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One paycheque away from poverty

Catherine Rickard

Ask most working people; “what would happen if next month you were paid a week late? Could your bank account cover the shortfall as your regular payments left your account”? Or; “how would you cope with an unexpected major car expense or house repair”? Research from the UK Money Advice Service revealed that four-in-ten adults don’t even have a modest £500 savings buffer, so such unexpected expenses have real impact.

Article by Catherine Rickard, Senior Research Fellow – Institute for Employment Studies.

How we manage our money, the level of control we feel regarding our finances, irrespective of our earnings or seniority, or our understanding of the best way to manage our money, all contribute to our financial wellbeing. Levels of financial capability in the UK working population are poor, and neglect of this issue will ultimately impact an organisation’s bottom line. HR is well positioned to build the business case for supporting employee financial wellbeing and engaging senior leaders in recognising the need to provide financial education and support at work. Recognition by employers of the importance of financial wellbeing is growing. In many organisations it is becoming part of an integrated and holistic approach to employee wellbeing and a component of the healthy workplace, in order to ensure that it receives the attention and resourcing it needs within the business. To set the issue in context, research has shown that poor financial wellbeing impacts on health in terms of diminished psychological wellbeing, higher stress and anxiety levels, and lower levels of good health. In turn, this affects productivity in terms of poorer job performance, shorter-term decision-making, reduced cognitive function, lower productivity and higher levels of absenteeism. Estimates by Neyber show the extent of the problem, with financial stress costing the UK economy £120.7 billion, and 17.5 million work hours being lost due to absenteeism caused by financial stress. Barclays have found that over half of the working population (55 percent) report that financial pressures have affected their behaviour at work and ability to perform in their job, and that for every £1m an organisation spends on payroll, there is an estimated four percent loss in productivity due to poor employee financial wellbeing.

Societal and policy changes such as the rising costs of education and housing, and pensions reforms, mean that the financial pressures facing employees at work today are only likely to intensify and will demand that employees make some significant choices and possibly exercise much greater financial control than recent generations. Yet, recent research by the Institute for Employment Studies (IES) for the CIPD found that 30 percent of employees are making uninformed financial decisions, stating that they do not use advice or information from any source when considering their financial options. Recognition of the poor levels of financial wellbeing across the working population combined with policy changes impacting the finances of millions, means that the need to improve and support employee financial capability has become more pressing. A shift is required in how senior leaders regard and approach financial wellbeing, from being reactive to proactively preventing problems. By the time a problem has manifested itself for an employer, often the employee has already reached crisis point, ultimately impacting their job performance.

HR has a critical role to play in building the business case for supporting employee financial wellbeing and engaging senior leaders in recognising and valuing the need to provide financial education and support at work. Much of the economic business case for support can be built around the monetised consequences of poor employee financial wellbeing, which has by now been well-evidenced. But there are also many potential benefits to employers and opportunities to be reaped from taking action, with research highlighting that initiatives on total rewards and related communications have helped to improve employees’ understanding of the value of their own reward packages, which in turn has helped to improve engagement levels and employee perceptions of their employers. Developing a strategy on employee financial wellbeing broadens this approach to recognise that employees’ wider financial situation can be reflected in their behaviour and performance at work. Senior opposition may potentially be encountered around the view that offering such education and support around financial wellbeing represents a form of interference in employees’ personal lives. However, employers are typically a trusted source of information for employees, and research by Willis Towers Watson has shown that more employees than ever before are interested in obtaining access to advice and guidance from their employers about financial issues. For example, their research revealed that almost four-fifths of European employees are ‘persuadable’ or ‘on board’ with the idea of employers supporting their financial wellbeing.

In presenting the business case for providing employee education and support around financial capability, HR is also in a key position to head off or challenge any views from the senior team that this type of support is purely about the reward package on offer. Of course, a reward package is a key way for employees to improve their financial situation, and providing choice and flexibility around rewards and benefits is beneficial to employees if a package can be tailored to suit personal needs and priorities. However, such choice and flexibility in the contemporary pay and benefits landscape assumes employees have the required knowledge and skills to make effective decisions. The IES research for the CIPD stressed that employees of all types and earning levels, not just those on lower incomes, need to have these skills to make the most from their earnings and benefits. The drivers and benefits of providing financial education and support to employees are demonstrable but support approaches will differ depending on an organisation’s size; the profile and needs of the workforce; the level of priority and resources available; and the organisation’s existing approach to employee wellbeing. There is no ‘one-size-fits-all’ approach. For organisations starting out in this area, first steps do not have to be costly or complex. Employees can be signposted to external sources of free help, for example, debt charities or online budgeting/saving/retirement modellers. Conducting an employee survey would highlight the need or demand for support or education in particular issues to improve financial capability. For organisations expanding their approach to financial wellbeing, education and support options include targeting information to employees based on the income level and life stage/generation segmentation of the workforce. Line managers could be supported to provide or signpost employees to financial guidance at times of significant employee life events, for example, promotion, marriage, or the birth of a child.

Further, a financial awareness programme could be adopted within learning and development provisions, or an employee champion could be identified to promote and deliver financial wellbeing information and guidance sources to their peers. For organisations leading the way in this sphere, support options include more holistic approaches, such as engaging external providers to deliver a complete financial education programme to staff; launching and branding the business’s financial wellbeing approach; enabling and promoting private employee forums for knowledge-sharing linked to financial topics, products or services; and holding ‘financial education days’ in which employees are provided with information on particular financial topics. This is common in the Netherlands, where the Government promotes national ‘pensions days’ to raise people’s awareness of the importance of saving for retirement. All of these education and capability-building approaches support the possibility of changing mind-sets and attitudes to challenge the prevalent ‘spend today, rather than save for tomorrow culture’ and help improve abilities, among all, in managing money.

Equally as essential to the delivery of appropriate education and support is the evaluation of such activities to ensure any investment is generating impact. The CIPD states that few organisations actually measure the impact of their wellbeing activities, most likely because it is often perceived as a complex task, and it can be difficult to attribute change directly to such support if other organisational changes take place in parallel. However, in this space, an employee survey to find out how employees view the financial wellbeing initiatives implemented could provide useful results and support for continued action; alongside analysis of existing indicators such as any change in absence levels or use of particular elements of an employee assistance programme since the introduction of the support. Overall, the evidence shows that levels of financial capability in the UK working population are poor and employers cannot just leave this problem to government to tackle or assume it is the personal responsibility of employees alone to address. Proactive action in personal financial education is needed to prevent any financial challenges escalating into serious problems that will ultimately impact on an organisation’s bottom line, and HR is acutely positioned to drive this agenda forward to deliver real changes within the working population.

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