Financial education makes sense

12 March 2018

This article was featured in the April 2018 issue of the magazine.

Alan Morahan, managing director DC Consulting at Punter Southall Aspire, explains that boosting employees’ financial education could lead to a happier and more engaged workforce, and it’s also something many employees would favour

Research (http://bit.ly/2qsTpkj) last year found that almost three quarters (76%) of employees think improved provision of education about financial matters would help them to cope with ‘life issues’ such as retirement planning and saving towards a deposit for a property.

With automatic enrolment rates set to rise in April 2018 and 2019, there has never been a better time for companies to look at providing financial education.

The automatic enrolment minimum rate increases from 2% to 5% of qualifying earnings. Employers will pay at least 2%, with the remainder paid by the employee. Currently, employees only need to pay 1% so this represents a notable increase in their contributions. 

This minimum rises again on 6 April 2019 to 8%. Employers will pay at least 3% and employees the remainder.

This is a significant jump for many employees, especially those already on tight budgets. Given the choice between less money in their bank account today, and more money in thirty or forty years’ time, some employees will want to leave their pension scheme. 

 

...more companies are delivering financial education... 

 

To prevent this, employers will need to improve pension awareness and engagement and discussing the importance of pension savings is a good route into talking about wider financial issues.

There is more recognition that financial stress is a growing workplace problem. The scale of the issue was highlighted in a recent report by the Chartered Institute of Personnel and Development (http://bit.ly/2iwaNlT) which found that one in four workers claimed money worries affects their ability to do their job. For younger employees, the situation is worse, with a third of those aged between 25 and 34 saying money worries have affected their work. But what exactly can companies do to ease this growing problem? 

A growing number of UK companies are rolling out financial education programmes in recognition of the increasing financial stress experienced by their employees. In fact, according to Employee Wellbeing Research 2017: The evolution of workplace wellbeing in the UK – a report published by Punter Southall Health & Protection (http://bit.ly/2HU9FmL) – almost half of companies (47%) now include financial education or guidance in their wellbeing strategies. Of those that don’t, more than a quarter (27%) plan to add financial education or guidance to their health and wellbeing strategy over the next twelve months – a 57% increase from the previous report – and almost half (49%) said they plan to do so in the next few years.

The fact that more companies are delivering financial education as part of their wellbeing strategy demonstrates they no longer assume it is their employees’ responsibility alone. Organisations are recognising they have a role to play, too.

When employers are considering introducing a programme of this kind, the first step is to understand the demographics of their workforce and their financial needs. What will be challenging one group won’t necessarily be challenging another, and it’s important to develop a programme that is relevant for each. For example, a person earning a high salary without the skills to manage their money can end up in financial difficulty, while someone on a low salary might be good at finding a way to make ends meet and stay out of financial trouble. 

Organisations also need to decide on the best delivery method. Most employers will use a mix of methods from face-to-face seminars, one-to-one sessions and web-based seminars, as well as online tools and modellers, and printed material.

It’s important to ensure content is accessible. For many people the world of financial services, even at its most basic level, is shrouded in mystery and jargon. There is often an assumption of understanding, which is simply not there in many cases.

Companies should always assume a low level of understanding and build from there. There are plenty of organisations that companies can seek advice from when developing material, such as the Money Advice Service and Pension Wise.

The Money Charity also provides education, information and advice on money matters in an appropriate way for young people and adults, which can include workplace workshops. The Money and Mental Health Policy Institute is another useful organisation producing some interesting material.

For most people, financial wellbeing is not about great wealth or riches – the goal is financial stability and the ability to sustain a pitfall or two along the way. It’s not so much about how much money someone earns, it’s about the use of money.

Financial education can give employees at all salary levels the tools and resources they need to better manage their finances, which in turn can help employee engagement, improve productivity levels and reduce absenteeism.