Having enough money for a comfortable retirement is important – but it’s not a cure-all. Helen Swire asks how employers can help staff to manage their finances
“Annual income £20, annual expenditure 19 shillings and sixpence, result – happiness. Annual income £20, annual expenditure £20 and sixpence, result – misery.”
So says the perennially debt-ridden Mr Micawber in Charles Dickens’ David Copperfield, perhaps one of the more realistic views of saving to be found in literature. It neither suggests that one can live without money, nor that life without wealth is impossible – merely that a life of living beyond your means will only lead to unhappiness in the long run.
Despite Micawber’s words being printed in 1850, employers have only just begun to place finance and health in the same conversation. Perhaps it is because many are now making the connection between financial worries, stress and anxiety – and the effect on productivity.
The realisation that a ‘financially well’ employee is likely to have fewer sleepless nights, fewer external worries to concern them at work, and the ability to retire at a suitable age, has really hit home with employers in recent months.
Now it is a matter of addressing those barriers to financial wellness. “Financial wellbeing can cover a whole range of things,” says Bruce Moss, founder of financial technology provider eValue. “For the employee it’s understanding their financial situation and what they need to do to improve it, and feeling confident that their finances are under control.”
The words ‘control’ and ‘management’ crop up time and time again in industry definitions of wellness, regardless of what the financial need is.
So wellness could apply to being able to manage finances in the short term (day-to-day expenditure), medium term (emergency funds, for example, for big repairs or household expenditure) or long term (house, children and retirement).
But how do they get to that place, and how can the employer help?
“The focus is moving away from the employer telling their staff what to do and more to empowering people to take control,” says Susie Logan, head of business marketing at Standard Life.
“We can get people to understand the value of the benefits on offer, but financial wellness is a bigger picture: it’s about giving the tools so they can manage their own financial life, regardless of their aspirations and goals.”
Money, ruin and the morrow
So what are the barriers to managing people’s financial life? Well, ‘life’ is the salient word: assuming an employee’s career starts at 21 and ends in their late 60s, we can assume that they will go through the challenges of some, or all, of: student loan, mortgage, childcare, eldercare and retirement.
For a significant portion of the workforce, debt is now a major barrier not only to saving, but also to general wellness.
“A high proportion of middle- or low-earners’ income is taken up by high-interest debt,” says Asesh Sarkar, founder and chief executive of SalaryFinance. “And with less disposable income that makes saving for anything very hard.”
Sarkar describes debt as a “poison in the system”, especially in the case of payday loans that entail extremely high interest repayments and poor credit scores. He says that unless employers can help staff get out of debt, and on to the road of managing what they spend, they will have an increasingly financially unstable and stressed workforce.
The reality is now that even at retirement employees may be using pension savings to shift their debt – a concern originally raised by those critical of the freedom and choice pension reforms – when they may not have saved enough for a comfortable retirement.
“These factors are all causing employees to worry, because until now they haven’t thought about the impact on them or their life plan, and don’t have the knowledge to deal with it themselves,” concludes Jeanette Makings, head of financial education at Close Brothers Asset Management.
However, there is plenty that a conscientious boss or line manager can do.
“Employers need to ensure their older staff are financially able to retire, but there are other areas of investment,” says Moss, eValue. “Life assurance, debt management programmes, modelling tools and robo or expert advice – all these strands add to financial wellbeing.”
A recent survey from Standard Life found that 84% of people across all age groups said that a broad financial education in the workplace was important: from the basics of understanding savings vehicles and general management of finances to the complexities of debt management.
“It’s not just about pension saving – it’s about helping people through the course of their lives,” says Logan. “We also need to focus on the savings needs of young people from the start of their working lives.”
To this end, a proposition growing in popularity is that of working with companies such as SalaryFinance, which helps employees manage debt through low-interest payroll deductions rather than high-interest payday loans. The idea behind this is that, without any employer liability, the employee can start to manage their debt – and, in the longer term, their savings.
SalaryFinance’s Sarkar explains: “Our aim is helping people to get control of their finances, so through our debt consolidation product, we’re suggesting that when they’ve paid their debt, they continue to deduct that amount into a savings account.”
Beyond this specific help, employers often don’t realise that they already have many of the tools in place in their benefits package to start helping employees to save: share schemes, discount vouchers, gym membership, healthcare and so on.
This is where financial education comes into play, according to Close Brothers’ Makings: “If employees aren’t joining the dots on putting away the savings they make from their benefits, that’s where they need education: it’s the signpost that shows employees how to use their benefits to reduce their outgoings and build up savings.”
Employees might not have the threat of the debtors’ prison hanging over them as Dickens’ Micawber does. But the stress of mismanaged finances or lack of savings can trap them in a vicious circle ongoing even until retirement.
In helping take away this stress, whether through debt management, financial education, pension modellers and so on, employers are also empowering their staff to take control of their money.
“Businesses will reap the benefits through lower absenteeism and higher productivity,” Standard Life’s Logan says. “And they will engage and retain staff who feel supported through their challenges, concerns and big life moments.”