Are you out of touch with your employees’ financial wellbeing?

  • Financial wellbeing
  • 6 minute read

In most organisations, employers know how much time their employees take for holidays and when (and hopefully why) they are sick. They know about staff’s skills and experiences, their salaries, their pension contributions, their length of service. They might even know about their career plans and long-term personal aspirations.

But according to Close Brothers’ Financial Wellbeing Index, employers are much less aware of employees’ level of financial wellbeing. For the most part, employers know their staff have financial concerns, with 88% believing that their employees worry about money. But when it comes to the fine detail of what is behind those worries, businesses are much less well informed.

The Financial Wellbeing Index creates a measure of financial health for both employers and employees. For employees it measures how financially fit they feel across eight categories: money worries, budgeting and planning, debt, protection, savings and investments, retirement, properties and mortgages, and tax. Each category is scored out of 100, and there is also an overall index score, based on the average of each category score.

The employer scores measure business’ perceptions of employee wellbeing across the same eight categories. As with the employee index, each category is rated out of 100 and an overall score is generated using the average of the category scores.

According to the Index, employees have an overall financial wellbeing score of 53.6, compared to 70.5 for employers. This shows that businesses are significantly over-estimating the financial wellbeing of their staff.

There’s further proof of this in the answers to some of the questions Close Brothers used to build the Index. For example, while only 30% of businesses think money worries are a major issue for their workforce, in reality 77% of employees say this is a significant concern. And although 60% of employers believe their employees have a financial plan in place, in fact only 45% of staff do.

Employers over-estimate employees’ wellbeing across all of the eight categories and in some areas the differences are particularly marked. When it comes to budgeting and planning, employers scored 70 compared to just 48.8 for employees – and protection (i.e. employees’ ability to cope should they be faced with an unexpected expense or loss of income) showed an even greater disparity, with employees scoring just 42.5 compared to 72 for employees.

Employers’ and employees’ perceptions of financial wellbeing are more aligned where debt and property and mortgages are concerned. Both groups feel reasonably confident in their ability to understand debt (employees score 67.7 and employers score 70). There is also only a difference of 9.8 points between their ratings when it comes to property and mortgages (employees score 61.2 and employers score 70). However, while confidence levels are high, there are still underlying issues: 32% of employees say that debt is an issue for them, and 27% of workers spend more than half of their income on housing costs.

These disparities have both short and long-term implications for employers. Employees who are struggling with budgeting and planning skills today are less likely to be able to build the safety net that they need to protect themselves from financial shocks and to save for the future. Businesses are on the receiving end of this, with 22% of employers saying that they believe poor financial wellbeing is affecting productivity, and the same number reporting that it is driving a loss of talent.

It also has longer term implications for employees’ ability to retire. Although auto-enrolment has made pensions more accessible, there is still a lot of work to do to build confidence and capability for employees. Nearly half (48%) of employers said that fewer people are retiring from their organisation than they would like and the same number say this is increasing their people costs. However, employers’ Index score for the retirement category was 70, suggesting that they feel employees are comfortable with their ability to save for retirement. In contrast, employees only scored 50.3 here.

The good news is that there is plenty that businesses can do to help improve staff’s financial wellbeing score and narrow the gap between employer perception and employee reality. As a starting point, there are four essential steps that every employer can take:

  • Understand the real financial problems facing your workforce. Getting a proper understanding of what is worrying employees is much more effective than introducing one-size-fits-all products or services that may not meet their needs.
  • Introduce financial education. This helps to raise employees’ awareness of money matters, and builds their confidence. When it comes to handling the complexities of their financial lives, they will be better prepared.
  • Give access to suitable products and solutions. While 43% of employees say they are confident about choosing the right product to achieve their long-term financial goals, that still means more than half of employees need help. Putting money in the right place at the right time helps employees achieve both short and long term goals.
  • Offer financial advice. In some instances, personal one-to-one advice is really important, to give employees some extra help, or to support them in major one-off decisions such as how to use their retirement savings

Download your copy of the Financial Wellbeing Index here.

If you would like to know more about financial education in the workplace, please email financialeducation@closebrothers.com.

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