Falling inflation, rising wages and the whiff of an interest rate cut suggest the worst of the cost of living crisis is behind us. But with the Financial Conduct Authority’s research showing that 7.4m people are struggling to meet financial commitments — albeit down from 10.9m in January 2023 — workplace financial wellbeing remains a priority.
While the economic picture may be improving, Alana Rae, financial wellbeing leader at Mercer, says the reality is very different. “Prices are still rising. Private rents have increased significantly and more than a million people will see their mortgage payments increase when their fixed deals come to an end this year,” she explains. “All these factors mean real income has dropped and a lot of people are struggling financially.”
Economic snapshot
The FCA’s findings are mirrored in other studies. Research conducted in February for Wealth at Work found that making ends meet remains a pressing issue for many people, with 22 per cent of workers borrowing from friends and family in the last year, 20 per cent taking on more debt and 11 per cent taking on an additional job.
Meanwhile, Nudge’s 2024 Global financial wellbeing report highlights the fact that, for some, things are improving. It found that 60 per cent of employees feel hopeful about their finances, an increase of 11 percentage points on last year.
However, a significant proportion are still concerned about their money, with 46 per cent saying they’re anxious, down from 50 per cent a year ago. “The gloom of the last couple of years is lifting but people are still struggling,” adds Tim Perkins, co-founder and CEO of Nudge. “It’s an opportunity for employers to support their employees’ financial wellbeing.”
Financial effects
There’s certainly a good argument for employers to do more. Worrying about how to pay the bills can affect an employee’s mental and physical health, with knock-on effects in the workplace.
This is shown in the Wealth at Work research. It found that 38 per cent of respondents had seen their performance slip at work due to stress caused by their finances. Jonathan Watts-Lay, director at Wealth at Work, says: “Money worries do spill over into the workplace. A fifth of respondents admit it led to reduced focus and concentration and 9 per cent say it meant they took more days off sick.”
Where employees are struggling to meet their bills, there’s also the potential for employee benefits to be cancelled to boost pay. This strategy may help in the short-term but could have serious long-term consequences.
Pension pinch
Take pensions as an example. Rae says that although she hasn’t seen any data showing that a significant numbers of people are opting out of pensions, this may be masking lower contributions. “Someone starting out in their career, where meeting monthly bills may be more of a challenge, might not be paying in as much as they should. Similarly, someone in their fifties could be considering delaying retirement as they need to build a larger pension,” she explains. “Only time will tell.”
As well as affecting an individual’s standard of living in retirement, these actions could be felt across the workforce. By delaying retirement to top up their pension, workplaces could stagnate as opportunities for younger employees evaporate.
Money matters
Against this backdrop of money worries, lower productivity, and poor financial outcomes, there is a positive. Employers are now eager – and expected – to provide financial wellbeing support.
Perkins says the surge in mental health support, especially during the pandemic, has helped to break the taboo around financial education. “Employees are much more open and accepting now. This has been helped by the growth in working from home, which blurs the line between an employee’s work and personal life.”
Whether driven by a sense of paternalism or an awareness of the effects of reduced productivity on the bottom line, employers also accept that they have a responsibility to support employees’ financial wellbeing. “Employers recognise they need to do more,” says Watts-Lay. “Our research across large employers found that 53 per cent were planning to increase their financial wellbeing spend and around two-thirds are either already or planning to offer financial coaching, education or advice.”
Programme evolution
As financial wellbeing has become a natural extension of existing workplace programmes, the type of support offered has evolved. “It’s more strategic now,” says Johnson Fleming’s regional director Martin Parish. “There isn’t the same urgency in financial wellbeing as there was 12 to 18 months ago when we were in the depths of the cost of living crisis. Many people are still struggling but employers are increasingly looking to provide information and education that helps to change financial habits.”
Employers aren’t afraid to go back to basics either. Rae says financial illiteracy is far too common both in the UK and globally. “We’re not taught the basics and there’s an awful lot of assumed knowledge,” she says. “Financial wellbeing needs to go back to basics to educate employees and give them the confidence to manage their money.”
Delivery dynamics
This demand for education has also seen a shift in the way financial wellbeing is delivered. Rather than cobbling together a programme in collaboration with their employee benefits companies, employers are outsourcing to independent providers. “A lot of the early services were a bit wolf in sheep’s clothing, pushing products or their own agenda,” says Perkins. “Employers are now much more focused on delivering a service that improves financial literacy across the workforce.”
He’s also seen a shift in the workplace interface. Where financial education was typically arranged by HR 10 years ago, more and more organisations now have a dedicated financial wellbeing team.
Changing behaviour
Delivering a financial wellbeing programme that drives behavioural change isn’t easy, given the range of financial circumstances across a workforce. Because of this, Rae recommends surveying employees to understand the nature of the problem. “Finances are still very taboo but an anonymous survey can give insight into the support employees need,” she adds. “This ensures the organisation uses its spend as effectively as possible.”
Greater use of technology also makes it easier to deliver more effective financial wellbeing support. Parish explains: “Technology has made a big difference. Content can be personalised, with nudges and triggers used to prompt people to change behaviour.”
Perkins agrees. His platform uses behavioural psychology to deliver personalised financial education. “We use gamification but it’s also important to deliver relevant content at the point the employee needs it and in a way they want,” he adds. “We also integrate an organisation’s employee benefits onto the platform: if an employee is looking at family finances, it makes sense to flag the benefits they can get from their employer.”
Critical culture
The other critical component is the workplace culture. As this can drive engagement with an employer’s financial education programme, Rae recommends looking at additional ways to help employees financially. “I’ve seen a lot of accountancy and law firms offering more flexibility,” she explains. “Being able to shift your working hours or work from home can really help with childcare costs.”
Communication also feeds into this culture. By improving communications, especially around benefits such as cycle to work schemes, childcare and car leasing that can help employees financially, it demonstrates an employer’s commitment to the workforce’s financial wellbeing.
As the UK workforce continues to recover from the squeeze of the last couple of years, employers are finding ways to support their staff. By taking a more strategic approach, employees will have the financial resilience to weather the next financial crisis.