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Stretched finances don’t just apply to low earners – how can employers help all employees reduce their spending and become more financially resilient?

Wednesday January 27, 2021

Posted on: Wednesday January 27, 2021

Stretched finances don’t just apply to low earners – how can employers help all employees reduce their spending and become more financially resilient?

By Rebekah Tapping, HR Director at Personal Group

The pandemic has affected everyone’s finances, from those who were just about managing, to high-earners. Many workers will be feeling financially vulnerable, with a knock-on effect to their mental health, and ultimately their ability to perform at work. Now more than ever employees need support in improving their overall financial situation and employers are well-placed to deliver that support.

It’s important to ensure that everyone can benefit from the help on offer – and employers shouldn’t assume that financial wellbeing is only for lower-paid workers. Workers at all levels can benefit from support.

Everyday life events – divorce, unemployment, illness or even a new baby – can put a strain on household finances. It’s true that lower-paid workers are vulnerable to financial shocks, as they’re less likely to have savings to fall back on.

However, poor financial wellbeing exists right across the income spectrum. Higher-paid people might be subject to 'lifestyle inflation', where spending catches up (or overtakes) income increases, and may turn to credit to help fund their aspirations.  A small income shock can then turn affordable borrowing into problem debt.

Money worries come in all shapes and sizes too. For some it will be about problem debt, or whether they can afford to have the heating on or feed the family. But for others it’s about being able to save – whether that’s for a rainy day, to get married, start a family, or to buy a house. For others it will be about funding social care for a relative, or putting protection in place for their loved ones.

Increasing financial resilience

Financial resilience is the ability to withstand life events that impact one's income and/or assets. In 2018 the Financial Conduct Authority found that half of the UK population are financially vulnerable, with one in six people unable to cope with a £50 increase in monthly bills. The COVID-19 pandemic is a prime example of an unexpected event which has exposed this financial vulnerability, at all income levels.

Below are ideas on how employers can support three pillars of financial resilience: education, saving, and preparing for the unexpected.

So how can employers help?

Financial education

It’s worth saying that financial wellbeing isn’t just about how much money people have. It’s about the control that they feel they have over their finances, and the skills and capability people have to manage their money.

Employers have a key role to play here. They can enable employees to make informed decisions, as well as help them feel more in control of their finances. Organisations can help their staff through signposting them to relevant guidance, information and support, as well as providing this themselves, either directly and/or through a trusted partner.

There is a wealth of financial advice available via the internet, which is good, but so much information to sift through can feel overwhelming. It helps to have guidance come from one trusted source, i.e. an employer - ideally in a format that makes the advice easy to digest and act on. For example, you could offer webinars or conferences, clinics, 1:1 financial mentoring, support groups, assessments and budgeting advice.

Saving

Consider encouraging employees to put money aside in an ‘emergency fund’ which is enough to cover household expenses for three to six months. Employees will have this to fall back on should they find themselves out of work, facing an income cut, or having to deal with unexpected costs.

For longer-term saving, you can encourage employees to save into a workplace scheme. These enable employees to save directly out of their pay for first homes, holidays, children’s education, retirement, and more. Making your own saving arrangements can be a daunting prospect, so employees are more likely to save if their employer makes the process straightforward.

Preparing for the unexpected

Partnering with an insurance provider allows employers to plug any gaps they may have in their current provisions by providing their workers with easy access to cost-effective individual policies. For employees who don’t get sick pay or death benefit, it’s important to ensure that they and their dependents are provided for should the worst happen. It’s not easy to think about but planning for these situations can make a significant difference to loved ones.

Even before the pandemic, workers needed support to help them make healthy financial choices. In the current climate, employers should think about their current provision and if it can be optimised to improve financial resilience.

To find out more, download our financial wellbeing report for employers here.

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