Employers need to think about how to improve employees’ financial wellbeing and mental health on a consistent, long-term basis. This means focussing on driving positive behavioural change on financial management and planning. This is the only way to achieve effective and sustainable improvements in financial wellbeing.
We believe there are six key areas where employers can help to effect behavioural change in their employees when it comes to financial wellbeing. Any effort and investment should target at least one of these.
1. ACCESS TO AFFORDABLE CREDIT AND FINANCIAL SUPPORT
Removing the cost of existing debt is a straightforward way for employers to ease some of the pressures caused by the cost-of-living crisis. It gives employees more control over their finances and helps them to become more optimistic about their financial futures. Payroll lending provides employers with a low-cost, risk-free way to help employees who are struggling with higher interest rates get back on top of their finances.
Growing numbers of employers are partnering with companies that provide responsible financial products and services (such as loans, advances, savings, and financial education) to employees. Critically, this mitigates the need for employees to take on high-risk debt, such as payday loans, to cover money emergencies.
A major challenge for employers is trying to change financial behaviours in a way that improves long-term financial prospects, while also dealing with the immediate money worries people face now. Employers need to be sensitive to the fact that some may be having to make very tough decisions about how they spend their money. It’s no good continuing to communicate with people about savings if what they actually need is information on how to access food banks and government income support.”
Charles Cotton, Senior Performance and Reward Advisor, CIPD
2. HOLDING INSURANCE AGAINST KEY RISKS
The last few years have highlighted the need to be prepared for the unexpected.
Employers should be encouraging employees to do as much as they can to create a buffer against financial risk for themselves and their families.
This means making it easy and cost-effective for employees to insure against key risks through income protection schemes and critical illness cover.
Understanding of these benefits remains relatively low within the UK and Ireland workforce. Employers should therefore focus on educating employees about the schemes that are available and why they are so important.
Income protection is an employee benefit that can have a significant positive impact on an employee’s life. According to the Association of British Insurers, 97.8% of claims were paid out in 2018.
As well as additional free services to get employees back on their feet, income protection as a benefit ensures employees protect themselves against one of the most common reasons a person falls into problem debt – falling ill and being unable to work. It also provides employees with a greater sense of control and confidence at a time when many people are understandably anxious about the consequences of not being able to work.
When we look at the primary causes of problem debt in the UK, they are almost always due to a series of quite predictable life events that many employees will face. Job loss, death of a spouse, and long-term ill-health have all been found to drive employees into serious debt. However, the negative financial impact of these life events can be mitigated or softened through insurance products that exist within many employee benefit schemes.”
Gethin Nadin, Chief Innovation Officer, Zellis
3. INCREASED AWARENESS OF SPENDING
Despite the financial pressures they are experiencing, most people have very little grasp of how much money they are spending and how they are spending it. Encouraging employees to become more aware of their expenditure is an important part of financial wellbeing. In fact, it’s arguably the most important short-term behavioural change that employers can influence.
Employee discount schemes are already a common feature of most benefits strategies, although their value is often overlooked by employees. But with rising costs, such as the recent National Insurance increase, employers need to demonstrate how these discounts can offset many of the cost-of-living increases employees are facing.
With the average UK household spending £5,000 a year on food shopping, employees switching to a discounts and cashback platform could see an annual supermarket shopping bill decrease by around £250, depending on the scheme and the supermarket.
While employee benefits initiatives should continue to be directed at all employees and all salary brackets, there is a strong argument the current crisis calls for a greater focus on lower-paid workers. Benefits can really stretch the value of these employees’ wage packets.
Research from the Joseph Rowntree Foundation has shown how lower-paid workers value benefits which help with day-to-day living essentials, rather than the nice-to-haves.
Lower-paid workers are typically offered lower flexibility but could significantly benefit from getting more. This could mean remote working to reduce their travel costs and ease childcare pressures, or more flexible hours to avoid peak-time travel fares. These types of measures don’t cost a business much, but they can have a massive positive impact for employees.
Similarly, salary sacrifice in exchange for non-cash benefits provides a helpful way for employees to navigate rising tax costs while still being able to buy some of the things they need. Whether it’s pensions, training, or travel, these arrangements make employees feel like they’re getting a good deal. For instance, a cycle-to-work scheme can help employees to reduce their travel costs (as well as cutting carbon emissions).
We’re already seeing a worrying pattern of employees reducing their pension contributions in order to get more money into their pockets today. This is totally understandable, but employers have a duty to highlight the risks and consequences of doing this. This could be through financial modelling to show the impact of a 2% reduction in pension contributions for a 25-year-old today when he or she reaches retirement age. Of course, the current situation is hugely difficult, but the answer can’t simply be to store up even greater problems further down the line.”
Jacqui Summons, Chief People Officer at EMIS Health, and Non-Executive Director at Zellis
4. BETTER UNDERSTANDING OF FINANCIAL PRODUCTS AND SUPPORT
Higher financial literacy leads to greater financial wellbeing and reduced anxiety about money. This is why financial communication and education is so vital.
Many studies have shown that spaced-out learning, delivered in short bursts of fewer than five minutes, helps people to retain knowledge better, particularly for complex topics such as financial products. This approach to learning enables employees to establish better, lasting habits, and plays an important role in fostering better financial wellbeing and a sense of control.
Financial education products help and motivate employees to make small, incremental decisions that will save them money and build their financial confidence. They allow employees to tackle their financial situation one small step at a time over the space of a few months, rather than becoming overwhelmed and disillusioned by trying to do everything at once.
Another way in which employers can make an impact is by educating employees on the wide range of state benefits that may be available to them, helping them to understand eligibility and how to navigate the application process.
HR teams and business leaders urgently need to start looking at benefits through the lens of financial wellbeing, and with the cost-of-living crisis at the forefront of their minds. Benefits shouldn’t just be thought of as a recruitment and retention tool in the current environment. They have become more fundamental to people’s lives and struggles.”
Government figures show that a many benefits and tax credits still see alarmingly low uptake.
By providing employers with education and access to specialist advice and support on state benefits and tax credits, employers can open up significant new streams of income, particularly for lower-paid workers who are struggling the most.
Government figures show that many benefits and tax credits still see alarmingly low uptake.
went unclaimed last year due to households being unaware of their entitlements.
5. PLANNING FOR FUTURE GOALS
Part of changing an employee’s relationship with their finances is positioning money as a positive and useful tool in achieving what they want in their lives. Whether that’s a new home, a holiday, a child’s education, or a wedding, money (and savings in particular) should be seen as a way to achieve a goal.
When employees can see themselves getting closer to one of the things they really want in life, they generally engage better with their finances. They tend to balance the wants and needs of the present with those of future. This empowers employees to make decisions today that have a positive impact tomorrow. For example, rather than seeing the negative aspects of putting £100 a month aside (e.g. one fewer night out or less flexibility to buy what they want), they start to see that £100 as an additional night on their future holiday or a step closer to getting the home of their dreams.
People with financial security use money in ways that are constructive, intentional, and aligned with their sense of purpose. They tend to feel better after spending or utilising money, not worse. That’s very different than living in financial insecurity, in which no amount of money ever feels like enough, and you’re constantly spending it on quick fixes here and there to survive or just to escape uncomfortable emotions.”
6. ACCUMULATION OF LONG-TERM WEALTH
One of the most impactful ways for employees to create positive financial wellbeing for the future is to build medium- and long-term savings. Having a buffer that can soften the blow of everyday expenses like car or home maintenance can help to protect employees from the strain so often caused by unexpected expenses.
Building some long-term wealth is within the reach of almost every employee, beginning with a very small commitment to put any amount of money to one side on a regular basis. Starting as early as possible is critical to building this wealth. Those people who start longer-term savings earlier in their lives tend to have better financial wellbeing. Whether this investment exists as a normal savings account, an ISA, or indeed a pension or retirement fund, setting contributions to be regular and not easily accessible drives the most successful outcomes.
Half of UK employees have less than £500 in savings, so encouraging any form of saving is hugely beneficial to building long-term, sustainable wealth in later life.
Rising interest rates have finally made savings a worthwhile endeavour again. Those that can afford to build up a pot should be encouraged to do so. Share-incentive plans can be an extremely effective way for companies to incentivise employees to save more and build up their financial resilience.
Of course, persuading people who are struggling to make ends meet to put money aside for the future can be difficult. But employers need to help people visualise the benefits of doing so. Even putting £10 into savings every month will provide people with a pot of money which they can use for unexpected expenses in the future. And the more that pot grows, the more engaged and in control they will feel.
Unfortunately, while employees seem to feel more comfortable discussing issues relating to their mental health, this is yet to extend to financial wellbeing. There remains a strong stigma associated with financial difficulties, which means that many people simply don’t want to talk about their finances. Interestingly, this extends to all levels of the workforce – from low-paid workers through to top earners. The latter can often feel greater embarrassment about the fact that they need financial support.
This makes it very important for employers to have mechanisms in place which will give them the best chance to spot issues before they become too severe. As with all aspects of wellbeing, line managers are best placed to identify issues. However, they need the awareness, support, and training to identify and engage with team members that might be facing financial difficulties. They also need the knowledge to point employees towards appropriate help and services.
According to research from the CIPD, three in ten UK employees admit that money worries have affected their performance and behaviour at work. Line managers need to be conscious of this and should have the skills and confidence to talk about it sensitively and confidentially with employees as part of a regular one-to-one dialogue. Anxiety about money has a huge knock-on effect on almost every aspect of people’s lives – sleep, health, relationships, and parenting.
The shift to remote and hybrid working means that many of the most effective everyday touchpoints for financial wellbeing communications have disappeared. Employers can’t always reach people with a poster advertising the wellbeing helpline or a lunchtime session on the Employee Assistance Programme. So, they need to think about creating new interactions remotely, which present themselves to employees at the right times, and resonate with how they might be feeling.
It’s about showing employees that the support and services are there for them.
Ultimately, employers can’t provide a safety net which catches people when they make poor or ill-informed decisions. But what they can do is encourage and enable people to make smarter and more informed decisions and, ultimately, change behaviours in a positive way. Employers can help employees to have a better understanding of their pay and spending, and to be more aware of the support, benefits, and services available to them, both through the organisation itself and via wider channels.”
Timely, relevant communications are also critical. Recognise the fact that employees will have specific points in the month where they feel particularly anxious about money. For instance, on payday when people receive their payslips (and also when most of their direct debits leave their account) people are likely to feel under enormous stress when they see how much (or little) money they have left for the rest of the month. Again, towards the end of the month, people are more likely to be struggling to make payments and buy essentials as their money is running out.
These are the points in time when employers should be reminding people about the support that’s available if they are feeling overwhelmed about their financial situation, highlighting services such as payroll borrowing and shopping discounts.
While most organisations have developed dedicated strategies and policies to set out their approach and commitment to mental health, many are yet to do so in relation to financial wellbeing. Most employers have a range of different initiatives designed to support employees with their finances, but these are often presented as standalone services and offers, rather than part of an overall programme or package.
Employers should be looking to develop a unified policy for financial wellbeing, which articulates their commitment to promoting financial wellbeing and supporting all employees, whatever their financial circumstances. The policy should acknowledge that, as income providers, organisations play a critical role in their employees’ financial wellbeing.
Having such a policy makes it much easier for employers to communicate with employees on all areas of financial wellbeing. It also allows employees to understand exactly what help is available.
1. Let the workforce know that they can get free, confidential, and independent money and debt advice from the government’s Money and Pensions Service.
2. Make sure the workforce is fully aware of all the benefits you currently offer and how to make the most of them.
3. Start to normalise conversations about money worries at work; showing concern and empathy can help to break down any stigma.
Employee Financial Wellbeing (CIPD)
Our own research has found that people who work for an employer that has a clear financial wellbeing policy place a very high value on this, and they’re far more likely to look for the same when assessing any potential future employer.”
One of the most difficult aspects of any financial wellbeing programme for employers is how to measure effectiveness and impact. It’s notoriously difficult to track and quantify the success of such programmes, particularly where behavioural change is the desired outcome.
However, by focusing on the six areas outlined in the previous section, employers should be able to measure the following outcomes:
Employees have a higher sense of financial control.
Employees are setting and pursuing long term goals.
Employees’ confidence in dealing with money matters is improved.
Employee financial security builds, so they can ‘take a knock’ and have a savings buffer.
Employee financial resilience improves; they can effectively manage debt and are actively saving money.
Regular employee surveys can gauge how people feel about their financial situation and levels of confidence when making financial decisions. Measurement can also be carried out through payroll and benefits data. For example, you could track how many people are registering for payroll savings schemes or taking advantage of available offers and discounts.
Taking one step further, employers can look at how improvements in these metrics impact performance and productivity, sickness and absence levels, and even customer satisfaction. Of course, it may be difficult to attribute uplifts in these areas to one specific factor, but organisations may start to see a general upward trend as financial wellbeing improves across the workforce.
