The impact of Covid-19 on workers’ finances has become a growing concern for employers this past year.
Data from UK Finance, the trade body, showed that almost four million payment holidays were agreed on personal loans, mortgages and credit cards among those whose income was disrupted last year 1 2.
Because work is the thing the majority of adults spend most of their waking hours doing, as employers we must take the time to understand any difficulties workers are encountering. Much more than this, since we already provide their salary and pension plan, we are in fact uniquely placed to engage employees with other aspects of their finances and to help those who may continue to struggle financially. Financial wellbeing should therefore form a crucial part of the overall wellbeing strategy over the next 12-18 months.
While financial education might generally be considered a topic for schools, confining it to the classroom puts a potentially damning problem into a cosy little box and pushes it into the long grass.
It can be hard to know what the strategy should look like as each employee will have different needs, but covering the three core pillars will create much- needed enthusiasm around the prospect of personal finance management and help you understand where additional support may be needed to help them achieve true financial security.
Creating financial foundations
There’s no point someone learning how to use trading platforms and buy shares if they don’t know how to set a proper budget or haven’t set financial goals.
Look at providing sessions – either internally or externally depending on available resource – to ensure employees learn how to create and maintain a budget. Ultimately you want to give people a prerequisite to establishing a financial goal, be that building a savings buffer, paying off debts, buying a house or saving for retirement.
Building these core behaviours is crucial and will help uncover where knowledge gaps lie.
Creating financial futures
Next is getting people ready to start building wealth and providing independence for them and their families. Though everyone’s circumstances will be different, most employees will be somewhere on the timeline in figure one.
One of the key things for most people will be the journey to homeownership, which can be an incredibly daunting process. Consider running sessions offering education into how to go about buying a house, as well as the different secrets and myths.
Protection is also important, and employees should be aware of what insurance products they need for their situation. You want to get your employees to a point where they’re comfortable considering questions such as ‘how can I ensure my income, property and family are covered?’ And ‘how much do I need to cover myself?’
Many people won’t have thought about protection in any kind of detail before, but helping them understand the importance of having that safety net could drive people to seek that reassurance in their financial position for the first time.
Finally, think about retirement savings. As a minimum, all employees should have a basic level of understanding around how much income is required to fund their desired retirement, as well as the need for continual reviews throughout the accumulation phase.
Attaining financial security
This final pillar is all about helping people hold onto the wealth they’ve created. Retirement income is a big one here, so look at moving the pensions conversation on to cover the different risks involved – for example rising inflation and investment risk.
Legacy planning is also key – think anything concerning wills, lasting power of attorneys, or whole of life protection. While these things might not seem important now – particularly to younger employees – early education is absolutely essential to helping people develop a long-term plan they feel confident in and in control of.
Following this framework will help people understand that no matter how old they are, or how much they earn, we all have capacity to better our finances. This is so important to building financial wellbeing.
Importantly though, it provides employers with vital intelligence on where any benefits budget should be directed. So if it’s clear some of your employees are struggling to budget, could vouchers towards their weekly shop be a good idea? Equally, if your employees have been able to make extra savings while working from home, offering perks like free financial advice could help them maximise their new financial position.
Money doesn’t buy you happiness, but it does provide the freedom to do the things you want to in life. More than ever, having the tools, support and mechanisms in place to help alleviate any worries is key.