People across society are facing increased financial wellbeing challenges. But the challenges different individuals face and the solutions to their problems vary considerably. A segmented and personalised approach to employee communications, engagement and financial wellbeing is therefore needed to improve outcomes for UK employees.
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That was the view of delegates at a Corporate Adviser/ Aviva round table discussion, ’Harnessing digital to move money mindset’, where they explored the way factors such as age, gender, income, family, and culture impact people’s finances in different ways.
Defining financial wellbeing
Different definitions of financial wellbeing exist across the intermediary sector, but all at the event agreed that whatever terminology is used, it is crucial that it does not alienate the recipient. XPS head of DC Sophia Singleton stressed that financial wellbeing extends beyond the paycheck.
She argued that using the word ‘wellbeing’ was problematic because it could come across as patronising or overly optimistic. “It’s about acknowledging the tension between how one feels and their financial situation,” she said.
The conversation delved further into terminology preferences, with some advocating for terms like ‘financial health’ and ‘financial confidence’ over ‘financial education’, which delegates agreed can be condescending to members.
According to Aviva’s head of workplace client engagement, Laura Stewart-Smith, the provider defines financial wellbeing as “how an individual feels about their financial situation,” indicating its subjective nature and the importance of personal perceptions.
Others offered alternative perspectives, suggesting terms like ‘financial stability’, ‘security for today and tomorrow’ and ‘financial resilience’ to describe financial wellbeing.
Capita Pension Solutions director of pensions policy Anish Rav said: “I think it’s better to say it’s understanding your financial picture, because wellbeing suggests that it’s well, and for some people, it’s not going to be well.”
The discussion highlighted the importance of knowledge, and resilience in achieving financial wellbeing. Delegates underscored the importance of stability and understanding in financial management, acknowledging that financial wellbeing is a journey rather than a static state.
“For a lot of people, it’s a journey. It’s not a situation where you’re at a particular point in time and you’re trying to get to this other point. It’s all the bumps in the road that you have to endure to get from point A to point B,” added Rav.
Empowerment
Quietroom development lead Joe Craig emphasised the importance of initiating dialogue and building trust through asking questions. He distinguished between broad, all-employee surveys and in-depth questioning of smaller focus groups of staff. He also highlighted the value of open-ended questions in surveys, as they give room for employees to expand on what they truly think.
He said: “The simple act of asking people about their finances can empower them and shed light on areas needing improvement.
“The first really powerful thing is the act of asking as this builds a relationship of trust.”
This approach can provide valuable insights into consumer perceptions and understanding. Craig emphasised the need to understand individual perspectives on financial stability. He cautioned against assuming that education alone leads to empowerment, stressing the importance of personalised approaches that focus on how individuals feel about their financial futures.
Employer’s role
Delegates discussed the multiple objectives of employers: reducing stress and increasing productivity while supporting employees’ financial wellbeing. They explored the balance between paternalistic approaches and genuine support, acknowledging the complexity of addressing employees’ financial concerns effectively.
At the same time, financial wellbeing initiatives also play a role in attracting and retaining top talent. Employees increasingly consider benefits beyond pay, including financial wellbeing support, when evaluating job opportunities and considering switching employers.
EBC Collective partner Paul Forde said: “For a number of employers, it’s difficult to get really good people on board because there’s an expectation level now that maybe wasn’t there pre-lockdown. We see people who are looking to move from one employer to another but have a real consideration of the benefits they may lose by switching.
“It’s not just about pay in terms of financial wellbeing, more there are other parts to the equation now that employees are considering. If they’re looking to move and they see an employer who doesn’t have that structure in place in terms of financial wellbeing support, it might alter their decision-making process.”
Segmentation
Different circumstances demand different approaches to financial wellbeing as factors such as divorce, low pay, housing and the financial strains of raising children create particular challenges for individuals.
Delegates noted that financial wellbeing fluctuates throughout life stages, with significant disruptions often occurring during major life events. Employers recognise the importance of recognising diversity factors within segmentation of financial wellbeing support, particularly when combined with the specific challenges faced by vulnerable groups such as single parents and caregivers.
Stewart-Smith noted some groups face specific challenges. She said employers need to look at tailor-made solutions to address these problems. This may vary from employer to employer, or in some cases involve employers targeting different solutions to different parts of their workforce.
She said: “Considering diverse pockets and types of financial situations is crucial. For instance, individuals facing divorce, low pay, or the financial strain of raising children may have vastly different needs and challenges.”
LCP head of financial wellbeing Heidi Allan said: “Furthermore, some groups, like those with high debt or in hospitality, face particular challenges. For instance, while payroll lending may not be ideal, options like Wagestream can provide relief for those living paycheck to paycheck.”
Allan raised the issue of financial literacy gaps, highlighting an example of a woman who, lacking an understanding of progressive tax, avoided a pay rise by reducing her hours worked, thinking she would be taxed at a higher rate across the entirety of her income once she passed the higher rate taxpayer threshold.
She said: “We also need to address financial literacy gaps. Creating safe spaces for discussing financial matters is essential, especially for senior staff who may feel embarrassed about their lack of financial acumen.”
High income challenges
According to Allan, individuals earning between £70,000 and £100,000 annually are facing a significant financial squeeze, caused by high debt levels, minimal savings, and for some the burden of supporting both younger and older generations.
Research from LCP reveals that those in this “sandwich generation” are struggling to cope, and that their problems are being exacerbated by rising living costs.
She said that, surprisingly, some in this group are turning to payday lenders and loan sharks due to limited access to traditional borrowing options. Adding to the challenge is the reluctance to seek help, especially given their professional responsibilities as senior figures within organisations.
Allan said: “It’s really difficult for them to open up and ask for help, especially if they’re looking after a budget or a profit and loss account within a business.”
Housing
Aviva’s director of workplace savings and retirement, Emma Douglas brought attention to retirees and their financial challenges with housing costs. She cited a study conducted by the Pensions Policy Institute, sponsored by Aviva, which used the organisation’s pensions framework facility to highlight the very significant financial challenges faced by the growing number of people paying for housing into retirement.
The PPI study covered mortgage payments, private rentals, and social housing. The research results highlighted the financial burden placed on retirees, who need to find at least £14,400 a year to fund a basic standard of living, before housing costs, according to the PLSA retirement living standards.
Douglas said this could potentially lead to a shift towards multi-generational living arrangements due to unaffordable housing costs, reminiscent of past societal structures.
She said: “Looking at the PLSA retirement living standards, your minimum is £14,400 for a single person, £22,400 for a couple, with no housing costs.
“Rent is around £8,000 a year extra on average, nationally, or £14,000 a year extra if you live in London, for a single person. There is a danger people will be flat-sharing in their 70s.”
Singleton highlighted the importance of employer support in mitigating housing costs for the workforce and promoting homeownership to employees.
She emphasised the need to incorporate housing wealth within retirement planning, saying: “because of the inadequacy of savings we have in pensions, people are going to have to use their homes as their future pension.”
She stressed the need for the housing market to adapt to this shift, advocating for individuals to own their homes by retirement age to secure their financial stability.
Dashboard
Douglas highlighted the importance of financial dashboards, which, rather than focusing solely on earnings, could reveal other substantial information.
She said: “We must acknowledge that financial wellbeing is more than just how much one earns. For instance, a dashboard could reveal concerning trends in pension readiness, especially regarding housing costs into retirement.”