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16 Jan 2019

How to boost employees’ confidence in their financial literacy and help them make money decisions

There is a growing body of research that points to the responsibility employers have in helping their employees with their financial wellbeing. In addition, more and more, employees are wanting and expecting this kind of support in the workplace. The key to building confidence in employees’ financial literacy is understanding where they are on their wellbeing journey, getting them to be honest with themselves and arming them with the education they need to make better, informed decisions. 

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1. Prepare your workers for the future

There is a big misconception that most employees are tech-savvy, and, while this is often true for younger staff that have grown up with tech, where the rest of us have had to adapt to it there is an assumption that this means employees are going to be familiar with robo-advisors and cryptocurrencies. In fact, the research1 shows they are mostly unfamiliar with these, or just don’t care about them. Their real desire lies in the basic, practical financial education that they haven’t received before joining the workforce. 

It’s incredibly important that we improve the financial literacy of our workers below a certain age in particular, because for many of them, their financial situation may change significantly in the near future. There is a big inheritance boom2 incoming, and it’s crucial that we equip employees with the knowledge they need to make good financial decisions with this money. Especially as many don’t have the pension provision they would like, and are relying on inheritance to fund their retirement. 

Another crucial piece of financial literacy that many workers are lacking is understanding the process of buying a home. It’s reported that around a third3 of new home buyers in the UK last year didn’t check their credit rating before applying for a mortgage. Considering this will have a big impact on whether a loan is accepted or not, there is clearly some basic knowledge that isn’t being taught. Getting on the property ladder may also be more significant than just putting a roof over your head. One of the largest wealth studies4 revealed owning a home is one of the largest predictors of later-life wealth. So even if employees aren’t interested in purchasing property, the education on how it works can lead to developing better financial literacy. 

2. Understand their upbringing 

One frequently overlooked element of financial wellbeing is the impact5 that genetics and upbringing can have on people. Much of our attitude towards money is inherited, or at least impacted by our upbringing. This means that certain employees may have to put in more effort than others to form good financial habits. 

Having parents who own, rather than rent, makes people considerably more likely to be a homeowner (even allowing for factors like location and earnings etc.). Similarly, having parents who saved to buy can make individuals increasingly likely to do the same.  

Growing up in a household that struggles with budgeting or saving can make you significantly more likely to follow the same patterns. Employers need to ensure that they make no assumptions about their employees’ levels of financial understanding, as many will be approaching this education with very different perceptions and experiences. 

3. Stop borrowing… 

While this may seem like basic advice, employees won’t solve their debt problem by borrowing more. Seeing all of their credit cards or payday loans paid off can relinquish some worry for employees, but unless we change their views of debt and money, it can be all too easy to slip back into debt. It’s very easy to offer your employees a free benefit that consolidates their debt, and this has become a popular financial wellbeing approach. However, we know that unless we change attitudes to money and improve financial literacy, employees can easily run up debt again, leaving them in a potentially worse situation than before. We can see how easily this happens in the book ‘Scarcity’ where researchers paid off the debt of vegetable sellers in India only to see them quickly get back into debt. 

Stop borrowing is also the number one piece of advice from Money Saving Expert, Martin Lewis. It can be incredibly tempting to ‘tidy up’ debts into one easy payment. The desire to feel more in control, to see everything in one place. But employees need to think about whether this is right for them; and employers should encourage them to consider this carefully by providing additional education support well ahead of offering payroll loans. 

Encouraging employees to first take the time to work out how much they can realistically pay off (regularly), and how long this will take, can really boost their confidence by being able to picture a future without this debt. This method also allows people to play with monthly repayment figures – they might find paying more each month can reduce the length of the overall plan significantly. 

4. Start budgeting, saving and insuring

There are many ways to budget – some like using a physical transaction book, others file receipts, use a phone app or maintain a spreadsheet. Share these methods with employees and encourage them to find the way that works for them, and to stick to it. There’s tonnes of free apps out there which can round up your expenses or show you spending habits. We should encourage their use. 

Next, employees should start saving (and start small). It doesn’t matter how much, it can be £1 a month; the principle is to begin building good habits. Contributing to your savings regularly, in any amount, is an excellent route to creating a financial cushion. As employees see this pot grow, so will their confidence. 

Employers should also focus on the employee benefits that they already provide to employees. Pensions and protection insurances are still grossly misunderstood in the UK but can really help to prevent future financial problems. Employees associate pensions with the workplace and it’s a great financial product to use as an example of how things like compound interest and investing work.  

We also expect employees to read pages of conditions, key facts and policy documentation. This can be very daunting. Nearly 12 million6 Brits would rather choose the cheapest insurance policy than spend the time to understand which is best for them. In 2018, 1 in 4 people admit to signing up to financial products without fully understanding them. Employers have a responsibility to ensure the products they already offer in the workplace are understood and used to the best of their ability. Think about how you present this information to your employees and ensure it’s communicated in an easy-to-digest way that is accessible to all types of people.

5. Teach the basics 

As mentioned in point one, workers are asking for more financial education. Studies have shown that UK financial literacy is very low7, with some unable to work out simple cash transactions and percentages. But ‘I’m not good with numbers’ shouldn’t stop employees saving, investing and managing their money productively. It’s very easy to roll out the latest piece of investment technology, but if your employees don’t fully understand the risk involved, this can be a dangerous place to start. 

Developing financial confidence in your employees is ultimately about making sure they are happy and in control of their finances. Ensuring your employees are free from as many money worries as possible leaves them free to work without the distraction of the stress and sleepless nights commonly associated with money worries. 

The author is Gethin Nadin, director of employee wellbeing, Benefex. 

This article was provided by Benefex.

References

1.Uncertain Futures: 7 Myths about millenials, 2018, CFA Institute 
https://www.cfainstitute.org/en/research/survey-reports/millennials-and-markets-2018

2. The Millennial Wealth Transfer: I Don't Think You Are Ready For This, August 28 2018, Forbes
https://www.forbes.com/sites/forbesbusinessdevelopmentcouncil/2018/08/28/the-millennial-wealth-transfer-i-dont-think-you-are-ready-for-this/#5fd96803687f

3. Experian Survey, May 2018
https://www.experianplc.com/media/news/2018/more-than-half-of-brits-putting-their-credit-score-at-risk-by-not-checking-their-eligibility/

4. Working Paper 223, Oesterreichische Nationalbank, The Functions of wealth: renters, owners and capitalists across Europe and the United States, 2018
https://www.oenb.at/dam/jcr:78835e0a-af08-4bfe-aae4.../WP223_rev1.pdf

5. House of the rising son (or daughter) The impact of parental wealth on their children’s homeownership, John Wood & Stephen Clarke,  December 2018
https://www.resolutionfoundation.org/publications/house-of-the-rising-son-or-daughter/

6. Understanding the financial lives of UK adults, Financial Capability, 2018
https://www.fincap.org.uk/en/insights/understanding-the-financial-lives-of-uk-adults

7. The financial skills of adults across the world. New estimates from PIAAC, Aditi Bhutoria, John Jerrim , Anna Vignoles . March 2018
https://johnjerrim.com/piaac/

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