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What is financial wellbeing and why should employers care?

A couple of months ago, we touched on the topic of financial wellbeing, based on a CIPD report that illustrated concerns employees have about personal money matters and what employers can do to support them. The overall suggestion was that poor employee finances are a significant risk to business performance, similar in principle to poor employee health, and - call it a moral duty or just good business sense – employers should be offering some support.

Now let’s delve a little deeper…

A financial wellbeing strategy rests on more than just providing information

Yes, knowledge is important. Essential, even. But it doesn’t automatically make things better. Actions (based on knowledge) do that and any strategy should be aiming at achieving financial wellbeing not just pointing in its general direction. That means supporting employees who need it to change their behaviours around money – their attitudes to spending, borrowing, and saving.

Why should employers care?

We previously looked at impact of a lack of financial wellbeing on the employer’s business (absenteeism, reduced efficiency, falling productivity) but what about the employees themselves? According to a recent CIPD article, around two-fifths of people are sufficiently worried about money to have sleepless nights, suffer from depression, and experience anxiety and panic attacks; they’re also more likely to have problems concentrating at work and turn in work of poorer quality. Finally, they’re also more likely to be on the lookout for another (better paid, presumably) job.

The features of a financial wellbeing strategy

Money problems tend to take the shape of a downward spiral – the worse somebody’s financial circumstances are, the worse they’re likely to get. With any strategy such as this you’re aiming to reverse the spiral. The goal is to help people balance their income and expenditure, build savings, reduce debt, and therefore reduce the cost of that debt, which in turn helps shift the balance of income and expenditure. Some of this requires an attitudinal change (facing facts, building resilience when presented with problems) and some stems from specific actions (e.g. maintaining regular debt payments, to reduce debts and improve credit ratings).

A core financial wellbeing strategy would at the least include:

  • The basics of money management – Including essential and non-essential expenses, how to reduce bills and living costs, searching out better deals, etc.
  • Understanding debt – Not all debt is bad. A mortgage is often the only way to buy a home (still cheaper than renting) and is a stable, low-cost form of borrowing. As opposed to store cards…
  • Saving – What finance-related benefits do you offer as part of your compensation package? Any? None? For example, retail discounts, are people using them? And if not, why not?
  • And what about pension provision? Are your employees planning for retirement or are they on a ‘live today’ philosophy? Are they taking full advantage of whatever pension’s packages or contributions-matching deals you are offering?
  • Education – Finally, yes, action is the deciding factor but knowledge is still necessary. Whether in-house or through one of the market’s many third party providers, there is plenty of personal financial training available.
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