Access to finance, financial health and productivity: Any correlation?

Munir, aged 20, recently joined a local garment factory around his house as a worker. With a family of 3, his expenditure has not been incommodious until one of his parents was affected by Covid-19.

Although the symptoms were mild and he was treating his mother at home, it left a hefty pressure on Munir. Even 3 months after his mother recovered, Munir is still in debt with high-interest rates and late fees making it worse every passing day.

Plight of the blue-collar workers:

Instances like Munir's is a reality for the majority of blue-collar workers in Bangladesh. Unexpected expenditures, especially during the times of Covid, have made it evident that financial stress hits every household in the most unpredictable ways.

Considering the cases of blue-collar workers where individuals within this socioeconomic class live paycheck to paycheck in a span of 30 days, makes the idea of financial health a nonexistent one-- having to spend the salary all at once and always staying on the edge.

In a study conducted by the 'International Growth Center funded by UK Aid' and published in the paper titled "Scarcity at the end of the month: First results from a field experiment in Bangladesh," it has been observed that there are pieces of evidence of the correlation between financial wellness and worker productivity. What exactly do we define by financial wellness and health of a worker?

Tackling unexpected expenses:

Managing cash flow is the most pressing everyday issue for low and middle-income workers as they manage to cover basic needs throughout the month. Unexpected expenses between paychecks cause substantial financial stress and vulnerability among employees. The concept and foundation of financial health protect these employees/workers holistically against such financial stress through various means of managing their money.

To address these concerns, the study suggests that modifying the timings of wage payments positively affects the ability of the blue-collar worker households to react to unexpected expenses between paychecks resulting in increased productivity, loyalty, and lower absenteeism.

The study also stated, "18 per cent of workers at a factory that is quite representative of the general workforce respond that they regularly have to cut meals at the end of the month and 50 per cent respond having to borrow at least once per month to meet expenses, typically from moneylenders or shopkeepers at extremely high-interest rates."

The neverending cycle of debt:

During the interaction with respondents, that includes 632 workers at a large garment manufacturing firm in Bangladesh, when asked if, in the past 12 months, they had fallen short of money by the end of the month, 32 per cent of respondents reported that they needed to borrow, 45 per cent reported that they had to delay payments to shops, and 5 per cent reported that they were forced to cut meals to make ends meet. These shortfalls directly link the suggestion that workers find it difficult to manage their income over the course of the month.

Considering Munir's case at an actual household, it wouldn't be too long till the household was already tied within the debt trap due to lack of access to a source that would support to stay away from debts during emergencies. In the effort of making ends meet, whether for food, shelter, health, or any basic necessity, individuals like Munir are forced to enter situations where they are pleading for loans from peers or lenders who charge high-interest rates.

This inability to make ends meet is likely to have long-lasting negative consequences for low-income households. The extended dependency on informal loans and debts not only reduces their ability to opt for money management options such as savings but also reduces their capacity to cope with income shocks.

The aforementioned study has also linked a lack of work performance and access to income: workers who receive some amount of cash before designated payday are less frustrated about making ends meet and are more productive at work.

Individual financial wellness brings wholistic growth:

When zooming into an employer's perspective, considering financial wellness for employees and workers supports the company is having a workforce that is less stressed out about matters that may lead to regular switching of jobs or leaving the job midway.

When the employers take the holistic approach towards the employees' wellness, including financial, they support an entire system in setting benchmarks putting forth growth of the economy and the people involved even at the grassroots level -- making it vital for employers as well to focus on factors that hamper the productivity of the workers.

Enabling financial services that combat the systemic burden and increase employees' financial health does not only support the employees but the employers, and in the longer run, the greater community as well. With the increasing demand for financial literacy, ensuring that middle and lower-income classes are a part of the journey in being educated and in receiving services that will support their financial wellness is the only way forward towards a stronger economy.

Sanjida Tanny is the Community and Communications Lead at wagely and is available to discuss more about wagely's impact stories at [email protected]