Financial resilience

Are employees in control?

Focus

Despite the pandemic resulting in ‘accidental savers’, for many, borrowing to meet basic needs is still a necessity. In our previous report, we highlighted how much time individuals are spending worrying about their finances during working hours, not forgetting the effects of this stress on physical and mental health.

Do you know how many of your employees are struggling financially? Where will they be borrowing from? Do you provide, or have you thought about providing financial wellbeing benefits such as workplace loans, salary advance and workplace savings to support their financial capability?

Rising levels of borrowing across the UK

The number of employees borrowing to meet basic needs has increased to more than 3 in 5. When we look at this by age, we see the highest levels of borrowing for those younger and mid-career.

2022 – methods of borrowing

The most common method to borrow is on a credit card – this has remained consistently top year on year. This is a concern as credit cards have high interest rates and can easily lead to mounting levels of debt if not managed efficiently.

Borrowing from family or close friends is the most common for 16-24’s which potentially adds further financial stress on parents and other loved ones.

In recent years some companies have introduced workplace borrowing and salary advance and the number of employees using these has risen each year. For many this has been helpful, although it’s quite worrying that more people have borrowed from a loan shark or payday lender than one of these corporate options.

Decreasing levels of saving impact financial capability

As would be expected with increased borrowing, we’ve seen a decrease in the number of employees who have sufficient savings to support them if they were to lose their income or something unexpected were to happen.

For employers, there are some helpful options to help and encourage employees to save, including financial education and corporate savings products (ISA, LISA junior ISA etc) which can be designed to encourage retention, through loyalty bonuses.

Question: Thinking about your savings, if something were to happen and your income stopped overnight, how long would your savings last for?

A key element of good financial health is resilience and ability to cope with the unexpected. That can be through protection as well as everyday savings.

We’ve seen a significant increase in those with little or no savings rising to 3 in 5 having less than 3 months savings (including none). This is even higher for those aged 25 to 44 where it’s risen to more than 2 in 3 on average. This is cause for concern should an unexpected expense occur. This will be compounding feelings of financial anxiety for those struggling.

The impact of the pandemic on savings

Almost 2 in 5 are saving less or unable to save at all in the last 12 months. This goes hand in hand with the increase in those with little or no savings we’ve seen this year.

For others, the picture has been more positive with almost 1 in 4 reporting they are able to save more since the pandemic began – largely due to national restrictions.

Overwhelmingly we see employees leaving this additional money in their current or everyday savings accounts rather than thinking more medium or longer term. This could be due to this money being deemed as a ‘windfall’ rather than through an active choice to save. It could be a good time for companies to introduce financial education and corporate savings products to help employees make the most of any additional money they have, building stronger financial resilience.

Question: Has Covid-19 changed your ability to save?

Question: You mentioned you have saved more as a result of Covid-19, what have you done with these savings?

LCP viewpoint

Steve Webb, Partner, LCP

It is often said that money is the last taboo subject, and this can be particularly true in the workplace...

...Even when people were regularly in an office, the water cooler conversation was much more likely to be about what was on TV last night or about a big sporting event than it was about money worries. And with millions now working remotely for some or all of the week, the potential for a casual conversation in which to open up about financial pressures has diminished still further.

People are often reluctant to admit if they are struggling financially and this can give employers the mistaken impression that all is well and no support is required. Although our survey shows that the majority of workers have their finances under control, at least for now, there has been a worrying doubling in the last two years in the proportion who are in crisis or vulnerable. This financial insecurity puts them and their family under pressure and can also impact on their effectiveness in the workplace. Many people will use sticking plaster solutions such as turning to expensive short-term credit, but this often only makes matters worse. Others will bury their heads in the sand, perhaps leaving letters from creditors unopened, rather than seek help to manage the situation.

A striking feature of the first phase of the Pandemic, as highlighted in our ‘accidental savers’ research is the diverse way in which people’s finances were affected. We estimated that around six million people of working age were the financial winners from lockdown, seeing their incomes largely unaffected but spending much less than normal. But it is important to recognise that not everyone had the same experience. For others, the Pandemic was a time of financial insecurity as they faced reduced wages while on furlough or had to look for a new job if their sector of the economy was particularly hard hit.

The key for employers is to realise that everyone is different and not to generalise based perhaps on their own personal experience. Employers need to create a safe environment where workers can open up about money worries and can, at the very least, be signposted to expert, confidential and impartial sources of support with debt management and budgeting. Helping employees to navigate these times is not only the right thing to do but will ultimately reap rewards as workers are less distracted and stressed by money worries and are fully engaged in their job.