Addressing the financial stress caused by COVID-19
For some, savings have gone up during the pandemic as there were less opportunities to spend. In the UK, particularly higher income groups appear to have accumulated more savings in 2020 than in previous years, according to the Institute for Fiscal Studies, an independent research institute. For those in a lower income bracket, a drop in income has caused savings to decline and/or debt to rise. The poorest fifth in the UK has seen an average £170 per month decline in their bank balances between March and September relative to normal times as lower spending failed to cancel out income falls. By November 2020, more than £2m people had taken advantage of mortgage, credit card and loan payment holidays as a way to keep spiralling debt under control, according to Money Management Team Limited, an advisory firm. Overall, an estimated 12.5 million people in the UK say their households have been affected financially by the impacts of the coronavirus, and the expectations for the general economy for the year ahead are at their worst level recorded.
These trends portray a challenging financial landscape and suggest that the coronavirus has acted as a catalyst to existing longstanding financial issues. It is well-documented that stress and anxiety around money issues do not only affect a person’s health and relationships but it is also a key reason for workplace absence. And, perhaps surprisingly, poor financial health is not defined by income or seniority: Research shows that high earners are just as susceptible to financial stress as those earning less. A recent survey carried out by Salary Finance (The Employer’s Guide to Financial Wellbeing 2020-21) found that whilst people earning less than £10k per annum have the highest levels of financial worries, those that earn between £10-30k per annum have almost the same level of financial worries as those earning over £90k per annum (27% vs 31%)
All this suggests that financial wellbeing will become an even more important topic in the employee benefits field: The COVID-19 crisis offers an opportunity for employers to recognise how important it is to help their employees build understanding and resilience around money.
Simply offering a workplace programme incorporating more benefits provides no guarantee for improving employees’ financial wellbeing and can drain a company’s finances with little or no return on investment. The solution to employees’ financial stress does not necessarily include costly benefits such as a pay rise, wealth advice, pensions or flexible benefits. Instead, it is crucial that employees understand why financial wellbeing matters to them, and receive inspiration to take action. Financial wellbeing is also about helping your employees with the money basics to enable them to identify their money goals and put straightforward action plans in place to achieve them. Their goals could be as simple as not going overdrawn every month, wanting to save for their first home or retirement, or having the tools and knowledge available to know how they can move forward. It can also include information about debt restructuring to lower potential debt repayment cost.
One financial wellbeing offering that Lockton finds particularly useful is Better with Money, a provider of independent, tailored financial education in the workplace. In response to the coronavirus pandemic, Better with Money has switched all of its workshops and 1-2-1 employee sessions to an online service, covering a wide range of financial topics from budgeting and saving to home buying and preparing for retirement. The sessions are designed to bring money matters to life and give employees the knowledge and practical tools needed to empower employees to plan a more financially secure future to reduce money stress.
Their independence ensures there is no product push and no bias towards higher earning employees for wealth management services. Instead, the emphasis is on education for everyone through positive change and real-life case studies.
A good quality financial wellbeing programme can reduce financial worries amongst employees, raise morale and performance. It also has the potential to increase trust between employers and employees and improve retention levels, creating a win-win opportunity for all.