Debt isn’t just a problem that affects a minority – and it can cause serious health issues, as well as financial ones, finds Helen Swire
Many types of so-called payday loans have gained notoriety for helping people make ends meet at the end of the month – but then steadily bankrupting them in crippling high interest rates when they pay them off.
It would be easy to assume that it is not a problem for most people: but in reality, an increasing number of people are finding themselves saddled with debts – not necessarily of the dramatic and highly publicised payday loan variety, but through ordinary day-to-day expenses: student loans, mortgages, credit cards and so on.
The government is trying to encourage savers to invest in pensions and property through its Help to Buy scheme or Lifetime ISAs: but how can people find the cash to lock away in savings if they struggle to meet their needs on a monthly basis?
Now, this historically private and personal problem is being laid at the door of employers. One reason is that aside from the issue of employees being unable to save into the pension fund that will help them to retire, there is also the increasing problem of financial stress.
An annual survey from consumer lender Neyber has shown that just over 70% of British employees said they were affected by financial worries in February 2016 – up from 65% a year previously. Meanwhile, according to Thomsons Online Benefits, financial worries are the number one cause of stress in the UK, with 10 million working days lost to stress each year.
“The younger generation have grown up in a digital world and they’re used to ‘quick fixes’,” says Heidi Allan, head of insights and engagement at Neyber.
“Because they don’t have financial awareness, when they do have worries, the promotion online of payday solutions show them it’s all about the instant – the credit card, the payday loan and so on.”
“And it’s not just a problem for the young or those on lower incomes,” she adds. “People on higher salaries often also have a greater drain on their financial resources – especially the sandwich generation, with both young and old dependants.”
But just because the problem of debt and financial stress is a common one, that doesn’t mean it’s an easy one to address. It has always been considered impolite to discuss money issues, so with the taboo attached to the concept of debt it can be difficult for employers to help their staff.
“Discussing debt in the public sphere comes with a lot of stigma: that being in debt signifies a failure,” agrees Patrick Fitzgerald, head of partnerships at SalaryFinance. “But the reality is that life is different to what it was.”
However, David Dodd, head of pensions at Thomsons Online Benefits, says that according to Thomsons’ Future of Financial Wellness report, 65% of employees cite financial wellness in the workplace as being important to them.
Rather, Dodd argues, it is that employers are struggling to see how they can fit a financial wellness or debt management programme into their wider benefits strategy, and how they can develop a fit-for-purpose offering for their different demographics.
“Some employers are ahead of the curve,” he says. “These are the ones who have taken the time to understand the needs of their staff and have looked to solve a targeted set of problems through offering convenient and accessible solutions.”
Wiping the slate clean
Developing solutions to help staff members with debt or financial stress can ring alarm bells: employers may feel concerned about taking on potential financial risk. But offering tailored solutions does not entail taking responsibility for an employee’s financial issues.
“It’s not about lots of high-cost benefits, it’s about facilitating options, help and support,” says Allan. “It could be affordable loans, structured savings, awareness programmes, education, support and guidance…even just an initial conversation to empower employees to start thinking about their options.”
Since the pensions flexibilities came into play, there has been a much greater focus on financial education, while the announcement of the Lifetime ISA has thrown light on to other options beyond retirement savings.
Different types of solution
There are now a number of companies on the market that are pioneering innovative products to deal with the root of the problem: the debt itself.
Companies such as SalaryFinance, Neyber and Balmoral Financial can loan employees money to cover their debts, or help them to consolidate that debt, and then pay it back through payroll in monthly instalments. This is a more cost-effective and manageable solution than using an independent payday loan company.
“Employers have understood the need to provide loans in the workplace for a long time – for example through cycle-to-work or season ticket loans to help people manage their travel costs on a long-term basis,” says SalaryFinance’s Fitzgerald.
“There’s precedence for it, but it’s only just being expressed in terms of managing personal debt.”
As the stigma around mental wellness breaks down, financial wellbeing now is the next stage for many employers looking to combat stress and increase staff productivity.
“Ultimately, employers are custodians of their workforce’s wellness, and the need for financial wellness has never been more important,” says Dodd.
“Continuous engagement and technology can act as the platform for proper data-driven tailored financial wellbeing programmes, and can help act as prevention and cure for many employees’ financial pressures.
“Offering a range of savings solutions, together with proper financial education can empower employees to make better financial decisions and to mitigate the impact of debt.”
But can debt management go a step further? While it may be unrealistic to hope that with financial education an employee will suddenly understand why they should be putting money aside and instantly find ready cash to start saving, there is potential for a debt management or consolidation programme to help foster a saving culture.
The first step, according to Fitzgerald, is to use debt consolidation to get employees on to the road to financial wellbeing.
The second step is to make sure they don’t get into debt again.
Workplace debt management companies are now looking into how they can help employees turn their repayments into savings.
SalaryFinance, for example, offers two paths: first, if someone has repaid their loan fully, they can continue to make those deductions into a savings product.
Second, they can choose to pay a little more of their loan repayment each month, with the extra put into an appropriate savings product.
“From the mental health point of view it’s important: people gain a lot of satisfaction by seeing they have savings – and it encourages them to save more,” Fitzgerald explains. “It’s about building it into the repayment mechanic to drive the principle of saving meaningfully.”
Neyber’s Allan agrees – and adds that offering employees this kind of help is making employers stand out for valuing and caring for their staff.
She says: “Providing financial wellbeing and the options associated with that is becoming more and more valuable to people in the workplace. Let’s face it, it’s not about paying more – it’s just about helping your staff to make the most of what they’ve got.”