Understanding the benefits which could improve financial wellbeing
Since Freud’s first findings, thousands of psychological studies have shown how our mental and physical health are linked. In 1948, the World Health Organisation declared health as “a complete state of physical, mental and social well-being, not merely the absence of disease and infirmity”.
If our physical health declines, it can have a significant negative effect on our mental health, and vice versa. Employees consistently rate poor financial wellbeing as a primary source of stress in their lives, and it’s estimated that more than half of all employees feel stressed because of their financial situation.
In fact, research suggests that between 75 and 90% of all visits to doctors are now for stress-related medical issues. These consistent pressures are affecting your employees’ overall health and wellbeing significantly.
It has, therefore, never been more important for employers to be delivering financial wellbeing strategies as part of an overall health and wellbeing plan.
Coping mechanisms
Stress (especially that related to financial concerns) is a part of everyday life for many of us. It’s costing businesses around $250 billion in losses due to reduced productivity and absence from work, where even the most well-off employees suffer regularly from the financial demands of modern life. Of those employees who are struggling, more than 80% are living from pay check to pay check, and economic uncertainty will only exacerbate the problem over the coming years.
As well as arming our employees with the right tools to be able to pay off their debts, save for the future, and budget and manage their money well, employers should also be helping their employees to cope with this stress.
Having a plan in place to reduce debt is an important thing for an employee to be doing, but it doesn’t solve their debt problem immediately. Consolidating debt to one provider with a smaller APR is a smart move, but the debt still exists and can therefore still cause anxiety. Inversely, heightened stress can lead us to make poorer financial decisions as we spend more impulsively (e.g. getting takeaways rather than cooking) when we’re under pressure.
Physical wellbeing benefits
Physical activity reduces stress. One of the key ways employees can ensure they manage any stress in their lives is to exercise more. Numerous studies have shown that when employees increase their levels of activity, cognitive functioning is improved, endorphins (which improve our ability to sleep) increase, and they can better manage stress in their lives.
According to the Anxiety and Depression Association of America, regular participation in exercise is shown to decrease overall levels of tension, elevate mood, and improve self-esteem. Even just a few minutes of exercise starts to illicit these responses.
In an employee benefit context, there are several well-established health benefits that can be used to improve stress related to an employees’ financial situation. Cycle to work schemes and gym memberships are the two most obvious benefits employers can promote, but many more exist that focus on better nutrition, sleep etc.
Mindfulness practice
A growing area of employee benefits concentrates on using mindfulness to manage daily stressors. Mindfulness works by getting employees to focus on the present, rather than worrying about things that have happened in the past or may never happen in the future.
Mindfulness can help employees relieve money stresses by getting them to focus on one thing at a time and not become engulfed by their overall financial situation. Mindfulness reduces the activity in the brain’s amygdala, which is central to switching on our stress responses.
It stops us reacting impulsively to a stressor, and instead slows us down to make more rational decisions; something which could be applied to spending habits, too. Mindfulness practice has been shown to shift our automatic nervous system from a stressed state to a calm state so that we don’t get caught up in our own thoughts.
Mindfulness also helps employees to demonstrate gratitude for their life as it is. Mindful gratitude helps employees to see the benefits of their situation and to be thankful for it. In a financial wellbeing context, this helps employees to stop striving for the latest gadgets or fashions and to stop comparing themselves to others.
By stripping away the desire to continually improve our lives and reach for more, we can help prevent unnecessary spending, and budgeting becomes much easier.
Building financial resilience through education
Managing the stress caused by financial concerns is all about building an employee’s resilience and in turn, their financial confidence. We could help our employees get to their dream financial position, but it doesn’t end there. Divorce, redundancy, a death in the family etc. can all take someone from a comfortable position to a slipping position incredibly quickly.
Employers need to focus on a wider selection of employee benefits in order to ensure employees are prepared for the future. In the aftermath of a recent workshop with us, clients found that introducing tools to employees which just provide an easy-to-understand view of their finances and where their money goes, was hugely effective in taking that first step toward financial stability. Apps like Moneyworks and ClearScore just enhance that initial understanding, and enable people to make better decisions.
Expect the unexpected
As writer and director Baz Luhrmann once said, “The real troubles in your life are apt to be things that never crossed your worried mind, the kind that blindside you at 4 pm on some idle Tuesday”.
Part of improving an employee’s financial wellbeing is making sure they can cope with the unexpected things that affect all of us. For many employers, the core health benefits you already offer can help to reduce the financial stress and anxiety caused by these unexpected events. Preventing future economic loss is about encouraging employees to proactively take steps to insure their future using those heath-related benefits that are likely already offered to them.
Income protection to prepare for the worst
Income protection might not sound like a financial wellbeing benefit, but it can certainly prevent you from falling into a position of debt. The social and personal impact of serious illness like cancer is, unfortunately, something that will be familiar to many of us.
However, something that might not be so well-known is the impact cancer can have on your financial wellbeing. Dealing with cancer can cost an employee around £500-a-month on average. State benefits are low for those who are unable to work due to illness, and employers rarely continue to pay a salary past 28 weeks. Research has shown that a newly-ill employee whose income isn’t insured suffers a significant decline of as much as 50% in household assets when compared to those who are insured.
PMI
Despite UK employees having access to free care under the NHS, more and more restrictions are being put on treatments, plus there’s the issue of long waiting lists. Many employees are turning towards medical insurance to keep themselves fit and healthy.
This may appear to be to the detriment of their personal finances, however this investment could pay dividends when utilised in a time of need. Plus, there’s the emotional comfort that, should you require healthcare, you can get it immediately, ultimately reducing your overall stress levels; which, as we’ve seen, can improve our financial decision-making.
Democratising wellbeing
Any approach to financial wellbeing must be democratised, and one of the best ways employers can do this is to deliver it as part of an overall employee benefits plan.
One of the biggest problems with financial wellbeing in the UK today is that most providers’ approaches are only relevant to certain segments of the workforce. Providers are heavily focused on getting employees to consolidate their debts.
However, the Organisation for Economic Cooperation and Development (OECD) have revealed in a recent report that our limited understanding around the accumulation of interest is particularly concerning. Encouraging the consolidation of debt without the right education and communication can be a huge risk.
Most employees’ needs are a little more complex than just the money they owe. At present, one in five people are considered financially illiterate. The estimated cost of this illiteracy in the UK is a shocking £3.4 billion a year. Figures also indicate that 80% of us don’t understand the financial jargon used by financial institutions such as banks.
According to MoneySavingExpert, arming people with better financial skills would lead to more effective retirement planning, a boost in career prospects, and steering clear of debt and excessive spending.
With a lack of financial education on the school curriculum, it’s not surprising that young people in particular are struggling. PwC found that only 24% of millennials are able to demonstrate basic financial literacy. Employees are in desperate need of strategies that can help them understand the financial services products available to them via their employer.
By delivering a holistic view of health and wellbeing via a benefits scheme, employers can ensure their employees are in a position to fully understand the impact specific benefits can have on their mental and physical health. It’s also important for employees to understand financial stress in the same way as they recognise other stressors in their lives and treat them accordingly.
Gethin Nadin is director, global partnerships at Benefex.
This article was provided by Benefex.
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