Category: Savings

What To Look Out For When Employees Are Struggling With Debt

Despite Brexit inspired fears of an economic slowdown, the British economy keeps growing, with recent forecasts from the Bank of England, European Commission and IMF reporting positive upgrades for 2017.

Business and consumer confidence remains healthy, even optimistic. Fears of recession are receding in people’s minds, replaced by new fears, such as what chaos US President Donald Trump might unleash on Twitter today. Unemployment is currently at 5.4%, with businesses continuing to recruit new staff, grow and invest. At the same time, consumers are borrowing at a rate we have not seen since 2008.

The most recent figures from the Bank of England show unsecured consumer debt – credit cards, loans, overdrafts, car finance and second mortgages – grew 10.8% in November 2016, totalling £192.2 billion.

Peter Tutton, head of policy at the debt charity, StepChange, pointed out that net lending is growing at rates not seen since 2005. Speaking to The Guardian, he said: “Alarm bells should be ringing.” When student loans are thrown into the mix, average UK household debt reaches £12,887, according to the Office for National Statistics (ONS) and TUC.

Are Consumers Saving?

Confident consumers don’t save, they spend. Historically low-interest rates are also partly to blame. Not only is money cheaper to borrow, but saving it generates miserable returns. When an economy is strong, savings fall. They are currently at 5.6%, according to the latest Bank of England figures from Q3 2016.

According to StepChange, if every household had £1,000 as a rainy day fund – which is less than the three to six months financial experts recommend – it would reduce the risk of 500,000 families falling into short-term ‘problem debt.’ For many households – especially those earning decent money – it is easier to take out another credit card than saving.

When Debt Becomes a Problem

Debt is everywhere. Managers and highly-paid professionals have debt. Business owners can’t assume that their staff aren’t struggling with finances as a consequence of comfortable salaries. Higher pay makes it easier to borrow, which in turn, reduces the desire to save and keep a rein on outgoings. When money is flowing freely, now is the time to get into good savings habits, which is also something employers can encourage.

Employers can’t tell employees what to do with their money, but they do have a duty of care that extends to personal and financial wellbeing. An unexpected expense, changing circumstances – such as divorce or a suddenly unemployed partner – and bills getting out of hand can soon push people into tricky financial circumstances. It can happen to anyone, especially when there is no buffer to cushion the blow.

Watch out for warning signs. Bad and unexpected debt can impact productivity, employee morale, causing absences, sick days and stress. Here are a few things managers and colleagues should look out for:

  • Changed circumstances: especially new expenses or reduced household income (a relationship or marriage breakdown) – not reflected in lifestyle choices. If someone is living the same way – going out and splashing cash around – they could risk getting themselves into unmanageable debt.
  • Exhaustion, irritability and stress: We spend a lot of time with our colleagues. People notice when team members are mentally and physically drained. Bad moods, lack of sleep and exhaustion have many causes, but financial worries are always worth asking about, providing this is done sensitively.
  • Poor diet: Financial anxiety is another reason people comfort eat, sleep less, drink more, and stop taking care of themselves.
  • Anxiety, anger and an inability to concentrate: Everyone reacts to stress differently. Some may withdraw, whereas others get angry, or can’t concentrate at work, which is unsurprising when studies show that worrying about money reduces mental capacity, comparable to losing 13 IQ points.

No one wants employees to suffer without offering some intervention and help. There are several solutions, from training to practical interventions, such as the ethical loans we provide through our platform to savings accounts, which is also something we can offer employees. When it comes to saving, small change soon adds up. Providing any assistance is offered sensitively, and the help is received willingly, an employee can get unexpected costs back under control without extra stress or being forced to pay ridiculously high rates that only make a situation worse.

Sources:

1. The Guardian: https://www.theguardian.com/business/2017/jan/04/uk-credit-cards-borrowing-debt-economic-crash-fears
2. ONC and TUC figures in the BBC: www.bbc.co.uk/news/business-38534238
3. B of E savings figures: www.economicshelp.org/blog/848/economics/savings-ratio-uk/
4. Princeton study on debt and cognitive impact: www.wired.co.uk/article/worrying-about-money-can-lower-your-iq

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.

1Source: http://themoneycharity.org.uk

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.
1 Millions have less than £100 in savings, study finds
2 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

Savings can also be a cause of stress

Reading a story today on CityAm* about a recent survey conducted by Equiniti on employees and their saving habits; few things stood out.

Just under half (46 percent) of workers want their employers to offer them financial education, while a similar proportion (49 per cent) feel their workplaces could do more to help them make informed savings and investment choices. 58 per cent of savers and investors are not putting away as much money as they would like, with a fifth (19 per cent) saying this is because they are not sure of where best to invest their hard earned cash next.

“…It’s in the employers’ interest, it helps build loyalty and mitigate financial stress …” normally one would think that having some savings should relieve stress, not cause it. A lot of companies, when they think of financial stress and employees being in distress think of employees who are prone to fall prey to payday lenders or have an unsustainable balance on their credit cards. The savers are thought of as people who are financially prudent and hence need no help.

According to a recent post by Daily Mail*, “Millions of customers with savings accounts in Britain are already suffering from historically low returns, with many popular savings accounts paying close to zero.” Financial Conduct Authority has also named and shamed few banks and Post Office as having easy access accounts that in some circumstances pay no interest. Many banks have been criticised for so-called ‘teaser rates’ which lure customers before slashing back the benefits once the cash has been deposited”.Long term financial education and investments through company share plans are good but the employers also need to look at short and medium term savings of their employees. Money that is being saved for Christmas shopping, a big purchase, a holiday or for a rainy day unexpected expense. Having this money

Long term financial education and investments through company share plans are good but the employers also need to look at short and medium term savings of their employees. Money that is being saved for Christmas shopping, a big purchase, a holiday or for a rainy day unexpected expense. Having this money sit in a zero interest zombie bank account isn’t the only option.

Credit Unions are the original P2P (peer 2 peer) Finance companies since the time P2P Finance or the social economy weren’t fancy terms. Members savings are not just protected under the FSCS (just like a bank) but they earn dividends on their deposits at the end of the year. Unlike saving account interest rates of banks, the dividends are not fixed or reduced by the credit unions. It is directly linked to the money the credit union earns by lending to its members.

So it is a win-win situation – you save when you don’t need the money, withdraw when you need it. If you need more than you have saved, then you can borrow from the credit union itself and help yourself and other members earn dividends from the money you borrow. Member helps member, the social economy at its original best.

FairQuid runs the tech platform where you can connect your employees to your local credit union and instil long-term financially behaviour change. Start now

*CityAm article

*DailyMail article

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.