Why employers should help workers improve their financial health


By Neil Amato

Money worries come in all shapes and sizes. For some, it’s a result of a low-paying job or a job loss. For others, there is debt from student loans or medical bills. Some people experience financial stress when a child is born or when retirement is on the horizon and the money to fund retirement is tied up in a volatile stock market.

That stress can lead to a lack of focus and a lack of performance at work, particularly when organisations themselves are under pressure to cut costs.

Some companies are taking a more active role in trying to alleviate that stress, even if some of the stress was caused by the company making changes to benefits. A greater advisory role can help workers be more prepared for financial tremors and help the business run more smoothly.

A report by the Chartered Institute of Personnel Development (CIPD) offers reasons companies should take a greater interest in employee financial wellbeing, as well as steps organisations can take. One-quarter of UK employees in the report said that financial problems have affected their performance at work. Some said it has created illness or sleep difficulty – not exactly precursors to a productive day at the office.

UK workers aren’t the only ones with money concerns. Almost half of Americans (48%) said they would not have enough money for a major purchase or repair, according to a 2015 survey by Gallup. Additionally, 60% of all workers in the survey said they were cutting back on spending, which suggests awareness of the need to save more.

For employers, improving workers’ financial wellbeing doesn’t have to mean reconfiguring budgets. Companies should focus on building a business case for ensuring workers are financially well.

“Action on financial wellbeing does not have to be costly, does not necessarily involve giving a pay increase, and does not necessarily imply a whole strategy or programme of work,” the report said.

For example, an organisation may determine that a relatively low percentage of its workers take full advantage of benefits, or that workers don’t fully understand the full rewards package, the report said. Reminding employees about benefits available, such as child-care vouchers or discounted gym memberships, can help reduce workers’ financial stress.

“On a continuing basis, [organisations] should make employees aware of the benefits they can access that will help them keep more of the money they have in front of them,” said Jeanette Makings, head of financial education at Close Brothers, a wealth- and investment-management firm. Close Brothers provided case studies that were part of the CIPD report.

Makings said that ongoing communication about benefits is given to new hires but can be forgotten for existing workers. The same is true of new benefit offerings versus recurring ones.

“Sometimes, when you arrange a new benefit, there’s this big hurrah,” she said. “But it’s about ongoing communication, not necessarily just out of [human resources].”

Makings said organisations should focus on three groups who are the most at risk for financial woes:

  • People approaching retirement.
  • People who could face a large and unexpected tax bill because of changes to pension laws.
  • People who struggle day to day because of debt.

The first group needs more help now than it did in the past, as the burden of saving for retirement has switched from employers to employees.

In the UK, for instance, the number of private-sector workers enrolled in defined benefit pension schemes declined steadily from 2007 to 2015, according to the Office for National Statistics. At the same time, more employees were enrolled in defined contribution plans. Membership in defined contribution plans among UK private-sector workers increased nearly 333% between 2007 and 2015, while membership in defined benefit schemes decreased 41%.

Defined benefit pensions factor in length of service and salary at the time of retirement, and the amount of pension to be received is easier to forecast. The amount of defined contribution pension plans is variable, because such plans rely on a variety of sources, which can include the employee’s own money, employer contributions, mutual funds, and other investments.

“Typically, with defined benefit schemes, much of the decision-making lies with the employer,” Makings said. “That decision-making has shifted to the employee.”

Employers can help with referrals to a financial adviser, paying for workers to attend seminars, or matching struggling workers with debt counsellors or charities. No matter the company, Makings said, employees are bound to worry about money, and employers should take an interest in keeping those workers from being fatigued or ill because of their finances.

“Whilst it’s always been a part of their agenda, there’s an increased focus on it now,” Makings said. Companies “can see the value in it for their individual employees, but they can also see the value in it for their own bottom line.”

Neil Amato (Neil.Amato@aicpa-cima.com) is a CGMA Magazine senior editor.