By Jonathan Watts-Lay, Director, WEALTH at work
Q: How big an issue is financial wellbeing for society as a whole and individuals in particular?
A: It’s not uncommon for individuals to face financial worries at various stages of their life – whether that is dealing with debt, concerns over retirement savings or making the monthly budget work.
With nearly half (46%) of all UK adults rating their own knowledge about financial matters as low and almost a quarter (24%) have little or no confidence in managing their money, financial wellbeing is certainly a topic which needs more attention.
Q: To what extent is this something employers should be getting involved with? What evidence is there that this is having an impact on retention, performance or productivity?
A: The link between debt, money worries and stress, lower productivity and absenteeism are increasingly recognised by employers and many are now looking for ways to support their employees.
Research on this found that 78% of employers believe that financial worries cause increased levels of stress, 43% believe that it results in lower productivity, 31% believe that it leads to absenteeism, and 22% believe that it leads to a high staff turnover.
Q: How can employers realistically make a difference, aside from changing pay structures? How can they go about offering assistance with personal finance?
A: A big part of the solution is helping employees become more familiar with the basics of money management. Getting them to think about how they spend money on essential items such as utility bills and insurance is paramount. For example, when renewing car insurance individuals should always shop around as the renewal quote from their current provider is unlikely to be the best deal. Another important principle is helping 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 in order to own your home as it is a stable, easy to manage approach to long-term borrowing. However, it should still be reviewed occasionally to ensure you have a good deal.
At the opposite end of the spectrum, debt with high interest payments such as payday loans and credit cards can get out of control if they are not repaid quickly. The cost of paying the interest may force someone into even greater financial difficulty. Having a good understanding of how different types of loans work can help ensure informed decisions are made.
It’s also important to look at the employee benefits platform itself. A good starting point is to investigate if employees are taking up and using the benefits on offer. 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.
Employers are now increasingly putting in place financial education seminars to help their employees understand all of these issues, as well as one-to-one financial guidance or regulated financial advice for those who need more support.
Q: Do employers have a responsibility here to ensure people can afford to retire? What can they do to help people coming towards the end of their careers?
A: One of the most crucial elements of employee financial wellbeing is retirement preparation. Our research found that a staggering 80% of employers believe their employees are not saving enough for retirement. This may in part be because of affordability which is why money management is so important but in addition, it may be that they do not understand the upside such as employer matches on pension contributions and tax relief. Again, employers can plan a key role here by putting in place services such as financial education, guidance and regulated financial advice to support employees.
Q: How is this likely to develop in the future?
A: Our recent poll of employers has found that 90% of respondents believe that it’s becoming increasingly important to have a financial wellbeing strategy in the workplace. It’s great to see that so many employers are recognising the increasing importance of having a financial wellbeing strategy in place to help their employees feel financially secure.
We are seeing that more and more employers are now leading the way and putting in place financial education, guidance and regulated advice for their employees, and in turn resulting in a more confident and financially empowered workforce.
Further coverage can be found in Professional Pensions.