Whether furloughed, facing redundancy or working from home, Covid-19 has had a lasting effect on many employees’ financial health and wellbeing. Given the links between financial, physical and mental health, employers have a responsibility to help employees improve their relationship with money.
Just how much the pandemic has affected employees’ financial wellbeing is highlighted in research conducted during the first week of May by Close Brothers. Its report, Changing Trends of Financial Wellbeing, found that 36 per cent of respondents were more worried about their financial health as a result of the pandemic, with women (37 per cent) slightly more concerned than men (34 per cent). It’s a very mixed picture though, as Jeanette Makings, head of financial education at Close Brothers, explains: “On one side you have people who are facing lower income as they were furloughed, had to reduce their hours or lost their job while on theother side there are those who have saved money as a result of working from home.”
But whether better or worse off, she says that the pandemic has really helped to highlight the importance of being financially prepared. “Before Covid-19, people thought that an emergency was a new boiler or replacing the tyres on the car,” she adds. “It’s shown that a financial emergency can affect anyone and without warning.”
As well as a potential squeeze on their finances, the pandemic also saw the emergence of a number of new financial wellbeing risks. Scams became more commonplace, with criminals preying on people’s fears with fake Covid-19 support texts and emails and adverts for non-existent hand sanitiser and face masks.
Older employees were also at risk of pension related scams but Martin Parish, area director at Aon Employee Benefits, says the ability to access their pension savings from age 55 proved too tempting for some. “There’s been a rise in people accessing their pension during the pandemic. As well as potentially limiting future contributions, where the value has fallen, it will make it even harder to catch up.”
To illustrate the worst case scenario he points to Australia where, as a result of the pandemic, anyone aged 18 plus was allowed to access their pension savings. The result? Cosmetic surgery became the number one pension- assisted spend.
The link between financial wellbeing and mental and physical health also means that money worries can have far-reaching effects. As an example, the Close Brothers research found that 63 per cent of employees had experienced health problems as a result of money worries. This was particularly marked among younger employees, with 74 per cent of 18-24 year olds affected. Of these, 45 per cent said their mental health had suffered, 20 per cent their physical health and 27 per cent said they’d experienced physical fatigue.
Given the heightened risks, financial wellbeing programmes have a powerful role to play in the workplace. A variety of support is available with most programmes focused around financial education. Alongside existing materials on areas such as retirement planning and budgeting, providers have created plenty of content for Covid-19.
As an example, Wealth at Work developed financial education around the Covid-19 support that’s available, including the furlough scheme, whether to take a mortgage or debt holiday, and how to manage where household income falls. “Most organisations wanted to help their staff and ensure they understood the implications of these financial initiatives,” says Jonathan Watts- Lay, director at Wealth at Work. “We also saw companies where employees saved money due to the pandemic and provided support and content to help them make the most of this extra cash.”
To illustrate this, he points to someone who replaced their daily £3 coffee takeaway with a coffee they made at home with a 30p capsule. “This saving mounts up but, in a pension, they also get the benefit of tax relief and, where it’s available, matching too,” he says.
As well as providing financial education, Chris Budd, chairman of the Initiative for Financial Wellbeing, says employers should ook to help employees understand their emotional connection to money. “We run a workplace presentation to help employees understand what makes them happy when it comes to their finances,” he explains. “By exploring their money habits and behaviours, they can take the steps necessary to achieve financial wellbeing.”
As an example, he points to someone who feels uncomfortable investing in the stock market because they tried it and lost money. Understanding that this won’t necessarily happen again can enable them to take advantage of investing.
Another valuable tool, especially where employees are under financial stress, is the employee assistance programme (EAP). “These are a really useful source of information and guidance and, as they’re confidential, employees needn’t worry about their employer finding out,” says Parish. “They’ve mainly been used for mental health support but the pandemic has made it easier for employers to promote the financial side too. Usage will increase.”
Alongside pointing employees to an EAP for debt advice, employers are also able to offer them access to preferential rates through payroll lenders. “On average, someone taking one of our loans to consolidate existing debt will save themselves £600 in interest and pay it off a year earlier,” says Asesh Sankar, cofounder and global CEO of Salary Finance.
Although there are benefits, many employers are nervous about offering employees loans. “It’s an option that can add to someone’s financial wellbeing if it’s used to consolidate loans but employers get concerned that it will be used as a debt facilitator,” says Parish. “An employer should conduct proper due diligence to understand the risks to the business and its employees.”
Watts-Lay has also seen reluctance from employers. “There’s a lot they can do before someone has to take out a loan,” he adds. “Money management skills are fairly poor so improving these and promoting offers and discounts, such as 5 per cent off in Tesco, can make a big difference.” This more holistic approach is something that Sankar is keen to push too. Alongside loans, his firm offers a range of other products
and support including: financial wellbeing; a savings account; a salary advance option giving employees access to £100 ahead of pay day for a fee of £1.49; a pension through Nest; and life insurance and protection products from Legal & General. “We look to engage with employees as much as possible,” he adds. “If we see salary advance is becoming a habit, we’ll push them towards relevant content to help them manage their money better.”
With the government’s Coronavirus Job Retention Scheme set to end at the end of October, a wave of redundancies is expected. Watts- Lay says that several of his clients have asked for support. “We can take employees through their redundancy packages, explaining what they’ll receive and the tax implications,” he says. “It can be a difficult time so it’s important to be able to make informed decisions.”
Redundancy can also be a great opportunity to reassess life and consider your options. “Know thyself,” says Budd. “Lockdown gave many people the opportunity to see how their life could be: some enjoyed the extra time with their kids, others realised that they don’t like working from home. This insight can help someone facing redundancy shape their future.”
He also advocates financial coaching as a lower cost option for employers wanting to support employees at this point. “A financial coach can help an employee better understand their relationship to money,” he adds. “This could be very insightful when they’re thinking about their options following redundancy.