With adults in the UK now having an average personal debt of over £30k, the importance of good money management has never been in sharper focus.
And that figure isn’t an exaggeration, either. When we take into account credit cards, store cards, mortgages, overdrafts, personal loans, student loan repayments, home furnishings… debt really can creep up on people and quickly get out of control.
The thing is, whilst managing your money can seem simple on the surface, financial illiteracy and not having the life skills to manage money effectively is more common than you might think.
It’s not just comparing your income to your regular outgoings; it can include skills such as comparing the cost of loose fruit to boxed varieties, checking you’ve been invoiced for the correct amount of VAT when making that big lifestyle purchase, and when that supposedly great deal on a short-term loan might not be all that it seems…
It’s basic things like this that can make a huge difference to someone’s financial wellbeing and, if not done correctly, can lead to a heck of a lot of mental and financial stress, too.
DIGGING UP THE ROOTS OF THE PROBLEM
As we mentioned at the start of this blog, personal debt for UK adults is round the £30k-mark and there can be several contributing factors behind why people get into debt in the first place. However, if we take a slightly deeper look at the causes, we begin to uncover more specific reasons behind why debt has now become such a common and widespread issue.
When it comes to people’s time in full-time education, teaching about effective money management simply wasn’t on the agenda. As a result, we currently have a whole generation of employees who are seemingly mentally under-equipped when it comes to smart money management.
The group where this lack of finance knowledge is most prominent is with the so-called ‘millennial’ generation. For example, a survey by YouGov found that 3 in 10 under 35s didn’t have any knowledge or understanding of what a pension was.
Furthermore, the Office for National Statistics also found that 50% of millennials didn’t have any kind of emergency savings or could explain basic financial terminology. When you take facts like this into account, it’s little wonder that the people aged 35 and under are carrying much of the UK’s personal debt.
This is a generation that, when it comes to managing money at least, has been dealt something of a short straw and will likely be finding it harder than most to stay out of debt or even get out of it at all. Debt and money worries can be a huge source of anxiety; so, when we consider that Millennials are now making up a large proportion of the UK workforce, we potentially have a huge number of people under financial stress – which is bad news for mental wellbeing.
ACCESS TO INSTANT AND EASY CASH
There are any number of short-term loan companies out there who can deposit large sums cash into your bank account after only a few clicks of a mouse or touch of a screen – and this ease with which money can be borrowed can be extremely tempting if you’ve got bills to pay or a lifestyle to maintain.
There’s one critical problem with them, though; and that’s the fact that they often lead the recipients onto a path of debt which can be fraught with hidden dangers.
The rise in short term or so-called ‘payday’ loan companies came about mainly due to people finding it difficult to get a loan from traditional banks or building societies during the banking crisis of 2008.
Since then, payday loan companies offering cash without the more rigorous checks which a more traditional lender would require have become increasingly popular, and this is despite many of these lenders charging astronomical interest rates – with some repayment rates far outstripping the initial loan value.
Take a moment to search the internet and you’ll found countless examples of people who have turned to payday loan providers only to get into far more serious debt problems as a result of not reading the fine print, or simply checking how much their loan would actually cost them.
This grim cycle of borrowing and debt is now depressingly common. If your employees have been making do on stagnant, falling or low wages, it may be a cycle they have first-hand familiarity with…
RAISING THE STAKES
It’s not just loans that have become easier to access. The past decade has seen an explosion in online and high-street casinos, betting companies and online gaming apps.
Switch on your TV during a big football match and you’ll no doubt be bombarded by adverts for online games that are looking to entice you in with offers of ‘free’ bets, boosted odds or slick mobile apps that make the process of putting a bet on fun and exciting. You’ll also most likely see gambling firms names and offers emblazoned on the advertising hoardings inside football grounds or on the shirts of the teams you’re watching. And it’s a familiar story with many other sports, too.
Think switching off the TV and taking a trip to your local high street will offer some relief? Think again!
Since the UK government relaxed laws on gambling in 2005, high-street bookies and casinos are now a common sight all over the UK. In fact, it’s not just the UK seeing this upward trend in gambling, with the global betting market expected to rise as much as 9% by the year 2022.
For those wanting to put a bet on or ‘spin to win’, it’s never been easier to do so; with a wealth of betting and gaming apps also available for users to play on their mobile devices.
Whilst online gaming and betting is more popular than ever, it’s coincided with the number of people being identified as ‘problem gamblers’ rising to over 2 million – with further research suggesting that as many as 430,000 people have a serious or damaging habit. It’s also a habit which is extremely difficult to break and can lead to devastating financial consequences if left unchecked.
THE STIGMA OF DEBT
Money troubles are a topic of conversation which is rarely covered in social circles, let alone the workplace. The subject of money is often a deeply personal subject for many people; so, when things start to go financially wrong, it can often be the case that people will keep it to themselves rather than reaching out for help.
This unwillingness to seek help or advice can lead to people making wrong or ill-advised decisions. Instead of looking at making long-term lifestyle changes or seeking professional advice, people may resort to loans, credit cards or short-term loan providers to save face. This may paper over the cracks in the short term, but as we’ve seen, the longer-term damage of relying on loans to make ends meet can lead to much bigger problems down the line.
WHERE DO EMPLOYERS FIT IN?
It would be incredibly naïve (and somewhat misleading!) of us to say at this point that offering employees a benefits package will prevent debt amongst their employees; after all, everyone is free to make their own decisions when it comes to their finances and spend their money as they see fit.
However, when it comes to supporting them in making sound financial decisions or helping them navigate difficult financial times, employers have a duty of care to their employees and simply turning a blind eye to someone who might be in financial distress simply isn’t an option. There are a number of things you can do to help keep your staff finances healthy and in the black:
GET THE SUBJECT OUT IN THE OPEN
A key part of ensuring positive financial wellbeing is to get the subject out in the open. The more people are encouraged to talk about their issues in a safe and confidential environment, the more likely it is that a problem can be identified before it becomes critical.
If you’re able to offer a safe space in which employees can discuss their financial problems, you may be able to give them that lifeline they may desperately need and steer them onto a more stable financial footing.
There are plenty of professional financial bodies out there that can offer free, impartial and sound financial advice – it might just be the case that employees simply don’t know where to find them. Even just pointing people in the direction of good financial advice can be a crucial step to avoiding or dealing with debt.
RESOURCES TO MANAGE MONEY EFFECTIVELY
Whilst you may not be in the position to simply give an employee a bigger pay packet to solve their money troubles, you can give them the tools to help them stretch their money further each month, manage it effectively and improve their financial wellbeing, too.
For example, offering budgeting tools that link to employees’ accounts can help them identify where their spending is going and can be genuinely beneficial to effective money management. Going a step further, you could look to give your employees access to finance calculators and cost comparison tools, so they can work out the best approach for managing their cashflow or identifying loan options for those larger purchases.
OFFER HELP WITH DAY-TO-DAY EXPENSES
For those on lower incomes who are commuting to their jobs every day, the ongoing expense of simply getting to their job can be cause for anxiety. If someone is good at their job and enjoys being in their role, it really is a shame if they’re incurring expenses before they even reach their office or place of work!
One simple thing that can be done is to make it easier for staff to work from home – should their role allow, of course. If they have the tools and necessary access required to do their jobs away from an office, is there any real need for them to physically be in the workplace? You may also find that people work more productively outside the usual workplace environment if they’re not worrying about traffic, travel costs or being far from their families.
If working from home isn’t an option, perhaps look at ways you could assist with commuting expenses; with benefits packages that can help with the cost of parking, public transport, cycling to work or even new cars. This is not only a great way to help employees stretch their annual salaries further each month, but also shows you care about their wellbeing.
HELP THEM TO SAVE FOR THE FUTURE
Employees who are in debt or constantly on the lookout for loans and credit cards won’t often be saving for emergencies or the future. This is where employers can step in to help; by offering their staff the chance to put money from their wages aside into savings which can then go towards paying off any debts they might have, or simply to build up a nest egg.
This is obviously a big step for any business; but one that can reap rewards when it comes to staff financial wellbeing. It’s all about making sure that, if and when the unexpected happens, they’re not back to square one.
ACCESS TO LOANS THEY CAN TRUST
Lastly, the subject of loans can be a tricky business but one which a forward-thinking employer can help with.
Traditional high street lenders won’t often be an option for someone with a bad or patchy credit rating, meaning their only option might be to turn to payday lenders which, we all know, offer no real solution to anyone's problems and can lead to seriously damaging cycles of debt.
Helping your employees with access to loans, paid back through their annual salary, means you can offer financial help to a greater range of employees than the high street. It could be exactly what your employees need to get the back on the road to being financially secure.
GOOD FINANCIAL HEALTH IS JUST THE BEGINNING...
Having employees in rude financial health is just a small part of growing a positive workplace culture the drives success. With employee health and wellbeing now being a priority for many of the largest and most successful organisations, it's something employers can't afford to ignore!