How to change bad financial habits & improve financial wellbeing

Vulnerability – historic low levels of savings in the UK

With interest rates at a historically low level (base rate reduced to 0.25% in summer 2016) spending helped the British economy to tackle the Brexit vote shock, and on national level provided a positive impetus for growth. This resulted in Britain becoming the fastest growing major economy in 2016.

Although we should welcome this positive news due to the consequent real wage increases and greater consumer confidence, leading to people spending again, the historically low rate of saving is a worry.

Consumer saving rates statistics are alarming – around 9.24m or 35% of households have no savings, while a further 13% have under £1,500. This is coupled with some of the highest debt levels, for example consumer credit stood at £7,118 per household in November 2016 (£515.37 more per household over the year)1.

This trend and the expected inflationary pressure for 2017 should make consumers cautious about their financial future, in particular the vulnerable low-earners who are more exposed to rising food prices/sudden increases in interest rates.

First Step– Paying off Rolling Credit

Changing one’s attitude towards debt can convert someone from a spender to a saver. The first step is to tackle current debt through future planning. Paying off rolling credits, such as credit cards and expensive overdrafts, are the first steps to becoming more disciplined with spending. Unless you can resist spending more each month than what you can repay the next month, credit cards are not for you. They are associated with high interest rates, excessive late payment fees and low minimum payments, ultimately designed to buy non-appreciating consumer assets and goods.

Debt Planning and Payment Control

Coming up with a realistic payment plan and keeping control over it is essential to changing spending attitudes and protecting the borrowers from their partisan spending behaviour. For example, the FairQuid (FQ) payroll deduction scheme allows both: planning by assessing the borrowers’ affordability based on their verified net income and monthly expenses, and controlling finances through the deduction of debt repayments from the borrowers’ regular payroll, thus ensuring the debt is being repaid before the money even hits the individual’s bank account for active spending.

The chart below demonstrates how this payment plan would work for a typical customer.

In absence of a controlled payment plan, spending overshoots at six months by using credit card or overdraft (1.).

If then a new FairQuid payment plan is set-up with simultaneous saving deductions in conjunction with the fixed repayment plan, then 12 months later (at month 19) the accumulated credit card balance would not just be repaid, but a healthy savings cushion for unexpected life events in the future and the behavioural change of regular saving is also in place (2.).

The savings can continue even after the debt payment plan, which improves the resilience further (3.).

Start Investing for the Future

In addition to planning and controlling our existing debt, educating ourselves to the advantages of regular savings is vital. At a minimum, one should aim to have up to 2 weeks of their wages or £1,000 in savings for unexpected expenses. Building up some resilience towards sudden turbulences in the future will help us to survive stressful periods in life. Our Credit Union partners require borrowers to save on a regular basis, so while deleveraging their existing debt through debt consolidation, they start to feel the safety provided by an accumulated savings pot.

At FairQuid we believe that creating a custom solution for financial planning and control for employees can help in reducing the overall debt in the UK society. By building a platform which allows for employees to go through an affordability and expense check process, setting-up a savings plan and ensuring the deductions happen directly through their payroll, allows for debt consolidation and guiding people towards a more responsible way of spending.


Turning Employee Financial Wellbeing into Action

Many working Brits are living with an unnerving financial uncertainty, despite the majority having stable jobs with an income much higher than the national minimum wage. Low levels of savings and the lack of long-term financial planning exposes households to seek quick fixes to bridge their uncertain circumstances in life.

That’s where the idea of financial wellbeing comes in. A large number of employers already see this as an area where they need to focus their HR team efforts on, but most of the planned action is invariably only into education.

Is it because on one hand management realises that financial distress has an immediate impact on productivity and staff turnover, but on the other hand doesn’t want to tread into employee’s personal lives and finances?

When the two are so interlinked, it is time to stop sitting on the fence. As an employer, it is important to be part of alternative instead of relying on education alone.

A problem of Financial Resilience:

  • More than 16 million people in the UK have savings of less than £1001. In 5 areas of the country, more than half the adult population have savings below that level. The areas are: North East England, West Midlands, Yorkshire and Humber, Northern Ireland and Wales. Not to say that areas like East Midlands and North West England are very far behind (47.9% & 47.4% respectively). Even in London, the capital and the financial hub, the number stands at 42.3% of the adult population with less than £100 as savings. Yes, you read that right.
  • A Quarter (25%) of Britons have no money put aside for a ‘rainy day’, with 1/3rd relying on credit cards to pay for emergencies2
  • Nearly 60% of Brits have less than £1,000 of savings
  • Of those who do not have savings, for emergencies:
    • 33% rely on credit cards
    • 18% borrow from friends and family
    • 20% pawn or sell something to raise the cash

The above shows that a large percentage of our workforce has no financial resilience to weather the ‘rainy day’. Add to that the fact that UK adults owe an average of £3,737, it makes saving even harder and a distant pipe dream for most.

In times like this, employers need to step up and offer actionable options to their employees, helping them to not just avoid expensive debt, but also to nudge them towards a long term behaviour change towards saving for the curve balls that life will invariably throw at them.

FairQuid’s partner employers are already bringing about that change by offering their employees options to consolidate their existing debt with their local, not for profit community Credit Unions (the original P2P AltFi providers).

This ensures staff have an ethical financial service provider to turn to. The bundled saving contributions ensure that they do not just have a small pool of savings by the time their debt is paid off but also brings in the behaviour change of contributing towards a ‘rainy day’ pool every wage/payroll cycle. The next time they need money in an emergency, borrowing is not the first option for them.
Millions have less than £100 in savings, study finds
Majority of Brits have less than £1,000 saved up / How much of a savings buffer do people need?

Impact of Employee Financial Stress on your Bottomline

Employee Stress

Recently came across a well-researched post in America about the impact of employee financial stress and its impact on company’s bottom line in real dollars and cents. You can read the whole post and the sources of data they have researched against these, at the bottom of our post.

The main theme was around an acronym they had created – DEFACE and how it adds real costs to a company’s bottom line. We thought we will follow their lead and see how some of this adds up to a company in the UK of 500 employees and paying (for this post’s sake) a minimum wage of £7.20 an hour.

First, the acronym itself relates to Days available (attendance or lack thereof), Engagement (productive hours at work), Fatigue, Alertness (workplace accidents), Commitment (Staff turnover) and lastly Ethics (correlation between stress and temptation to steal at work).

Days Available: on an average 10 hours per month is lost due to absenteeism, 70% of all job absenteeism is tied to stress-related illnesses, of which the leading cause is financial stress. So if we assumed 7 hours a month due to financial stress, the cost impact is £302,400 per year. This obviously does not look at the opportunity cost to business of missed deadlines on customer orders and production backlog

Engagement: On average, a financially stressed employee will spend 20 hours per month dealing with financial issues at work. 70% of UK workers talk about being affected by financial worries. So if we take that as the staff numbers impacted, the cost impact is £604,800 per year

Fatigue: ‘Present-eeism’ where a worker is physically present but absent due to distractions about financial concerns, steals 6 hours of productivity per month per stressed employee. Applying for the same numbers as Engagement, the cost impact is £181,440 per year

Alertness: About 70% of workplace accidents are stress-related due to the distractions of that stress. The US paper said, “As a result, companies with 1,000 employees see about 23 stress-related accidents per year, costing about $29,000 each.” We checked the UK government’s Health and Safety Executive (HSE) website and see that for the UK the figures are £1.6 million for fatal injury, £7,400 per non-fatal injury. If we only look at non-fatal injury then the cost is £85,100 per year

Commitment: Staff turnover is high amongst financially stressed workers as they are willing to switch for an even small increase in wages. If we looked at the UK average turnover of 19% and studies show that 40% of turnover is stress related, the cost of replacing such employees is £5,000 each. So again the overall cost would be £190,000 per year

Ethics: Financially stressed workers are more tempted to steal from their employer, and in the US 4.2% of employees have been caught doing just that. Since we could not find similar data for the UK and did see that most of these were limited to Retail and Logistics sector (as far as available data we could find), we decided to exclude this from our calculations.

So for the 500 staff company, the overall cost of employee financial distress can be as high as £1,363,740. Now that is a substantial sum of money to be left unplugged from your bottom line.

There is a lot of awareness and emphasis now on Financial Education and Employee Financial wellbeing within the HR practitioners across the UK and this segment of Benefits is growing the fastest by various industry estimates. Though education is a good objective but education alone will not bring about behavioural change.

Companies need to be part of the alternative instead of being on the sidelines. The obligatory saving contribution in addition to loan repayments, is one small feature of FairQuid partner Credit Union loans that not only help employees consolidate their existing high-interest debt (thus saving money in interest costs) but also bring about a behavioural change in savings habit in a way that they have a pool of money saved by the time their debt is paid off. So the next time they need money for an unexpected expense, they don’t think of borrowing as their first option.

For more information on how your company can become a part of the movement, contact us

American source article

M&S pay row: a view

Britain’s most famous high street retailer “M&S”, which has been going round in circles for years trying to fix its ailing clothing business, has come up with a solution which has embroiled them in a dispute. M&S is consulting staff over the axing of premium pay on Sundays, and cuts to the pay for bank holidays and for employees working anti-social hours. This potentially affects around 7,000 staff. It also plans to reduce pension contributions, which would hit 11,000 employees.

As per them, despite these changes it will allow the chain to deliver “some of the highest wages in retail”, while the pension changes will deliver “parity” to all employees. The employees who would not agree to the new contracts will be sacked. This is more troublesome for the staff because if they agree to this contract their monthly income in hand will be reduced and if they don’t agree they would be losing their job.

As a result of Britain’s fast-changing and ruthlessly competitive marketplace, many retailers are struggling to survive. According to the British Retail Consortium (BRC), a trade group, sales growth has been slowing since early 2015. There have been some prominent high-street casualties this year, such as Austin Reed, a menswear brand, and BHS, a chain of department stores.

So is the pay row justified?
From a business stand point, pay cuts give M&S some leeway to turnaround without having to fire people, especially the ones who have spent years with the company. So it should be a sentiment that employees appreciate, right? But this is not going down well with the workers especially ones who have been with the company for a long time. From the stand point of the employees reduced pay would mean a shortfall in meeting monthly expenses. This in turn could drive most of the workers to borrow money either through payday lenders or other expensive sources. So it is a double whammy for them – reduced income and increased debt.

Can this gap be filled?
Credit Unions in their partnership with FairQuid can help bridge some of this gap. Since in the FairQuid model the length of service with the company and payroll deductions are key factors to reduce the associated risk for the credit unions. So in effect the employees can use their length of service with the company and negotiate better terms on their borrowings. The money saved through this can help bridge the gap that is left in the income without it costing anything direct to the company.

In all it will be a win-win-win situation for all the 3 parties:
1. Company: It will have a chance to do a recovery and save jobs
2. Employees: Instead of using just their credit score with expensive lenders, they can get to use their length of employment for fair term loans
3. Credit Unions: Success in their mission of providing alternative ethical credit in the UK economy

Brexit: Implications for HR

Leaving the European Union is a substantial step for any member state to take. The decision is in many ways a social, cultural and political one, but it is also one which carries economic implications. The United Kingdom’s decision to leave the European Union, or ‘Brexit’, has consumed much debate. The magnitude of the economic costs and benefits of Brexit cannot be known with certainty before the event. The unexpected result of the vote and its ensuing fallout has created an atmosphere of instability and ambiguity, which never bodes well for the economic climate.

As per the data from Adzuna, a job-search website, their count of new job ads put up was 29,000 compared to 39,000 (This is week on week number), a worryingly large fall of 26%. The count of new ads over the past seven days is 570,000, compared to 615,000 the week before (a 6% fall). Employers, it seems, are already less keen on hiring. Many companies opt for stack ranking (also known as “20-70-10” system) of employees in this situation, which creates job insecurity and demotivation among the workers. The workers are divided into “A” (20%), “B” (70%) and “C” (10%) players, where A being the top performer, B the vital majority and C being the poor performers. The “C” workers are let go as management feels this way they can kill two birds with one stone – 1. Reduce workforce costs ahead of tough time, 2. Avoid letting go of the vital majority for some time. However as the workers are not told their ranking, it creates a sense of job insecurity among “A” and “B” players as well, since they feel they would be the ones in the next round.

As a result, “A” performers start leaving as they are in a position to secure alternative jobs even in a tough economy. So the business is in some ways stuck with “B” players as they do not find jobs as easily in the tough market but with the insecurity and de-motivation their productivity drops and can very quickly become “C” players. So very easily the companies can be left with “C” players that they were trying to reduce to begin with.

When you force employees to fit into a pre-determined ranking system, you do three things:

1) Incorrectly evaluate people’s performance, by forcing line managers to fit their teams in the 20-70-10 bell curve model

2) Make everyone feel like a number, and

3) Create insecurity and dissatisfaction when performing employees fear that they’ll be fired due to the forced system.

This flux and uncertainty of Brexit is an opportunity for the HR professionals to not be reactive but be proactive. As an HR professional if you are proactive then you not only prevent “A’s” from leaving but also motivate “B’s” to become “A” players. You should consider that people have responsibilities toward their families and they have bills to pay every month. The best reassurance and benefit one can provide in these tough times is the freedom from financial distress.

It is time for companies to start focusing some of their HR efforts on tackling financial stress. With the new breed of employee benefit offering money management tools; it’s now possible to do this effectively and in a targeted manner. Employers should tie up with financial employee benefit providers like FairQuid that provides access to savings and affordable loans through local Credit Union partners. The employees irrespective of their salary scale just have to fill in the loan application form online from the convenience of their office desktops. The saving contributions and repayments are automated through payroll deductions; therefore they don’t have to worry about missed repayments. Since Credit Unions are providing this facility based on their employment and length of service with the company, it encourages the employees to stay with the company till the loan is repaid and thus helps directly reduce the turnover rate in the short term. Thus FairQuid, through its Credit Union partners, provides financial freedom to one and all irrespective of their income.

Giving employees the tools for financial resilience can break the needless spiral of anxiety and stress. This is crucial as far as productivity is concerned, where the impact of financial stress on the workplace can be dramatic.

Reduce Employee Financial Stress: Reduce Employee Turnover

Low financial capability and resilience is and has been a significant cause of stress across the UK workforce. These money worries have a clear impact on their productivity at work and attrition rate.

Employers always have an impact on the financial wellbeing of their workforce as the primary source of income for most people. The answer isn’t just higher levels of pay. Instead, employers need to help their staff learn healthy financial behaviours and build financial resilience.

According to a survey by SMF, One in five people (19%) think they are now under less financial pressure than they were two years ago. But twice as many people (40%) feel that they are now under more financial pressure. A third of people (32%) are fairly or very concerned about the level of debt they have at the moment and Four in ten workers (38%) say money worries have made them feel stressed. These worries have a clear impact on how people feel and behave as they go about their day-to-day life and work.

An individual’s financial wellbeing is inextricably tied to their workplace. As per Conclusion of the workplace report, Barclays Corporate & Employer Solutions and Barclays Workplace Banking, May 2014.

• 46% of British workers are struggling with their finance
• 70% have little or no savings at all

Employers will necessarily impact on the financial wellbeing of employees, whether they intend to or not.

What Employers can do to improve employee’s financial stress?

• UK employers must now offer a workplace pension to all employees. These pensions must be offered on an opt-out basis – that is, the employer will automatically help the worker save for their retirement by putting away a small proportion of their salary, unless they specifically decide not to participate.
• Auto-enrolment into income protection policies. By providing insurance cover for those times and individual is unable to work due to ill health or family problems, these policies can help to smooth income in the same way as savings.
• Providing budgeting tools alongside online payroll services could help employees to make better decisions with their money.
• Employers could also consider directing their workforce to online financial aggregator platforms, which help consumers to see all their financial assets and obligations in one place and to track their spending.
• Employer should tie up with financial employee benefit providers to provide access to affordable loans to the workforce via ethical lenders like Credit Unions
• Enable employees to borrow money through workplace benefits at a competitive rate.

Provision of simple tools could also help employees to take control of their money. Together, these steps taken could help the UK workforce to move to more sustainable forms of credit, grow their savings and avoid the stress of money worries which in turn would mean that people will not frequently change their job for more compensation and would lead to reduction in attrition rate.

HR challenge: Why would your employees be loyal to you when they could get a higher pay somewhere else?

Employee benefits are increasingly popular and we frequently hear about this new high tech start-up that offers unlimited holidays, stock options or discounted travel tickets.
All these perks sound great on paper but do they have a real impact on staff motivation and retention, if your company is not Uber or Virgin and you don’t have a workforce made of 25 year old computer geeks?
In a recent study on employee wellbeing* Barclay’s highlights the employee benefit disconnect where 72% of employers are confident they provide a good benefit package but more than 78% of employees disagree.

Two main factors can account for this strong discrepancy:
1. Chasm between benefits offered and needs of your employees
2. Communication on benefits available to the employees

Chasm between benefits offered and needs of your employees
For your employees to commit to your company goals, and go the extra mile, to make sure that they are achieved, the very first thing that comes to mind is, for you to go the extra mile for them. Get in their shoes and see what challenges they face in their daily lives. Create an ecosystem where they can focus on work and not have others worries occupying their minds. Maybe a good way to evaluate benefit packages could be to go back to basic concepts and compare what needs you’re satisfying on a Maslow Pyramid and where your employees actually stand on this scale.
1. Physiological needs
2. Safety
3. Love/Belonging
4. Esteem
5. Self Actualization
In a developed economy, like UK, one would expect all people to rank high in Maslow hierarchy of needs. While physiological needs are mostly covered, the need for safety (financial) is often not entirely fulfilled. Living in a stable and predictable environment is an essential feature that your employees look for. Several benefits exist and the most famous are healthcare and retirement plans. While these benefits are attractive to 40+ y/o employees, their impact on younger staff is far less significant.

According to Barclay’s Study, 40% of UK citizens have less than one month’s savings and make attractive business for loan sharks (payday lenders and credit card companies). How could your employees be engaged and focus on work when they lose sleep at night, because they don’t know how they are going to pay their bills or fund an unexpected expense? Employees don’t leave their financial issues and stress at the door, when they come to work in the morning.
Salary increases and company lending are not viable options. In a competitive environment a few percent raise in salary has little to no real impact on employee’s well-being but can be enough to wreck an organisation’s finances. That’s when smart benefits come into play; to implement benefits that will be adapted to the specific needs of your employees and sustainable for your company. Employee financial health is probably the most significant area for HR managers to focus on, but there are many more.
HR managers are key to assess what employees need, to deliver their full potential for the greater good of the company. They are also responsible for its successful implementation which can’t happen without a full commitment from the HR team.

Communication of your benefit package
For a benefit package to succeed within the company, HR managers must support it actively. Regardless of whether the benefit package was tailored at the company or purchased from a benefit provider; HRs are the key to massive employee adoption of any benefit package. If HRs don’t actively support and promote it, it will not be successful no matter how good it is for employees. Communication tools exist and can be used to set up active long term promotion campaigns. Some ideas:
– Common advertising: posters, leaflets
– More advanced advertising: company internal meetings, newsletters, visibility on intranet, case studies & employee feedback
– A benefits portal with easy access online 24x7x365

Being seen is not enough. Make sure your benefit package is easily available and enrolment is hassle free and convenient. The interface is key: Thaler and Sunstein showed in Nudge# that the interface determines the behaviour of people. Let me give you a very basic example. At a company/school cafeteria depending on how food items are arranged you can increase or decrease the consumption of any food item up to 25%. This experiment is a good illustration of the Nudge theory. In other words, how you can influence healthy behaviours through the choice interface you’re offering to your population. In the employee benefit area this theory was implemented in the US as suggested by the Save More Tomorrow program where employees monthly retirement savings contribution is automatically raised every time they got a pay raise unless employee logs in and cancels the automatic raise in his monthly salary deduction. In its first implementation, the Save More Tomorrow program helped boost the average participant’s 401(k) savings rate from 3.5% to 13.6% in just 3.5 years. People want to save more but they just don’t have the reflex to do it. Save More Tomorrow nudges them to increase their savings and lets them free to do otherwise if they don’t want to.

As we said retirement plans are good ideas but not enough to retain all workers that might be focusing more on the present rather than on their retirement strategy. In the UK, there is the example of Credit Union^ payroll deduction schemes. They are great opportunities for employees to get back on track with their finances by having access to affordable and healthy lending and a strong incentive to save money every month. However, very few employees join Credit Union payroll schemes because of lack of convenience and user-friendliness: the interface is just not right.
– Credit Unions only lend to members (with at least 3 months or greater membership history) but usually people only think about joining when they need a loan.
– Plus, even if your company has a payroll scheme with the local Credit Union, you still have to mail documents or show up physically at their local office.
– So people end up going online to payday lenders or using credit card debt even if it is more expensive and they can’t afford it, but it is convenient, quick and easy.

WEC Group a Lancashire-based metal fabrication company is one concrete example of how understanding the Nudge effect and optimizing the user interface can dramatically increase employee adoption of a new benefit. WEC had a payroll deduction scheme with Jubilee Tower Credit Union but uptake from employees was not that encouraging. One of the directors, Wayne Wild was challenged with a high staff turnover (>20% p.a.) and was looking for a benefit that would attract and retain talent at WEC. He was convinced that Credit Union membership could be a huge benefit for his employees. He decided to change the way employees accessed Jubilee Tower Credit Union Services and introduced FairQuid Employee Benefit scheme. This innovative idea was a game changer as it made it easy and hassle-free for employees to get the loan they needed at a fair rate of interest. No need to save before they borrow and everything happens online in real time.
1 year after implementation the scheme has achieved its goal of improving staff retention above expectations. Over 130 employees have joined the scheme and staff turnover dropped to 4%, saving the business over £250,000+ in recruitment and associated replacement costs.

“It’s a win-win,” says Wild. “The employer wins by saving on retention and recruitment; staff win with low-cost borrowing. The only thing he changed was the interface and the result was a massive increase in employee participation.

Making a difference to your employees lives is not necessarily about new and quirky benefits, it’s about inspired HR managers caring about the real issues of their people and trying to make a real difference for them. The benefit package per se is not enough and must be integrated with a communication strategy designed to make employees aware of what is available to them and make sure to design a choice architecture that will favour high participation.

Financial Well-being: The last taboo of the workplace? Why organisations cannot afford to ignore the financial health of their employees, Douglas Johnson-Poensgen, Barclay’s 2014
Nudge, Improving decisions about health, wealth and happiness, Thaler & Sustein, Yale University Press, 2008.
A Credit union is a non-for-profit organisation that operates savings and loans account for its members. These organisations are fantastic because they provide loans at a fair rate of interest and all the profits are paid back to the members as dividends every year. Some Credit Unions have ties with local employers that they establish on their own or through FairQuid.