Millions of employees are plagued by poor financial resilience and wellbeing, restricting their ability to get the most from their lives, impacting their physical and mental health, and often leaving them on course for a retirement short of their expectations. While traditional pension communication and education programmes can help explain where savers stand and what they need to do to improve their financial position, these techniques will rarely achieve the level of changes in behaviour needed to have a meaningful impact on individuals’ financial wellbeing. DOWNLOAD THE SUPPLEMENT HERE
Financial wellbeing has been at the top of the agenda for providers, advisers and employers for some years now, and programmes have been in place for a considerable time. But, said delegates at a round table on The Psychology of Financial Wellbeing held by Corporate Adviser last month, while some progress has been made, current financial education programmes are yet to deliver the sort of step-change in behaviour that is needed.
Barnett Waddingham partner Andy Parker said: “In my many years in the industry the Holy Grail has always been about engaging people, around pensions predominantly, but in a broader way now. And we absolutely haven’t cracked it – we’ve had lots of goes at trying to crack it but haven’t got it right yet.
“We’ve got lots of tools and educational material. What we don’t have is the willingness within the individuals that we’re trying to get to take part in this – to actually take part.”
The engagement challenge
LCP senior consultant Heidi Allan agreed that the industry is only at the start of the journey towards helping individuals to better financial wellbeing. While ‘wellbeing’ is a buzzword in the employee benefits sector, this has caused the proliferation of products and services that leverage the concept in ways that do not necessarily lead to tangible results.
She said: “A lot of organisations have got products and services that form part of their employee benefits suite. And alongside that they get a bit of financial education thrown in. But it isn’t as simple as putting some articles on a website and ‘job done’. The organisations that have had the most success in terms of engagement are those that take it to a broader level, those that integrate into financial, physical and mental health, those that enable people to think about today, tomorrow and the future.”
She added that there are so many wellbeing apps, services and other propositions bombarding employers and individuals that they can become swamped.
“Because there’s so much noise and so much free stuff, and different benefit providers offering different sorts of financial education, it is difficult for organisations,” she said.
Aon head of DC pensions, H&B EMEA Debbie Falvey said: “Financial education is good and people always really enjoy it and value it. And the more you can segment that into things that are relevant to the group that you’re talking to, the more well received it is. But it doesn’t immediately have an action impact unless you can link it to an immediate action, and that can be quite difficult.”
Falvey pointed to two surveys her organisation had done recently – one which found that employers thought they offered a good range of benefits, and the other showing employees thought they didn’t get a good range of benefits.
“There is a massive mismatch between what organisations are actually doing and how people appreciate them. So we need more education around why an employee might use those their benefits,” she said.
Punter Southall Aspire managing director Alan Morahan said: “I am concerned for our society, when I look at the level of financial understanding and financial literacy that actually exists – the understanding of basic interest rates and compounding, for example. Sometimes we go into financial education pieces with a level of assumption of understanding that isn’t the reality for many of the people in the room. Even the real basics that we would assume would be there are just not there.”
Beyond pensions
Falvey argued pensions engagement is a particularly difficult nut to crack.
“I’m fed up of talking about engagement. I think it’s pointless, because nobody wakes up in the morning thinking I must engage in my pension. But there are points in their life where they might. So you should aim to touch those points and focus the energies around engagement at moments that matter to people.”
Isio principal consultant, DC, Simon Davidge agreed that the pensions industry’s desire to shoehorn pensions into financial wellbeing conversations risked disengaging people. He said: “We can all be guilty of taking a pensions-centric approach to financial education and not acknowledging that for the vast majority of people, pensions is probably third, fourth or fifth, if we’re lucky, on their list of financial pressures. There is a more fundamental question of whether we should even be encouraging people to pay into pensions if they’ve only got £50 left for emergency savings.
“When you’re talking to employees at the moment, they’re getting bombarded with opportunities from financial education providers and pension providers. There’s a lot of conflicts of interest because some providers really just want to get assets under management and don’t want to put the employee at the heart of what they are doing. We need to be more aligned with their needs in order to be successful.”
Aegon Workplace Investing managing director Linda Whorlow said the challenges with engaging employees on wellbeing outlined by consultants showed that a different, deeper approach was needed. She said: “We aren’t just talking about the narrow world of budgeting and what we have in the bank, but more about our mental mindset and our fundamental relationship with money.”
Dr. Tom Mathar, who leads Aegon’s Centre for Behavioural Research, supported the view that financial education works really well when it is embedded in a wider discussion about what people truly value in their lives.
He said: “This is because it connects more meaningfully with people’s intrinsic motivations. Financial education programmes are typically offered on a voluntary basis. The chances are the people who are going to take these up are the ones who are interested in the subject in the first place. We regularly see this in our employer surveys. If we connect to people’s true, deeper, intrinsic motivations, then it becomes more clear to them why they should join financial education programmes in the first place.
“Financial education programmes are there, so why are people not paying attention to them? There’s all sorts of reasons. Present bias is one reason – we value costs and benefits in the present more than costs and benefits in the future. There are social norms – we are far less likely to do something if we see hardly anyone in our environment do the same thing. And there is optimism bias – ‘I’m sixty four years old and have £125,000 saved in my pension. Perhaps it’s too little, but I’ll be fine’.”
Future self
Mathar said the standout finding from a big behaviour and financial wellbeing study carried out by Aegon last year was that having a long term mental time horizon made a big difference to people’s ability to address their future finances.
“We found that people who have a concrete picture of their future self are far more likely to conduct themselves financially in a way that we would consider advisable.
“They are far more likely to save for the future, they are far more likely to have emergency funds, rainy day funds, and they are less likely to have debt,” he said.
Whorlow agreed. She said: “It is about matching the right financial education with the individual, which means we have to reach members in different ways. Our wellbeing strategy at Aegon is very much focused around behaviours and that call to action – getting people to visualise their future self is one of the key cornerstones of what we do.”
Falvey recounted an experience from earlier in her career where she worked in a startup developing a product for funding future elder care costs.
“Getting people to think ‘that might be me’ was incredibly difficult. This might have been because care carries such a negative connotation in relation to one’s future self. But it’s the same with all these things that look at our older self – it’s not a terribly exciting thing to look at.”
Mathar agreed that connecting with one’s future self was not easy. “Uploading a picture of yourself on an app and picturing your future self with wrinkles is not necessarily cheery. But there is evidence that this helps, certainly in the short term. The data points show those who have seen this were more likely to think about their contribution levels, but as far as long lasting effects are concerned, it is less certain.
Connecting to the future
“What is important is this meaningful and concrete connection,” said Mathar. “Neuroscientific research shows that there’s a part of the brain that enables you to distinguish between yourself and a stranger – this is an important evolutionary ability. Some people, when they think about their future self, activate the part of the brain that thinks of a stranger and some people activate the part of the brain that thinks of themself. This illustrates that some people find it easy to connect meaningfully to their future while other people find it really difficult. So the solution is not just a tool, it’s a wider campaign, something that lasts for a year or more and uses a wide variety of tools, including an ageing app potentially, but also, really questions people on what has given them pleasure and purpose in the past. But there is not a simple tool that can do this.”
100-Year Life?
Delegates at the event debated the influence of presenting people with narratives to shape behavioural change, and reflected on the impact of Andrew J Scott and Lynda Gratton’s book The 100-Year Life.
Morahan gave a personal view of how his own life plans at been shaped by The 100-Year Life.
He said: “It is a book that has had quite a significant influence on me. I have read it twice now and it is shaping how I am approaching my life.
“I realised that I was in real danger of completely burning out from a management perspective. So I took a sabbatical and I view that as an investment. It’s definitely allowed me to stay in the workplace for longer.”
He added that he was lucky to have an employer that would facilitate a sabbatical, and felt he was able to contribute more in the long term as a result of having taken it.
Morahan’s personal story of how he had improved his overall wellbeing by stopping working highlighted the point that while some employers use wellbeing to drive productivity, in some situations the ‘answer’ to the employee’s wellbeing woes could be to stop working for that employer.
Allan said: “It comes down to doing the right thing, and if an environment that you’re in isn’t conducive to your health and happiness, then the only logical answer is to change that environment. Though some people simply won’t have the opportunity to be able to sustain themselves financially doing this.”
Parker said: “I like the idea of this 100 year life, except that there’s a very big portion of that that many of us will have no idea about, which is probably the last 30.
“It feels like we’re trying to go from a very low base to knowing everything in one go, and it would be more sensible to work out what the steps are that you need to take to get somebody from the very low base to that fully engaged or fully informed place.
“Engaging with your future self sounds fantastic. I don’t really know what that means, but help me to engage with my future self for the next five minutes, then the next year, then the next five years. Rather than doing it all at once, have a plan that I can follow if I really do want to engage with my future self.”
Dr Mathar said: “The 100-Year Life was hugely influential, but for many it may be too abstract a concept to actually change their behaviour. I have a friend who is 40, who’s recently gone through a divorce and is absolutely shattered by all the emotional and financial implications of it. To then bring in the notion of a 100 Year Life, I’m not sure that’s going to help.
“The future self, however, is about helping people building that meaningful and concrete connection, this is really important. It’s got to resonate with what people are doing now and what gives them pleasure and purpose. It’s not just about where they are financially in 10, 15, 20, 25 years’ time. It’s also about where they are socially, what they’ll be doing, day in and day out. If they have a concrete and meaningful connection now to where they might be in the future, that will be really powerful in driving behaviour change.”