Why employees’ personal finances are now a business risk

The cost-of-living crisis has prompted more companies to step up to support the financial wellbeing of staff. But why is it so important – and how do you get it right? 
Financial wellbeing in the workplace

The link between employees’ financial wellbeing and the overall health of a business may not seem obvious. But how staff feel about money – and the state of their finances – is potentially an important (if overlooked) aspect of business resilience. A workforce that is comfortable with personal finances can arguably increase a company’s productivity and improve its bottom line. 

According to research by Octopus MoneyCoach, a provider of workplace financial coaching, 95% of employees at the UK’s 50 largest businesses worry about money, and 8 in 10 employees bring this anxiety to work. 

The link between money worries and mental wellbeing is well documented. The Money and Mental Health Policy Institute reports that two-thirds of employees who are struggling financially show at least one sign of poor mental health – such as reduced motivation, loss of sleep or poor concentration – which could affect their ability to function at work. 

Meanwhile, a report by the Centre for Economics and Business Research estimates that absenteeism due to financial distress costs UK employers as much as £2.5bn a year.

According to Julia Turney, a partner at consultancy Barnett Waddingham, the financial wellbeing of staff plays a huge part in the health and resilience of a business, because “all organisations need people and these people need to be engaged and productive”. 

She adds: “Poor financial health will result in poorer performance at work. If businesses want to grow, they need to address these concerns and support their employees. This is not a new issue, but it has gathered momentum and interest at board level due to the widespread impact of the cost-of-living crisis and the economic outlook over the next 12 to 18 months.”

And it’s not only a question of productivity and engagement. Poor personal finances also increase the likelihood of an employee leaving the business to take up a better-paid job. Low levels of financial confidence may cause staff to make decisions based on headline pay rather than the total value of the employment package. This can lead to a retention headache for companies, creating extra costs and disruption in the long run.

How to address the wellbeing risk

So, what can employers do to address this issue? In the current climate, they’re unlikely to be able to offer significant pay rises and may even be looking to cut benefits to reduce costs. The tight labour market means that employers need to achieve maximum impact from their reward and benefit offerings to retain and attract talent.

The good news is there’s a growing range of financial wellbeing options to suit all budgets.

Employers should first assess what help their staff need. Is it with day-to-day living costs, how to deal with unexpected events, or planning for future life stages, such as having a baby or retiring? 

The company’s pension provider may be a good place to start, as it often provides wellbeing sessions and financial education at no additional cost – and on wider topics than the pension. 

My responsibility as CEO is to look after every single person in the firm

HR can play an important part too, by signposting staff to resources around budgeting, debt management and how to deal with a crisis or how to improve financial literacy. The government’s MoneyHelper service has lots of free guidance, as do charities like National Numeracy and StepChange.

It’s also worth reminding staff about their existing benefits. For example, if private GP appointments are offered, this could help with any mental health issues exacerbated by financial concerns. A company policy of matching increased pension contributions could also help employees feel more confident about their retirement goals.

Considering the age and demographic of employees is a good way to tailor the support the business offers. As Mark Pemberthy, benefits consulting leader at HR consultancy Buck, explains: “Historically, financial education in the workplace has centred on pensions and retirement planning. While this is still important, employers should consider supporting wider financial skills such as budgeting, saving and borrowing. This is particularly important in companies with a younger or more financially vulnerable workforce where retirement planning is less of an immediate priority.”

Employers can also take steps to help staff get into the savings habit, beyond simply offering a pension. According to research by Buck, 75% of bosses say they would be interested in providing a supplementary savings vehicle on top of a workplace pension, such as a Lifetime ISA or ISA. This compares to 54% of employers in 2018.

Could financial coaching help?

Some employers are going a step further too, by offering their staff access to one-to-one financial advice or financial coaching. Research by Octopus MoneyCoach shows that 44% of UK employers want to offer personalised financial guidance, tailored to the needs and circumstances of each employee.

The accountancy firm Blick Rothenberg launched a financial coaching programme for its staff last autumn. This is part of the firm’s overall people wellbeing strategy, which has financial, mental and physical strands.

Nimesh Shah, the firm’s CEO, explains that this focus on financial wellbeing is partly connected to mental health and the potential implications of that in the workplace. “Financial anxiety has long been a factor of personal stress for a lot of people,” he notes.

You need to create an offering that is easy and exciting to engage with

Against the backdrop of high inflation, the accountancy firm has enhanced salaries, but Shah wanted to offer staff something extra. Staff were initially offered one-to-one online financial coaching sessions during work hours, which a spouse or partner could join too. When the benefit was first announced, more than 65% of employees met with a coach.

Employees taking up the scheme then received a year of financial coaching sessions paid for by Blick Rothenberg. If someone wants to continue their financial coaching beyond the first year, they would be able to pay the coaching provider through salary sacrifice, which lowers the net cost.

In addition to the coaching, Blick Rothenberg staff receive free webinars and pension factsheets via their workplace pension provider. “This initiative is a small part of our commitment to people,” says Shah. “My responsibility as CEO is to look after every single person in the firm. Employee wellbeing is a key priority and fundamental in our overall business strategy – and it’s useful for talent attraction and retention too.”

How to strike the right tone

Of course, assisting staff with their personal finances has the potential to come across as patronising. It may also feel intrusive – when did it become a business’s responsibility to help employees with their own money issues?

The key here is to ensure the support doesn’t feel overbearing or is interfering in employees’ personal lives. Creating safe spaces for people to talk about their worries and share meaningful advice and resources can help break down the stigma around financial worries and mental health. It’s possible to signpost staff to relevant guidance without becoming personally involved. 

As Anasuya Iyer, vice-president of growth at Octopus MoneyCoach, puts it: “There’s so much inertia when it comes to people and money. To have a real impact, you need to create an offering that is easy and exciting to engage with and speaks to employees’ individual needs and questions.”

The cost-of-living crisis and the fact that today’s workforce may have received little or no financial education at school means that many companies now view it as their responsibility to support their staff in this area.

It’s a win-win for employee and employer. Supporting employees’ financial wellbeing will build their financial confidence and help them to feel valued and more engaged in their roles, ultimately, boosting business productivity, resilience and profitability.