Total wellbeing is about more than mental health.
It's time we understood the benefits of individual financial wellbeing.
‘The greatest investment you can make is in your people’ is sound advice for any business.
The collective knowledge and skill set offered by your workforce sets you apart from your competitors, which makes them your greatest asset.
One area of investment that simply makes sense is your employees’ mental wellbeing. The COVID-19 pandemic has placed employee wellbeing higher up the list of issues that investors look at in companies from an ESG (environmental, social, and governance) perspective. The ‘S’ component of ESG covers the relationships that companies have with employees, customers, suppliers and the wider community.
This means that employee wellbeing is no longer just an internal issue. Companies need to be able to show what they’re doing to support wellbeing as they are being held more to account than ever before.
An employee’s relationship with their finances can have a substantial impact on wellbeing. A study in 2019 found that 94% of employees had money worries, with three-quarters reporting that those concerns affected their work.
Almost nine in ten larger businesses say they have been impacted by poor employee financial wellbeing, through outcomes such as reduced productivity, loss of talent and more short-term and long-term absences.
Instilling good wellbeing is clearly not just a ‘good’ thing to do, it’s also impacts the bottom line too. After all, productivity and employee wellbeing are inherently linked. Financial problems spill over into work time because it’s not possible to ringfence a period of time outside the working day to mentally process them. This will have a detrimental impact on their ability to think about other things.
When an employee is dealing with a lot of stress, morale and therefore productivity, declines. In 2018, it’s estimated that 4.2 million days of work were lost by private sector workers, a ‘financial wellbeing in the workplace’ report by Aegon found.
Simply put, financial worries don’t go away just because you’re at work. Whilst it’s important to be mindful and understanding of this, it’s also important to realize the business impact it has too. Therefore, it’s within everyone’s interests for those instances to be reduced and for people to feel supported.
First of all, it’s important to understand the reasons why some people don’t save. It’s not always linked to financial hardship – sometimes, it’s the result of poor day-to-day management.
There’s another factor at play on a psychological level too. Even people that are well informed about the importance of financial planning can struggle. That’s because people are hardwired to prioritize current needs and wants over future needs – this is otherwise known as a ‘present bias’.
This intensifies when people are in financial difficulty as they focus even more on the here and now, making it even harder to think about future needs. This vicious circle means that people struggling financially often end up worse off.
A pay rise doesn’t necessarily mean that you’ll save better either. People also tend to adjust their lifestyles to their salaries and get used to a certain standard of living, swallowing up their income.
After people reach a salary level where they can live comfortably, there is little correlation between higher incomes and increased wellbeing. After all, once a person’s basic needs and some of their lifestyle ‘wants’ are satisfied, spending more money on day-to-day desirables doesn’t tend to enhance life satisfaction.
A well-known study in 2010 found that happiness began to ‘level out’ when a person reached a salary of $75,000. Remembering this can help a person to save as the priority is less on buying luxury items.
The support a company can provide an employee is partly about emotional support, but there is also a practical element too, especially when it comes to building financial confidence and wellbeing. In some cases, it will begin with financial education and equipping people with the tools to manage their finances effectively.
This is where financial education is helpful – improving day-to-day confidence and resilience as well as addressing the future and what’s worrying them.
Financial education is also about the effective communication of existing reward packages and making sure that there is a good uptake from employees. Employees often need support when making decisions about those opportunities.
You only need to look at the number of people still in the default fund of their pension or 401k. While it will be right for some, more often it indicates that they haven’t engaged with their pension or even their wider benefits package to understand what would work best for them.
Letting them know what rewards are available is one thing, but it’s also important to translate what the different arrangements can mean for them and their lifestyle.
Financial education is about equipping people with the knowledge to make informed choices and giving them the information they need to feel more confident. If someone is there supporting you and talking you through the financial implications – that peace of mind is reassuring. You worry less when you have someone in your corner.
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Workplace Financial Wellbeing Manager
Harriet is Workplace Financial Wellbeing Manager, St. James's Place Wealth Management.
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