Nearly half (46%) of all UK adults rate their own knowledge about financial matters as low and almost a quarter (24%) have little or no confidence in managing their money, according to the Financial Conduct Authority’s Understanding the financial lives of UK adults report, published in October 2017.
The impact of this is clearly being felt in the workplace, with many employers believing that financial worries cause increased levels of stress and absenteeism,and can lead to lower productivity.
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 everyday items such as utility bills and insurance is essential. A great example of this is car insurance. It is extremely unlikely that an individual will get a better quote by remaining with their current provider rather than from shopping around, but many neglect to do this. Some employees are becoming more aware of the advantages of shopping around, but employers could still be doing more to inform and support their staff.
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 a home, as it is a stable, easy to manage approach to long-term borrowing. However, it should still be reviewed occasionally to ensure 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 it is not repaid quickly. The cost of paying the interest may force someone into even greater financial difficulty.
It is 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. If not, why? Is it because they are not 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 help take-up and improve personal money management. For example, many employers offer discounts at various retailers through their voluntary benefits programme, yet take-up is often low. Nevertheless, everybody has to do the weekly shop, and a 5% saving on this could be used to help reduce debt or be put towards another workplace benefit, such as a pension.
One of the most crucial elements of employee financial wellbeing is retirement preparation. Wealth at Work’s Focus on retirement income matters survey, conducted from June to December 2017, 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 it may also be that workers do not understand the upside, such as employer matches on pension contributions and tax relief.
The answer to all this lies in providing employees with support around how best to manage their money, and the most successful way to do is through the provision of financial education, guidance or regulated advice. This approach can make sure that the savings effort really pays off and, in turn, lead to a confident and financially empowered workforce.
Jonathan Watts-Lay is director at Wealth at Work