A part of the solution is to help employees become more familiar with the basics of money management. There’s plenty of ways to do that, but one of the most important principles is to make sure that employees understand the difference between good debt and bad debt. For example, a mortgage is a form of good debt – it makes sense to have a loan of that type if you want to own your home and, although it should still be reviewed occasionally, it is a stable, easy to manage approach to long-term borrowing. At the opposite end of the scale, taking out a payday loan with a punitive interest rate is a form of bad debt. The cost of paying the interest may force someone into even greater financial trouble.
In addition to understanding the difference between good and bad debt, helping employees to think about how they spend money on everyday items such as utility bills and insurance is also essential. Car insurance is the best example of this. It is extremely unlikely that you will get a better quote by remaining with your current provider than from shopping around, but very few people actually do this. Whilst employees are becoming more aware of the advantages of shopping around, employers could still be doing more to inform and support their staff with basic money management.
It’s also important to look at the benefits platform itself. Are employees taking up and using what’s on offer to them? And if not, why? Is it because the benefits aren’t appropriate to the workforce, or are employees unable to understand either the way the benefit operates, or how it could help them? Making sure benefits are relevant and well-explained can really help take-up and improve personal money management. In turn, that will mean employers will see return on investment, whether that is reduced absence or improved productivity.
One vital part of financial wellbeing is retirement preparation. Reward’s findings show that 46% of employers say that the ‘freedom and choice’ reforms have had no effect on their benefits strategy, and very few have introduced support such as financial education (12%), guidance (13%) or advice (39%) to help staff at retirement. This suggests that there is still a lot of work to do. There is a real benefit in giving people ‘how to’ information about managing their retirement savings. Employees might have the sense that they ‘ought to’ be saving, but if you can explain more about the benefit, the advantages of taking up the employer match and the tax relief on offer, people will feel much more empowered to take full advantage.