How to encourage workplace savings other than pensions
Paying off expensive debt, building an emergency savings buffer to meet unexpected expenses, and receiving free employer pension contributions are key actions that provide a good financial foundation for any employee. But individuals need to do much more than the basics if they want to achieve a high level of financial wellbeing.
We have developed a simple online tool that enables individuals to quickly measure their overall level of financial wellbeing, in the form of a Financial Fitness Score. The Financial Fitness Score uses a simple scale from one (not in control) to five (financial freedom).
The importance of saving
Our research suggests that a person’s savings behaviour is a key factor that affects their Financial Fitness Score. In a survey of more than 10,000 UK employees we found that, perhaps unsurprisingly, those with a low Financial Fitness Score say that they are not saving more because they don’t earn enough or are paying off debts. However, they also gave on average four more reasons not to save compared to those with a higher score.
The additional reasons given included:
- no time find out about saving
- not sure where to go to save
- lack of confidence in saving
- prefer to spend rather than save.
With attitudes and behaviours towards savings varying significantly, employers who are serious about employee financial wellbeing, need to consistently communicate to their workforce the benefits of saving and make it as easy as possible for employees to save.
Behavioural biases make repaying debt easier to promote than saving, because the emotional benefit – a sense of relief that an end to debt repayments is in sight – is more immediate and tangible.
Regular saving, particularly for the medium- to long-term, is different. The immediate outcome of saving £50 per month is £50 less spending money the following month, which can feel like a painful loss. The challenge is to instil the idea of delayed gratification: going without today to prepare for something that may feel a long way in the future. One tangible emotional payoff from building up savings is that increased financial resilience brings a corresponding reduction in stress and anxiety about money.
So can having a goal for those savings – a holiday or home improvement – with a strong positive emotion from a future ‘gain’, offset the emotion that comes from today’s ‘loss’.
Linking savings to broader wellbeing and education
Given the differences in attitudes towards savings, any communications that feel like finger-wagging paternalism are unlikely to resonate. Integrating personal finance awareness and education into overall employee benefits and wellbeing communications activity can help.
The Financial Fitness Score is named quite deliberately to express financial wellbeing as an equivalent to physical health and wellness. Taking similar approaches in how you group together your wellbeing communications to create similar connections may also help break the taboo of talking about money issues.
The way we label savings and investment accounts can also create an emotional connection and discipline to the savings goal. For example: calling a savings account “Greece holiday 2019” is better than “web saver 3 account”; and “if I lose my job fund” is better than “emergency fund”.
What savings benefits to offer
It is important to encourage those with no or a modest amount of savings to start with accessible, no-risk cash savings to create an emergency fund, and to only explore higher-risk/return options once that is in place. Offering one or more of the available salary-deducted employee savings plans makes it easier for employees to build up non-pension savings, and thereby improve their level of financial wellbeing
Employers can offer, in order of importance:
- a standard instant access savings account
- NS&I backed Help to Save account – for those who qualify
- Save As You Earn and Share Incentive Plan – for private sector employers
- workplace ISA – for access to stocks and shares.
Other than a standard savings account, all the other workplace saving schemes offer tax benefits and varying levels of returns. A workplace ISA offers a range of risk and return profiles.
Helping your employees to save will help them increase their level of financial fitness, which should increase their level of happiness and life satisfaction.
This article was provided by Salary Finance.
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