Everyone knows how to budget
It’s easy to assume that people who have low financial wellbeing don’t know how to budget or don’t think it’s important. It’s not true.
Our research published in The Employer’s Guide to Financial Wellbeing 2019-20 shows that only 5% of people with low financial wellbeing don’t know how to budget and less than 5% of people with low financial wellbeing are not thinking about budgeting.
The figures show that our perception of financial wellbeing has been widely misunderstood. The misconception is based around the idea that education and knowledge are the keys to unlocking people’s financial wellbeing – if we know something, we’re better equipped to change. It is true that we might be better equipped to change, but that doesn’t mean we actually will change.
Financial education is not enough to create change
Knowledge and education are of course hugely important – it can be hard to take action on something that we don’t understand. However, within psychology and behavioural science, it is widely understood that knowledge alone doesn’t create behaviour change in humans. We are most often motivated by our emotional needs, which are then reinforced by the habits we create.
Why has changing physical health related behaviour been so difficult in society? We all know and understand the things that will help us have better physical health – eating a well balanced diet and regular physical activity. Yet many people find it very hard to actually create and stick to habits that are going to keep them physically fit. There is also a direct correlation in our ability to access unhealthy food options and an increase in levels of obesity globally.
The same can be said for financial health. As people’s access to high-interest credit became more widely available, it tapped into many people’s natural inclination to spend and not save. Our research has shown that generally people fall into two categories: Planners or Copers. Planners find it very easy to save first and spend later. Copers find it much harder to this and it makes them a lot more vulnerable to life’s unexpected events – e.g. illness, a boiler breaking down or car repairs.
Because a Coper typically doesn’t have savings in place, they are far more likely to rely on high-interest overdrafts, credit cards or payday loans and get themselves into a cycle of debt that makes it extremely challenging to actually pay things off.
The four main characteristics of people with low financial wellbeing are:
- High use of payday loans
- A history of missing payments
- High levels of credit card debt carried from month to month
- Much higher likelihood of being refused a loan
Getting out of debt is the priority
People with low financial wellbeing don’t want to be in the situation they’re in. If you have low financial wellbeing, you’re over 4 times more likely to be suffering from depression and/or anxiety, taking at least 1 sick day a year because of financial stress and over 12 times more likely not to be finishing your daily tasks at work. It’s not a situation anyone would want to be in and it’s not good for both employees and employers. The research shows that the two main priorities for people with low financial wellbeing are:
- Getting out of debt
- Getting better at saving
How can employers help?
Employers can prioritise financial wellbeing as part of a holistic wellbeing programme. If you want high-impact results, consider a two-pronged approach:
1. Enable financial freedom: Action-orientated benefits
The right financial wellbeing benefits will allow you to move your people from being financially disadvantaged into being financially in control. If you have employees who are in debt, only offering pension provisions is not going to help their immediate financial pain. Consider what type of products you could offer that will shift people’s behaviour. Salary-linked savings and loans are a great starting point and the right financial education tools will only serve to reinforce this positive behaviour shift.
2. Remove the taboos: Create a culture change
The majority of people we surveyed don’t want to talk about money to anyone but their partner, and for people with low financial wellbeing, they are often not talking to anyone. Creating a culture where your people feel able to talk openly about their financial wellbeing is vital if you want to create a happy, healthy and productive workforce.