The Price of Financial Precarity: Organizational Costs of Employees’ Financial Concerns

Personal finances are becoming an increasingly prominent source of distress for a substantial proportion of the population in many developed economies. In this paper, we examine the organizational consequences of this trend by proposing that financial precarity can undermine a person’s ability to perform at work. Across two studies, we demonstrate that people who are worried about their financial situation have less cognitive capacity available to them, which subsequently spills over into their work performance. In Study 1, we demonstrate this relationship in a field study with short-haul truck drivers where we combine survey responses with lagged archival data on preventable accidents. We find that a one-standard-deviation increase in financial worry is associated with a 0.4% increase in the probability of a preventable accident because of its detrimental effects on cognitive capacity. In Study 2, we establish the causal ordering among the variables by manipulating financial worry in a laboratory environment using a driving simulation task, confirming the results of Study 1. We discuss the implications of the research findings for organizational theory and workplace practice, arguing that it may be in employers’ self-interest to undertake initiatives that reduce employees’ financial precarity.