3 techniques that are most effective to get staff to change their financial habits

Money can have a huge impact on mental health, influencing stress levels, and our ability to focus or make decisions. In fact, 34 per cent feel their financial situation negatively affects their mental health². And when it comes to work, a quarter report that worries over money have affected their ability to do their job³.

The science of decision-making
By creating positive financial habits we can help improve overall financial wellbeing. To do this we need to understand how people make decisions that affect their financial situation. And this lies in the field of behavioural economics, which pulls together psychological, cultural and social factors with economics to study the decision-making process leading up to an economic outcome.

One particularly interesting area of behavioural economics is ‘nudge theory’. Nobel prize winner, Richard Thaler’s concept refers to a subtle shift that encourages people to make decisions that are in their best interest. The idea is that it makes it easier for people to make decisions. Opting out of organ donation, tweaking government tax reminders, and e-cigarettes are all examples of how we are ‘gently nudged’.

Auto-enrolment pensions
A great example of ‘nudge theory’ in workplace practice is the auto-enrolment pension. Introduced in 2012, and requiring employers to enrol all employees into a pension scheme, auto-enrolment was the government’s response to worryingly low pension savings across the private sector.

By making pension saving the default, it simplifies an individual’s decision in that all they have to do is leave if they want to; rather than making more complex decisions about joining a pension scheme, that they might not understand. And it has worked. Even though employees can opt out of the auto-enrolment pension, the ONS’ latest count of pension participation was 73 per cent of UK employees in 2018, up from 47 per cent in 2012 when auto-enrolment began⁴.

Other ways to encourage good financial habits
Aside from auto-enrolment, there are a number of other ways an employer can encourage better financial habits among their workforce:

1. Matched savings: Some companies offer matched savings schemes, where employees can save a percentage of their pay, and at the end of the scheme, those savings are matched by the company. Every employee will have different financial priorities; funds could be put towards paying off student debt, saving for a first home, or topping up pension savings.
   
   
2. Financial education: Many services exist that offer financial education for employees. Learning how to better manage money is an important step in helping staff improve their financial habits. This can cover everything from debt advice to budget planning. The Money Advice Service provides a useful guide.
   
   
3. Help with health costs: Costs for health treatments can be significant. Health benefits like health cash plans offer money back on treatments, such as dentist visits, optician appointments, and physiotherapy treatments. This can help to ease expensive costs for healthcare and in some cases, provide greater access.

Good financial habits are crucial for better financial wellbeing. Behavioural economics provides a great first step to understanding how people make their financial decisions, enabling organisations to help employees achieve an improved financial situation, and a more stable future.

This article is provided by Simplyhealth. 

References 

1. Willis Towers Watson 2017/2018 Global Benefits Attitudes Survey
2. Business in the Community Mental Health at Work 2018 report
3. CIPD/Close Brothers Employee Financial Well-being research report 2017

4. Pension participation at record high but contributions cluster at minimum levels, ONS, May 2018 

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