By Catherine Rickard, Senior Research Fellow, Institute for Employment Studies
The New Year is often a time for taking stock of finances, assessing the damage from the festive spending binge and thinking about the future. Following Christmas, Citizens Advice is expecting up to 2,400 calls a day in January as people attempt to resolve their debts; with increasing financial worries and mounting debts causing almost a quarter of employees stress and almost a fifth of employees to lose sleep worrying about their finances.
Last year, financial well-being certainly seemed to be a hot topic; culminating in the launch of the UK’s first Financial Capability Week in November by the Money Advice Service, which saw organisations and policy-makers staging events exploring various financial capability issues and raising awareness of its importance. Such financial well-being concern stems from less than one in three employees having a savings buffer of three-months earnings or more; over half of adults focusing more on current needs or wants than future financial security; and 12 million people not saving enough for their retirement with two thirds of people not knowing how much they need to save. These statistics suggest a mix of people struggling with present demands and a further cohort sleepwalking into a future of financial vulnerability. Research has also revealed that poor financial well-being has a negative impact on health, with financial incapability associated with mental stress, lower reported life satisfaction, and anxiety or depression.
These effects of poor management of personal finances create a strong case for employers to provide financial education. For example, for every £1m an organisation spends on payroll, there is an estimated £40,000 loss in productivity due to poor employee financial well-being; and employee mental health problems have an estimated total cost to UK employers of £8.4 billion a year in sickness absence and £15.1 billion a year in reduced productivity at work.
Burying heads in the sand
Employers, government, and all of us as citizens have important roles to play in ensuring that appropriate financial information is available to help shape individuals’ financial choices. ‘Ostrich’ behaviour is still being demonstrated by at risk individuals, with some 8.2 million people in the UK being over-indebted (17 per cent of the population) but only 17 per cent of this over-indebted population seeking advice.
These high risk individuals are not only those on low incomes with few assets but also high earners with high spending; both groups often face barriers to seeking advice including a lack of trust in financial services (especially as a result of the scandalous mis-selling of financial products); overconfidence in their own decisions; a lack of understanding of the benefits of financial advice; and feelings of powerlessness around issues related to their finances.
Many people feel that financial advice is “not for them”, are unsure how to go about finding good financial advice, or are “disengaged from financial planning altogether”. The lack of people seeking advice stems partly from poor understanding of financial products and weak financial capability in the UK. For example, over a third of people cannot perform a relatively simple interest calculation on a savings balance and over a fifth of the adult proportion are not able read a bank statement. Also over half of people think pensions are difficult to understand – in fact, including the Bank of England’s Chief Economist Andy Haldane who recently admitted:
“I consider myself moderately financially literate…..Yet I confess to not being able to make the remotest sense of pensions.”
What is CIPD currently doing?
More employees than ever before are interested in obtaining guidance from their employers about financial issues and current employer trends suggest the numbers of employers offering financial well-being programmes to employees is increasing in response, with most citing reasons for expanding such well-being initiatives as ‘it is the right thing to do’ (85 per cent) and ‘to help improve employee engagement’ (80 per cent). Previous IES research found that the topics for financial guidance which were most appealing to employees were pension planning and budgeting; the former perhaps reflecting the incredible complexities and rules of the products involved and the latter a competence gap in basic financial processes.
The Institute for Employment Studies (IES) has been working with the CIPD to develop resources for HR practitioners to help them support employees to make good decisions and improve their financial well-being; including evidence on the business case for supporting financial well-being; and practical guidance employers can use and adapt to create an effective approach to financial well-being policy development and implementation. Our research highlighted the need for employers to take action in this area; identify the need for support among their workforces and offer staff access and signpost to sources of advice to make good financial choices.
The IES/CIPD research highlighted that employers cannot just leave the current (poor) state of financial well-being in the UK to government to solve, nor can they assume that it is employees’ personal responsibility alone to address. The evidence suggests that there are clear benefits for all in supporting employee financial well-being and making it an integral part of creating a healthy workplace.
Find out more about the IES/CIPD research: www.cipd.co.uk/financialwellbeing
Attend the breakfast panel event on Tuesday 31 January
