As people continue to feel the effects of rising living costs, employers are increasingly aware of the importance of financial wellbeing as part of a holistic benefits proposition, and with it, education that enables staff make the most of their money.
However, this is also a difficult time for many organisations as well, and it might be difficult to justify implementing a lavish financial education programme when budgets are tight. So, where is line drawn between obligation and optional extra?
The legal question
Some benefits come with financial education as a necessary element; for example, employers should understand their obligations around pension statements and retirement wake-up packs.
Beyond this, there is no black and white obligation, says Jonathan Watts-Lay, founding director of Wealth at Work. Indeed, employers might do well to be wary, as financial advice is regulated.
While some employers shy away from financial education out of fear of straying across this boundary, Watts-Lay says this is where providers can step in.
He explains: “If someone’s talking to one of our financial coaches and starts asking questions that the coach can’t answer because they’re not a regulated individual, they can say to the employee, ‘you’re now stepping into regulated advice, I can pass you on to somebody that can answer those questions for you’. We do that, so the employer doesn’t need to sit there worrying about what they’re saying.”
Charles Cotton, senior policy adviser at the CIPD, adds: “Obviously legal pitfalls exist, it’s about navigating them, but in a way that doesn’t stop you from actually talking to your employees about these issues.”
While there may be no legal obligation to ensure that employees have the tools to make informed financial and benefits decisions, businesses arguably have a responsibility to make the most out of their own benefits spend.
“There is a business responsibility,” Cotton explains. “If the organisation is spending lots of money on financial benefits, it doesn’t make sense not to let people know that these benefits exist, how they can be accessed, and how [employees] can potentially benefit.”
Watts-Lay explains: “You don’t necessarily have a legal or regulatory obligation, but in terms of the bottom line, if you’re going to be spending money on a benefits package, you should be ensuring that there is value in it, and take up, and that it’s actually having the right effect.”
This is particularly true, he adds, at a time when employees want more from their compensation packages, while many employers are unable to provide inflation-busting pay rises.
Beyond the business case, there is a growing understanding that the employer-employee relationship is no longer simply about pay and security. Instead, and particularly at a time of heightened competition for talent and difficult economic conditions, employers are expected to provide a more holistic set of benefits and to put staff safety and wellbeing at the centre.
In September 2022, Champion Health reported that 34% of employees find financial pressures to be a cause of stress, and that there is a clear correlation between an individual’s relationship with money and their mental wellbeing.
Jo Williams, D&I and wellbeing consultant for Zurich UK, says: “We know that there is a close link between people’s financial health and their overall wellbeing, with financial pressures being a leading cause of stress and anxiety. Ultimately, we want our employees to be happy and well so that they can do their jobs effectively and contribute to the success of the business.”
Benefits packages are becoming increasingly nuanced, with new products coming to market all the time – particularly when it comes to pay, savings and finances. However, with this proliferation come potential pitfalls. For employers looking to offer benefits through salary sacrifice, for example, it is important for both businesses and staff to fully understand the limitations when it comes to minimum wage requirements.
Meanwhile, one hot button issue is the matter of salary advance. On one hand, providing real-time access to earned pay can help avoid high interest loans and payment arrears. On the other, if an employee is not fully aware of the fine print, this could have the opposite effect.
One household name offering salary advances, as well as the financial education to ensure they are used effectively, is Tesco. For James Goodman, UK people director, it is important to factor in guidance and education.
Goodman says: “We want to help our colleagues feel more confident with their finances and make informed decisions, so we provide them with lots of tools and resources on the company intranet.
“Our financial wellbeing pages link to financial support resources offered by Tesco and our partners Salary Finance, covering a wide range of subjects, including offering an advance on their salary to cope with an unexpected expense, learning better money habits, borrowing responsibly to avoid high interest charges and saving to build financial resilience.”
Watts-Lay says: “Employees are very much more open now to looking at all these different services, which is another reason why you need good financial education.
“Taking salary advances as an example, this can be fantastic if you need money quickly, like your car has broken down, and without it you can’t get to work. So, yes there’s a fee attached, but on balance, it’s probably the right thing to do.
“However, how we’re seeing them being used in a lot of cases is for normal monthly or weekly spending, effectively making [the employee] worse off, because rather than managing their budget, they’re now being charged additional fees every month.”
Financial education is an important factor in flagging benefits that employees might not be aware of or fully understand, but which could help them during the current economic crisis. On the other side of the coin, it could help staff understand the long-term ramifications of immediate financial decisions.
Recent research by Cushon found, for example, that 26% of employers have seen an increase in pension scheme opt-outs during the cost-of-living crisis.
“It’s important to flag the potential negative consequences of certain decisions,” says Cotton. “There’s lots of talk about people opting out of pension saving or reducing their contributions because of the cost of living, and obviously they have that freedom, but it makes sense for organisations to flag the potential consequences.”
Employers are increasingly aware of the importance of wellbeing. Nevertheless, according to Watts-Lay, financial wellbeing and education is taking some time to catch up.
“There’s a duty of care, or an element of that, across all wellbeing,” he explains. “Mental wellbeing has actually had a lot of coverage, whereas financial wellbeing has almost been the poor cousin.
Indeed, according to the CIPD’s 2021 report Financial wellbeing: An evidence review, this was the least common area of attention among employers with health and wellbeing strategies in place, with only 11% actively focusing on the financial side, compared with 57% focusing on mental health.
Cotton calls for more effort to be made to ensure that financial education forms part of this growing approach to wellbeing.
Watts-Lay concludes: “It has now come to prominence a lot more, and so part of [an employer’s] social contract is how it deals with employees, and how it looks after them.”