilarducci & Sun, 2006). Not surprisingly, companies quickly picked up on the cost advantages of 401(k)-based retirement plans, and in 2018, only 8% of establishments offered defined benefit pension plans (Bureau of Labor Statistics, 2018). In 2020, 401(k) plans held close to$5 trillion in assets. The growth in the 401(k) has been beneficial to employers and a boon to financial advisors, but employees have far less security in retirement than they did with defined benefit plans, both because there is less money being contributed to the plans and because the risk attached to retirement investments has now been transferred entirely to the employee.

With the ballooning popularity of the 401(k) and other defined contribution plans, there have been many efforts aimed at inducing employees to contribute more to such plans or to contribute to them at all. Such “nudges” have taken many forms, from utilizing social norms to encourage participation (Cialdini & Goldstein, 2004) to overcoming procrastination (O’Donoghue & Rabin, 1999). Perhaps the best known of these is the Save More Tomorrow program (Thaler & Benartzi, 2004).

Save More Tomorrow relies on two fundamental concepts. First, the enrollment mechanism for retirement savings is changed from “opt-in,” whereby employees must proactively enroll in the program, to “opt-out,” whereby employees are automatically enrolled and must proactively opt not to participate. This simple change has been implemented widely, with well over half of U.S. employers reporting its use, and has consequently had a dramatically positive effect on the number of employees who contribute to retirement savings. The second concept is based on loss aversion and asks participants to allocate in advance a portion of their future earnings to increased retirement savings. Thus, there is no short-term cost to the employee because their current take-home pay would remain unchanged, but when employees’ compensation increases in the future, employees commit to increasing their contributions to their retirement accounts. The appeal of such programs is obvious in terms of encouraging people to contribute more to their retirement savings, and in 2021, over 15 million employees had enrolled in a Save More Tomorrow program.

### Conclusions

This article describes both the widespread nature of financial precarity in developed economies and its negative consequences for individuals and organizations. Financial precarity is associated with decrements to cognitive functioning and can also take an emotional and social toll on individuals. It is associated with heightened stress and declines in both physical and mental health. Because of these burdens, financial precarity can also adversely affect individuals’ performance in their jobs.

In the United States, compared to other developed economies, the private sector has an outsized responsibility for employee wellness. More than half of the insured population in the United States depends on employer-sponsored health care coverage, and most retirement savings are held in company-sponsored plans (OECD, 2018). Even though current trends suggest that employers may be contributing less rather than more than they have in the past to such welfare-enhancing benefits (Leana, 2019), these remain important social safety nets for most individuals. Financial wellness, then, may be a natural extension of employer reach in the employee wellness domain.

By far the most prevalent type of financial wellness program offered by employers is financial literacy training. This is also the least effective in terms of either addressing financial precarity or changing financial behaviors. Approaches that are targeted at more specific financial problems (labeled here as “problem-focused interventions”) appear to show far more promise. But the efficacy of even these interventions is not yet clear, nor is the architecture for their design.

If the primary goal is to reduce financial worry, interventions that actively engage the individual are likely a better fit. Underlying financial precarity is a lack of efficacy about managing one’s financial life and thus a lack of feelings of control. Engaged savings programs like the Rainy Day initiative described earlier are examples of such approaches that may, over time, enhance efficacy (as well as savings). If, conversely, the goal is not active engagement but, rather, to enhance uptake through passive enrollment, then “opt-out” programs like the Save More Tomorrow retirement initiative may be more appropriate. Both active and passive approaches may achieve similar outcomes regarding enhanced savings, but their rationales rely on very different theoretical lenses and very different assumptions about the psychological underpinnings of financial precarity.

With regard to the most direct way to enhance employee financial stability—through compensation—there appears to be less appetite in the private sector. As of this writing, employers are reporting unfilled jobs and difficultly hiring, particularly in direct-service jobs in industries like food services and retail sales. Rather than significantly raising wages, however, the more common inducements to new hires are offered in the form of signing bonuses and other one-time payments so that employers are not locked in to higher wages in the future. Thus, short of government mandates (e.g., state-determined minimum wage levels), it seems unlikely that there will be major upticks in pay levels, even when labor supply is constrained.

Regardless of the intervention, it is unlikely that the private sector will largely shoulder responsibility for remedying widespread financial precarity. Public-sector engagement may also be called for in the form of higher minimum wages and benefits that are less susceptible to the vagaries of the market. Without such engagement, individuals are largely left to their own devices, a situation that has negative consequences for them and their families and, as the evidence is beginning to show, for their ability to fully participate at work. It is this last point that is most troubling in that, without appropriate intervention, the financially disadvantaged will likely become further disadvantaged as their performance at work falters and any opportunities for advancement decay.

Thus, effectively tackling financial precarity will require several tools and rely on multiple social actors: individuals, employers, and governments. In short, reversing financial precarity will require structural change, rather than just changes in individual behavior. Here, the focus has been on initiatives in the private sector, because these programs have received less attention by researchers. These are a promising start, but any employer benefit is vulnerable to economic downturns and other macroeconomic trends, which may curtail employer largesse in these regards. Thus, private-sector initiatives alone will not solve the problem of widespread financial precarity but will have to be supplemented by public-sector solutions.

• Leana, C. (2019). The cost of financial precarity. Stanford Social Innovation Review, 17(1), 42–47.

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