LEADERSHIP INSIGHTS

Teaching your staff personal finance skills

Personal financial skills can help staff wellbeing and your business

Paul Snell
Head of Leadership Foundation Programmes | Thu 05 Aug
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Teaching your staff personal finance skills

76% of employees are living paycheck to paycheck. 62% of employees say paying monthly expenses is their biggest financial concern. 51% of employees consistently carry balances on their credit cards.

Why is financial literacy so important?

Data from the OECD shows that the UK lags behind many other countries in terms of levels of financial literacy among its adult population, ranking 15th out of 30 countries. But does that matter? After all, money can’t buy happiness, as they say. Well, that is not entirely true, research has shown that Millennials know so little about their finances it ‘significantly worsens’ their mental health, with the average Mental Wellbeing Score – which measures 14 key aspects of a person’s wellbeing - dropping by more than 37% between people with the highest financial confidence and those with the lowest. With over one-in-five young people saying they are worried about their financial situation, this is clearly something we need to be concerned with.

It isn’t just younger people suffering from these challenges either, as research recently carried out by Aviva shows: Almost 80% of 45-54 year olds worry about the level of debt they have accrued, with one-in-five saying they worry about it ‘often’ and more than one-in-ten worrying about it ‘all the time’. While a quarter of this group speak to their spouse about their money worries, alarmingly another quarter do not talk to anyone at all about it.

When you’re stressed about money or living paycheck-to-paycheck, it’s hard to focus on anything else, it causes anxiety, depression and can turn into a vicious cycle. The more concerned you are about money, the worse your mental health, and the worse your mental health, the harder it is to successfully manage your money.

Financial literacy, resources and support can break this cycle and make a huge difference in a person’s life.

What affect can ensuring your staff are financially literate have on employees and your business?

As an employer, having employees who are worried about money is bad for business. Implementing a program to support your people through financial decisions, life changes and the journey to retirement can improve general staff wellbeing, morale of the office and as a result team and organisational culture.

Multiple national surveys have documented that the number of employees experiencing financial stress is increasing. This pressure and stress can lead to staff absenteeism, presenteeism, staff turnover, and health-related costs, all contributing to reduced employee productivity. As well as the human wellbeing impact on your employees, these hidden costs can seriously impact business profitability, with some experts estimating that these combined costs can total as much as 15% to 20% of a company’s total compensation paid to its employees. Reducing these events and their associated costs even by 5% to 10% can result in considerable cost avoidance, improved productivity, and increased profitability.

On another note, studies have shown that around 70% of managers in businesses are unable to pass basic financial-literacy exams. This financial illiteracy in the managerial ranks can be a crippling weakness for an organisation. Those who can’t speak the language of business can’t contribute successfully to a discussion pertaining to performance, they are also unlikely to advance in the business hierarchy. They may also be caught off guard by unethical financial practice or fraud, and be surprised when there are requirements for redundancies or restructures.

How can your organisation help support staff financial wellness?

Every company needs a program to help their employees understand their financial situations and make educated decisions regarding their futures. However, this should never be a one size fits all approach. Gender, age and socioeconomic and educational background can all affect an employee’s financial situation so, as with other support provided to employees, we need to ensure we have an individualised approach to supporting staff with financial literacy.

Dearing (2019) supplies seven principles to think about when setting up a programme to help support your employees:

     
  1. Education alone is not enough: Education around financial literacy alone will not inspire behavioural change, which is required for financial success.
  2.  
  3. Personalisation is key: People will engage with a solution when it feels like it’s about them and their situation.
  4.  
  5. Privacy matters: Money is a sensitive subject that is difficult to discuss, especially in a group setting. Support resources need to empower participants without fear of judgment.
  6.  
  7. Take a holistic approach: Support resources must include a participant’s full financial picture to ensure the most important issues are identified and addressed. It is important to talk about pay slips, tax and other work-based financial elements, but we need to take into account the complete list of an employee’s income and expense requirements.
  8.  
  9. Behavioural change is essential: Utilise principles of behavioural change science for successful habit forming and decision making. Peer support, positive attitude, providing small goals, a step-by-step approach and supporting regular accountability are all key.
  10.  
  11. Technology helps remove barriers to action and change: Accessibility is key for reaching individuals, offering self-paced, actionable advice in the moment employees need it. Learning to deal with money should be gamified; It takes considerable effort to present complex financial principles in fun, friendly, relatable scenarios, but this is key to success.
  12.  
  13. Remember the human connection: Although Technology is useful, remember financial stress is a highly emotive subject and therefore a truly human discussion with advice, support and supplying accountability is important to success.

As employers, we can encourage employees to take the time to understand their financial situation: proactively analyse their current situation, then help them budget and plan. We can set up online financial well-being sessions, support with setting goals for paying off debt or saving, as well as highlight employee benefits regularly to ensure staff understand how their health, childcare or paid time off benefits work. However, helping staff to take the first step on this journey may be as simple as signposting them to the right support, especially if they do not feel comfortable talking about this with managers or colleagues.

Signposts to some support:

Sources:

 

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