How to Measure Success of an Employee Loan Program
These days, improving financial wellness within your workplace is a necessity if you want your employees to maintain healthy stress levels and remain productive. Implementing an employee loan program is one way to go about this. To be effective, an employee loan program requires enough participation to justify the investment, and it must also meet your employees’ needs. So how can you tell if your employee loan program is working effectively?
The answer is by measuring outcomes. This will allow you to assess whether the program is effective and if it’s worth the time and money you are investing in it. Here are some key measurements which are worth taking into consideration.
The Best Ways to Measure the Success of your Employee Loan Program
Setting up an employee loan program for your team members is great, but you have to find out if it is really making a positive impact on their lives. As popular as financial wellness programs are with U.S. companies, surprisingly few of them have any success metrics in place. You will certainly need a system which allows you to collect data and reports not only about employee loan participation but also about ongoing progress and meeting goals. The following is a list of success metrics you can use to make sure your employee loan program is running exactly as you want it to.
Engagement level: Bear in mind that your employee loan program won’t make much of a difference if employees are not using it. Education is the basis of any employee loan program. Participation in the learning initiative is the first step to improving financial health. So, what might this type of education session look like? Financial wellness education can take on a number of different forms:
- You can provide information in the form of booklets or information packages in a common area, such as the employee break room.
- You can hold a seminar so that interested participants can explore their financial wellness options.
- You can provide online tools and training to help with personal financial management.
- You can invite a financial expert to come to the workplace to discuss financial wellness with your employees.
In order to measure participation rates, you need to track in-person and online attendance to education and information sessions. You can also track how often your employees use available financial planning tools. These metrics not only provide data on the success of your overall program but can also help you identify any other aspects of financial wellness that may interest your employees. This can help you if you wish to expand the employee loan program to other aspects of financial wellness in the future. You can also encourage greater participation in financial wellness programs by offering incentives.
Payroll data – positive indicators: You can use information from your employees’ benefit plans to help you get a better picture of their financial well-being. Indicators that employees have extra money to save for the future include health savings accounts, automatic savings programs, and contributions to retirement plans. If the number of employees who contribute to retirement plans increases, this is an indicator that their financial wellness is improving.
Payroll data – negative indicators: Indicators that your employees’ financial wellbeing is suffering include frequent 401(k) hardship withdrawals, outstanding 401(k) loans and frequent employee loans. Keeping an eye on these can help you grasp the level of financial hardship your employees are dealing with. This is because employees often use retirement plans as a safety net for regular or emergency needs. Other negative indicators include not taking vacation time, frequent requests for overtime, and employees not using PTO benefits.
Self-reported financial stress: Another important way to measure the success of your employee loan program is to ask employees to complete a survey regarding their financial stress levels. By surveying employees before and after their participation in the program, you will be able to clearly see the impact of employee loans on your team members’ stress levels. When you are designing a financial wellness survey for your employees, here are some questions to consider:
- What are your main financial concerns? Typical answers include not having money to cover emergencies, being unable to meet day-to-day expenses, and not being able to repay student loans. As you evaluate your employee loan program, be sure to take a look at what your employees are using these loans for. Are they using the loans to pay for necessary, unforeseen expenses – for example, out-of-pocket medical bills, or car or home repairs? Or is the employee loan being used to pay down credit card debts? Understanding these financial needs will be crucial to tailoring the right loan program for your employees, and will have the added benefit of addressing those specific concerns – which in turn will help them manage their stress and anxiety, and be more productive at work.
- What employee benefits would help to reduce your financial stress? Typical answers include confidential financial advice, help with student loan repayment, and legal guidance.
- Which of the following are you most stressed about, your financial situation, your job, your health, your family, or planning for retirement?
- Do you feel you have a sufficient amount of money saved for your retirement?
- Are your financial difficulties affecting your job, your health and/or your personal relationships?
Turnover: It’s not always easy to make a link between employee retention and their financial wellbeing, but if you can track the two, it can be an important indicator of success or failure of your employee loan program. Data gathered in exit interviews can also provide a wealth of information about your employees’ financial wellbeing. Indicators you need to look out for include:
- Specific reasons for leaving: Chief among these are insufficient pay or poor benefits.
- Issues that may encourage employees to stay: an increase in health benefits, assistance paying off student loans.
- Changes you could make to reduce turnover: offering financial wellness programs.
- Ideas to make the company more effective: providing advice on financial issues.
- How employees are seeking and finding different employment: This can give you an idea of the types of specific benefits they are looking for.
Absenteeism: If you track your rate of absenteeism over a period of 18-24 months and compare these rates between participants and non-participants in the employee loan program, it can give you a sense of how well the program is working. Reduced financial stress typically results in reduced absenteeism. It is a known fact that employees who are struggling with financial difficulties lose 41% more work time than employees who are financially stable.
Manager and employee feedback: All financial wellness initiatives, including employee loans, should include a means for employees and management to provide feedback. You can implement this in an informal way, such as though your organization’s intranet. You can also facilitate more formal channels which allow for confidentiality. Employee focus groups and engagement surveys are also valuable tools for acquiring feedback.
Loan repayment: If your employees are tardy in repaying their loans, or are not paying them at all, your program will quickly fail. Using the above metrics to measure the financial wellbeing of your employees will help you determine not only which employees need a loan, but also which ones will be able to afford repayment.
It’s important, though, to not use your employees’ credit scores as a means of predicting who will be able to repay their loans. In fact, employees with poor or no credit scores may be the ones who need help the most; they may not be able to qualify for a standard loan, and an employee loan might be their only option. Worse, they may turn to predatory lenders, which will only compound their financial woes. The goal here is to help your most vulnerable employees, not exclude them by only offering employee loans to those with good credit.
As your employee loan program takes off, you can expect to see an increase in participation rates. It may take some time before you see an increase in participation in your company’s 401(k). This is because it takes time for people to change their financial habits. But participation will increase over time as your employees adopt smarter money practices. In the meantime, the best thing you can do is to measure every step of progress in your employee loan program.