Mr Micawber’s famous, and oft-quoted, recipe for happiness:
“Annual income 20 shillings, annual expenditure 19 Shillings and sixpence, result happiness. Annual income 20 Shillings, annual expenditure 20 shillings and sixpence: result misery.”
From David Copperfield by Charles Dickens
This principle still holds true, but financial wellness in the 21st century is a far more complex issue and income is only one measure of financial wellbeing. Having a financial ‘buffer’ to meet unexpected expenditures as well as long- and short-term savings plans also impact a person’s perception of financial wellbeing.
Employers face a number of challenges in promoting employee financial wellness issues:
- A lack of financial wellbeing can affect the psychological and physical wellbeing of employees; the stress and distraction that it can cause affects work performance and decision making. The National Office of statistics states that 1 in 4 people with a mental health issue will be in debt.
- The proportion of the population working beyond age 65 continues to grow, now exceeding 10%, and the increasing State Pension Age will exacerbate this. Whilst retaining the skills acquired by older workers can be beneficial, there will be employees who will continue in work because they can’t afford to retire – potentially impacting the career progression of others and increasing health related costs.
- Personal financial matters are also intensely private, affecting generations of employees in different ways. It may be more ‘comfortable’ for an employer to focus on the communication of employee benefits and savings plans and avoiding the significantly more sensitive issues of debt and financial stress, which can impact even the apparently affluent.
- Providing financial planning resources to build financial capability is essential in promoting financial wellbeing, but employee utilisation of and engagement with them can be relatively low. Leaflets and electronic communications may not improve decision making if employees still have unanswered questions or ‘glaze-over’ due to a perception of because the information may be too complex, using much jargon, or due to the employee’s low numeracy skills.
Financial security tends to improve with age as earnings increase and savings accumulate, but unexpected events can undermine otherwise sound plans.
Generation Y (born in 80’s and 90’s) has been impacted by student loans for tuition fees and challenges of accumulating a deposit to afford a house. The increase in student tuition fees from £3,000 to £12,000p.a. in 2012 has significantly scaled up this problem. When automatic enrolment and the recent introduction of the LISA as an alternative savings vehicle are taken into account, it may be far less clear to these employees what their priorities should be. This age group may also be more likely to rely on purchases on credit, running up additional debt and potentially compromising their credit rating.
Generation X (born early 60’s to late 70’s) may have pressures from children staying financially dependent for longer; living at home or seeking assistance with a deposit for a house (the average age of house purchase now being reported as 35). There may be the added challenge of elderly parents whose care needs could impact the ability of both partners to work full time or result in additional expenditure on care costs. These coincide with a need to save adequately for retirement and effective planning can take a back seat under time pressure from busy career and family responsibilities.
Baby Boomers (born 1946 to early 60’s) being closest to retirement need help with addressing their retirement planning but they might also be affected by health issues. Many may have inadequate retirement savings or be juggling decisions such as how should I invest funds closer to retirement, when can I afford to retire, and what state pension am I entitled to? Exposure to marketing related to ‘pensions liberation’ scams or the effect on their annual allowance of cashing in a small historic pension pot may have unintended consequences.
Overlying all of this is the impact of unexpected events, such as divorce, a disabled child, family bereavement or ill-health, which may undermine an otherwise robust financial position. Consequently, employees from all generations may have debt problems. Employers need to address signposting to relevant assistance, whether via an EAP or direct access to appropriate support services.
An appropriate financial wellness strategy needs to tackle these challenges: improving employees’ understanding and value of their employee benefits, providing financial education to enable sound decisions to be made, and providing access to support should they get into financial difficulty.
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