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As personal debt soars to near-record levels, employees are bringing worries about their personal finances to the office. What should you do to help?

We've known it for years: American workers are not putting away enough money for retirement. Now, there's an even more ominous trend: In addition to not saving for tomorrow, a growing number of workers also are not spending wisely today.

Consider this: Twenty-seven percent of those responding to a recent survey conducted by the Los Angeles Times characterized their personal finances as shaky. A full 40 percent reported difficulty paying installment loans, car payments or insurance premiums.

In a word, employees are struggling. "In focus groups we have conducted, employees report the two major stressors in their lives relate to time management and money management," says Karen Olson, director of marketing for Xylo Inc., a Bellevue, Wash.-based firm providing web-based workplace programs to help employees manage time and money.

"It's hard to say exactly what percentage of people experience financial struggles on a regular basis," says Lois Vitt, founding director of the Institute for Socio-Financial Studies in Middleburg, Va. "But almost everyone has financial problems at one time or another."

So, what's the problem? Why are so many of us depleting our savings accounts and living beyond our means? "We have shifted from a nation of savers to a nation of debtors," says Irene Leech, Ph.D., an associate professor specializing in consumer education at Virginia Polytechnic Institute and State University in Blacksburg, Va. "Instead of setting aside extra money for savings, we are buying more and more on credit, so we end up with debt instead of savings. Years ago, credit was something you used in an emergency. Today, for millions of people, it is a habit."

Some social critics blame schools, financial institutions and even employers for failing to educate the public on the importance of savings. Others blame modern society, which places a premium on materialism and creature comforts. Still others contend the "get rich quick" mentality of the recent economic expansion has taught us to believe a monetary windfall waits just around the corner.

Regardless of the culprit--and the chances are that all of these factors and more have played a part in the problem--it's an issue employers have to face: Personal finances are distracting their workers.

And that's true of employees at all levels--not just low-wage earners.

"An employee who made $60,000 a year as head of management information systems for a large organization came to me one day with three pages of numbers on a legal pad," recalls Bill Pomeroy, a certified financial planner (CFP) and president of the EDSA Group, a financial education training organization in Baton Rouge, La. "He had taken out a loan against his 401(k), gotten a home-equity loan, maxed out his credit cards and had a $2,000 signature loan at the bank."

Now the employee needed another $1,800 to fix his vehicle's air conditioning system. "He then told me he had spent the last three days at work putting all these numbers together," continues Pomeroy. "He was more concerned about his finances than he was about his job."

Indeed, a survey conducted by the Consumer Credit Counseling Service (CCCS), a non-profit organization offering financial management services and funded in large part by contributions from credit card companies, found that employees experiencing financial stress wasted 13 percent of the workday dealing with money matters on the job.

E. Thomas Garman, a former university professor and now distinguished scholar at the Orlando, Fla.-based InCharge Institute of America, one of the country's largest non-profit providers of credit counseling, has researched consumer finance problems for more than 30 years. "About two-thirds of people with financial problems don't allow these problems to negatively affect their work," Garman says. In fact, such problems may cause many of these people to work even harder, put in overtime, vie for promotions and so on to extricate themselves from dire financial straits.

"However, the one-third who do bring their problems to work can wreak real havoc," says Garman. His research has found that such problems can lower productivity, compromise physical health, increase absenteeism and even cause accidents.

Causes of Financial Struggles

Why do people get into financial jams? While there are dozens of reasons, the causes generally fall into three categories:

Life emergencies. Examples include illnesses resulting in large medical bills (a growing problem as employees face higher insurance co-pays and deductibles), the loss of employment by one or both spouses, natural disasters, lawsuits and the "biggie"--divorce. "About half of the money problems employees have stem from divorce," says Pomeroy. "One employer asked us to talk with all of their employees who were not participating in the 401(k) plan to find out why. All of them explained that they were struggling with debt. Half of these people said that the reason for the debt was divorce."

Poor money management. "People have not been taught how to manage their money appropriately," says Leech. Too many people either don't know how--or lack the discipline--to create and follow a financial plan or household budget. In the recently released "2001 Patents, Youth and Money Survey," sponsored by the American Education Savings Council and the Employee Benefit Research Institute, about 20 percent of responding parents said they rarely or never created budgets for themselves. And, almost 20 percent admitted that they have little socked away in a retirement or savings account.

Living beyond our means. Americans have developed a "consumer mentality," leading us to think of certain luxuries as necessities. To wit: your cell phone, your Internet account, your home fax/modem line, your cable or satellite TV service, your health club membership and so on.

"For a lot of people, each time they get a new job or a promotion, instead of saving or investing the extra income, they spend more," says Debby Vinyard, CFP, owner of Vinyard Financial Planning of Marion, Ill. "People tend to want to 'keep up with the Joneses."'

The overabundance of credit adds to the problem. Take a look in today's mail: How many offers did you receive to sign up for a new credit card? Each represents an invitation to spend money you don't necessarily have. "Most people who 'shop and charge' do so because they really don't think through the consequences or plan properly. Then, they end up with more debt than they can handle," says Vitt.

Overspending even can be the result of psychological imbalances. Although you often see T-shirts and bumper stickers making light of the tendency to "shop 'til you drop," the inability to control the spending urge can be a sign of addiction. "We worked with a single woman in her 20s who was earning $40,000 a year," says Kristine Brennan, executive director of Lincoln, Neb.-based Continuum Employee Assistance, one of many employee assistance programs (EAPs) around the country adding financial planning to the services it offers clients. "She was addicted to shopping and spending, particularly clothing. It was an immediate gratification for her. She knew that she needed to cut back on her spending, but she wasn't able to do it on her own. With counseling, we were able to help her find other more healthy ways to meet her emotional needs."

Not Just a Matter of Money

Still, ask the typical person what will help resolve his financial turmoil and you will almost always get the same answer: "More money." Does that mean employers are underpaying their workers, forcing them into a life of debt and default?

Hardly.

"If you spent a day sitting in a bankruptcy court, you will be amazed at the number of supposedly successful, average-looking people who are there to file," says Vinyard. "It's not how much you earn--it's how much you keep," she says. "One of my very first clients was an 85-year-old man who worked his entire life as a schoolteacher. When he died a few years ago, he had over $800,000 in securities and cash."

Conversely, Vinyard has seen professionals with six-figure incomes who have no savings and live paycheck to paycheck.

It all boils down to effective money management--a trait all too rare in today's society. And when money management skills are weak, increasing the supply of money is rarely the solution.

Case in point: In an effort to help cash-strapped employees, some organizations offer pay advances. Unfortunately, employees too often think of advances as "extra money," instead of what they really are: loans. And many employers fail to realize how hard it is to collect on those loans if an employee quits or is fired.

"All advances do," says Vinyard, "is 'feed the habit.'"

What Employers Can Do