Financial Wellbeing: The Third Pillar of Health?
The financial wellbeing of workers in the UK has been a matter of concern for many years and the economic fallout of Covid-19 has brought this to national attention.
Yet programmes that try to improve financial wellbeing, at both the corporate and national level, have been characterised by extremely low rates of adoption and negligible impact.
This article explains why workers in the UK have historically lacked financial health and why this matters to employers.
It also outlines what we mean by ‘financial wellbeing’, a concept too often employed without being clearly defined.
Above all, it sets out our conviction that thanks to recent developments in financial technology and regulation, there is now an unprecedented opportunity for employers to achieve greater engagement and improved outcomes from financial wellbeing programs.
Long before Covid-19, a broad range of socio-economic factors in the UK coalesced to establish the ‘new normal’ of financial health we observe today.
In the UK, these are:
Long-term student debt depressing net income at the outset of working life
Responsibility for parental care in old age depressing net income during working life
Interest rates at near-zero levels removing the incentive to save
Depressed wages that remain below 2008 levels for most
A consumerist ‘borrow and buy now’ mentality
These factors have created long-term behaviours that characterise poor financial health. They are:
A lack of financial planning, particularly in respect to saving money.
A lack of defence against unexpected expenses, often called ‘financial shocks’.
A perpetual reliance on debt and high-cost credit.
In the context of the workplace, we would add increased absenteeism and depressed ‘presenteeism’ (productivity) to this list.
One in four workers say they have lost sleep due to money worries. This inevitably contributes to a reduction in concentration and quality of performance at work.
Organisations have been studying ‘financial wellbeing’ for many years, establishing a variety of definitions in the process.
Level draw on research from two organisations in particular: the Money and Pension Service in the UK and the Financial Health Network in the US.
Informed by their conclusions, Level define Financial Wellbeing as:
“The capability to pay bills and cope with financial shocks and the confidence to plan for the future without problems of persistent debt.”
This definition can be broken down into three actionable objectives:
Fixing problems of debt
Changing financial behaviour
Building savings
Financial wellbeing is closely linked to mental health and research indicates a link between financial stress and overall health.
Like other forms of health, it is a long-term habit not a destination. Its attainment requires individuals to develop the correct skills, knowledge and attitudes whilst being able to access relevant digital financial products and services.
Behaviour change is notoriously difficult to effect and employers should be wary of new tools that make bold claims about establishing habits. There are no shortcuts or ‘hacks’, particularly with respect to motivation which waxes and wanes.
The best financial behaviours link action (like contributing to a savings account) to moments of strong motivation (like payday).
Research conducted at the Research Institute of ADP (a US payroll and HR software firm) found that, while banks remain the most trusted sources for money management globally, employers are quickly becoming a conduit for achieving greater financial wellbeing.
ADP’s report found that employees are looking for assistance with financial wellbeing at work and employers that provide staff with budgeting and personal financial management tools can improve both talent acquisition and retention.
Other studies have concluded that financial stress has a significant impact on employee health and productivity in the UK.
Key findings include:
In 2016, the UK economy lost £120.7bn and 17.5m hours to financial stress.
In 2018, 11% of UK workers reported they had experienced a fall in productivity at some point over the preceding three years as a result of their personal financial situation.
The Chartered Institute of Personnel and Development (CIPD) found that money worries were the biggest source of stress for UK employees.
Absenteeism and workplace illness caused by financial stress costs businesses approximately 4% of payroll costs per year.
It is important to note that the attainment of financial wellness is not directly related to salary.
Workplace research has consistently found that an increase in salary does not eliminate stress. In some cases, it simply shifts the focus of stress to another area.
PwC found that, for working people in the US, those earning both more and less than $75,000 per annum most frequently cited not having enough emergency savings as their principal financial concern.
Why have existing Financial Wellbeing programs not worked?
Financial Wellbeing initiatives are not new. But, to date, most programs have failed to deliver the desired results and it is clear that financial stress is rising.
In part, this is because many programs offer little more than retirement education and planning advice which fail to cover key causes of employee stress.
Other common factors are that:
• Programs are inaccessible, often available only via company intranet and on company devices
• Programs are poorly designed with laborious application processes
• Programs are poorly communicated, rarely referred to during induction and onboarding periods
• Programs often consist of a variety of ‘point solutions’ and lack cohesion which is confusing to employees
• Line managers are ill-equipped to act as financial mentors, hence fail to recommend relevant services
Given the range of fintech services now available, it is possible for employers to offer a genuinely holistic financial wellbeing program to their employees.
Using Level’s definition as a schema, this program could offer the following:
Fixing problems of debt:
Access to earned income instead of payday loans
Salary-linked debt consolidation loans
Changing financial behaviour:
Budgeting tools powered by Open Banking, enabling better financial decisions
Automatic switching services (eg. for gas, electricity or broadband) to cut monthly outgoings
Education and advice content from a recognised authority such as MAPS
Building savings:
Salary-linked savings deposits
Prize-linked savings schemes, sponsored by employers
Automated ‘sweeps’ that round up payments into savings
Conclusion
Workers in the UK are facing unprecedented change.
As a society, we have cause to re-evaluate our approach towards the lower paid. Employers are now uniquely positioned to help their employees build a stronger financial future by offering flexible pay, personalised budgeting tools, and relevant financial education.
We believe advances in mobile, regulation, and financial technology will transform financial wellbeing programs in the UK.
Not only can new services remove many of the constraints associated with previous wellbeing initiatives, but they also offer unprecedented levels of information, reach, and privacy.
