Charles Cotton: How can employees’ personal finances impact on employers?

Charles Cotton

The Financial wellbeing: the employee view report, published by the Chartered Institute for Personnel and Development (CIPD) in January 2017, found that one in four UK employees believe that money worries have affected their performance at work.

This proportion is even higher in certain regions, such as London, and within different age groups, such as among 25- to 34-year-olds. While income is important, one in seven earning £60,000 or more reported that financial concerns have made them less effective at work. Our survey indicates that all employees, irrespective of age, gender, occupation or salary, can suffer from financial stress.

Money worries are most likely to result in physical fatigue caused by lost sleep. Other consequences identified include individuals finding it hard to make decisions at work or spending time during the working day dealing with their money problems.

These findings are backed up by the research cited in our report Employee financial wellbeing: why it’s important, published in January 2017, which reveals that poor financial wellbeing affects employee performance and health. For instance, low levels of financial wellbeing are associated with higher employee absence and stress, and poorer employee mental health, performance, and decision-making and focus.

Employee financial wellbeing could get worse over the coming years. Salaries have not fully recovered from the global financial crisis. While inflation has been falling, it could rise again with increasing petrol prices. Low interest rates have helped individuals manage their debt, but there will be problems when bank rates start to increase. To give some context, UK personal debt is around £1.6 trillion, and outstanding consumer credit lending is around £209 billion, of which £71 billion is owed to credit card firms, according to the April 2018 edition of Money Statistics, produced by the Money Charity.

Trying to save has become harder. Young employees will need to contribute more to their pension than older people to achieve the same level of income in retirement. However, the young also have other financial commitments to juggle, such as commuting and housing costs. To get a foot on the bottom rung of the housing ladder now requires a massive financial trampoline. Older staff also face some significant challenges. While they have more freedom and choice over their defined contribution pots, they also face complex financial decisions and the risk of outliving their pension fund.

Employers should recognise these issues and be willing to help signpost places where employees can get help. However, prevention is often better than cure, so organisations should introduce a financial wellbeing strategy to help employees make the most of their money when it comes to saving, spending and investing.

Charles Cotton is performance and reward adviser at the Chartered Institute for Personnel and Development