How financial education can help employees make sense of their benefits

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Need to know

Financial education that helps employees understand topics like money management, debt consolidation and savings will be most effective when accompanied by relevant products for them to subsequently use.
Pensions are a primary subject for many employers, but more immediate concerns should be taken into account to get staff to a point where they are comfortable enough to engage with long-term savings.
Financial education and the benefits it signposts to should be tailored and relevant to the individual; to achieve this, employers should consider input from staff themselves.

In September 2019, ADP's Future of pay report found that 98% of organisations believe that staff financial wellness has a direct impact on business performance, especially when it comes to productivity (67%) and engagement (62%). Furthermore, 79% of employees expect to be supported in this area, so it stands to reason that financial benefits are a key item on the agenda.

The rewards of investing in creating a financially secure workforce, however, can only be reaped if employees actively use these benefits, and use them effectively.

Professor Tina Harrison, chair of financial services marketing and consumption at University of Edinburgh Business School, says: “Improving financial wellbeing usually involves some form of education, either through workshops, online support, external consultants or simply through the provision of information. It doesn’t have to involve a lot of resources. A number of the big banks now offer free financial wellbeing seminars at work, often themed around particular life events or life stages like buying a house and planning for retirement.”

Therefore, employers should consider harnessing financial education methods, not only to teach employees the skills they need to create a financially secure future, but also to help them understand which products are available, and most relevant, to them.

Promoting pensions

Helping employees make sense of their pensions is a key area of focus for many employers, with 75% having undertaken a pensions communication campaign in the preceding year, according to Employee Benefits/Barnett Waddingham Pensions research 2018, published in November 2018.

Financial education can play a key role in impressing on employees not only the importance of a comfortable retirement, but the effects of failing to contribute now.

Neil Hugh, head of strategy and development at Standard Life, says: "Employees who aren’t fully engaged with their workplace pension and associated tax relief of workplace contributions are missing out on a fundamental aspect of their hard-earned reward; it is essentially like leaving behind a percentage of [their] salary each week or month."

Immediate concerns

However, an employer attempting to use financial education to get employees more interested in their pension offering should be wary of putting the cart before the horse.

Close Brothers' Financial wellbeing index 2019, published in February 2019, found that 53% of individuals aged between 18 and 34 report either often or always experiencing money worries, far more than older generations, while just 34% of this younger group have any kind of emergency savings.

If employees are facing concerns about their current financial security, promoting their pension will likely lead to disengagement. Future-proofing should, therefore, be tackled once the more immediate worries have been assuaged.

Benefits that can help employees manage their day-to-day finances include products such as interest-free loans, flexible pay systems and debt consolidation, as well as less direct options that aim to reduce financial pressures, such as bikes-for-work schemes and tax-free childcare.

These should be pitched to staff as being part of a wider financial wellness package, to ensure their worth is fully understood, says Jamie Mackenzie, director at Sodexo Engage. "Too often, benefits like these are simply mentioned in passing, without any explanation of how employees can use them and what value they offer," he explains.

“Employers need to talk much more openly about the financial side of benefit schemes, and clearly highlight what savings can be made. This would not only result in greater awareness of what’s on offer, but would also promote increased take-up of these perks and better employee welfare overall.”

Therefore, if offering financial education on the topic of good and bad debt, for example, employers should signpost to the relevant products available to their staff, while also highlighting the role that savings-related benefits can have in helping employees reach a state of financial security.

Healthy discounts

The use of voluntary benefits and discount platforms can help staff make regular, small savings, such as on their weekly shop. In some instances, these can also be used to save on larger purchases, allowing staff to update their computer or shop for Christmas presents, for example, without breaking the bank.

The concern for some, however, is that providing a wide range of exciting discounts might see employees spend frivolously on products they would not have been tempted by previously, which can ultimately contribute to poor financial wellbeing.

Financial education around responsible spending, provided alongside discount platforms, can ensure that employees are able to benefit from enjoyable perks, while also understanding the impact of their purchases, and are in a better position to weigh the pros and cons to come to an informed decision.

Tailored topics

It is important that any programme is relevant to the needs of the individual concerned in order to avoid disengaging them. This might be done by targeting by age, or centring education around life events such as marriages and children; for example, an employer might consider providing seminars on mitigating the financial impact of a parental career break when an employee inquires about relevant leave policies.

Ideally, topics will change throughout the employee's life cycle. For example, once an employer has used financial education to help an individual make sense of the debt consolidation products available to them, it could shift to providing guidance on money management, budgeting and creating emergency savings. Once the employee has progressed to a point of stability, long-term provisions, such as pensions, can be addressed.

Most importantly, it is vital to ensure that any conversation is made relevant to the employee, rather than abstract, says Dan McKissock, a chartered financial planner at Connor Broadley Wealth Management. “Tell people about how their pension is invested and they switch off," he says. "Rather, take a step back and talk about inflation, explain why their pension fund is invested in assets like company shares, and the importance of that for their own financial future.

"This can then give employees the tools they need to make informed decisions about their chosen risk profile, or whether they should make additional contributions.”

Effective delivery

There are a number of different ways in which education can be delivered; face-to-face sessions, either on an individual or group basis, tend to be the most effective, particularly as individuals can ask questions and be guided towards the most relevant benefits to their specific situation.

Using an external provider has key advantages, says McKissock: “There is value in being independent from the employer. If someone is struggling with debt, for example, they may be reluctant to discuss this with their employer.”

Martin Parish, area director at Aon, adds: “A benefits provider can impart factual information and education about the product, [while] an external [financial education provider] would be best where an employer is looking to add value around decisions or where there is a sensitive benefit transition underway, such as a change of pension scheme.”

Teaching with technology

Face-to-face sessions can be supplemented with online budgeting or modelling tools, which can not only help employees understand issues such as debt, but also guide them through interacting with the available products.

However, employers should not assume that these alone will be enough, says John Deacon, head of employee benefits at Buck. "Money management tools alone will not be enough to secure employees’ financial wellbeing in the long run," he explains.

"Employers need to create comprehensive wellbeing structures to include initiatives such as online modules and courses for staff, or experts discussing financial topics such as the importance of contributing to a pension and how to budget effectively.”

Technology comes into play not just in the tools themselves, but also in ensuring that financial education efforts reach and engage as many employees as possible. This might be through email campaigns, tailored nudges via an employee's mobile phone, or promotions via screens on-site, to name a few.

Engaging employees

The best way to ensure financial education is relevant and guides staff to the benefits they truly need, is to ask the employees themselves, says Nick Burns, chief executive of Gallagher Benefit Services.

“Employers could definitely improve uptake of financial guidance by consulting with workers on the ideal focus of group seminars,” he says. “But employers should bear in mind that, especially in large-scale organisations, not all employees will be able to engage in the same way; they need to be accommodating to workers who might not have access to video, or who may not wish to use personal devices to access benefit platforms.”

It is important, too, to see any initiative as an ongoing programme, rather than a one-off, adds Parish. “One communication by itself won’t drive the required engagement, yet developing a rolling programme using existing providers, specialist external partners, internal marketing and [communications] people can drive a group to take action, and those who don’t partake will start to feel left out,” he explains.

With around one in two employers not yet offering any form of financial education, according to Gallagher’s Benefits strategy and benchmarking survey, published in October 2019, it stands to reason that those that do will give themselves a competitive advantage, concludes Burns: “They will not only see risks to employee health mitigated, but will see the boon that employees’ increased financial confidence can provide: eliminating stress, freeing up employees’ headspace and enabling the timely delivery of quality work.”

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