Tag: savings

Government Aims To Address Debt Burden Through No Interest And Extended Repayment Schemes

According to the Office of National Statistics, for the first time in 30 years, UK households have collectively spent more than they have earned in 2017. Their total expenditure for the period came to on average £900 more than their income; thus pushing them into a financial deficit for the first time since the credit card boom of the 1980s. The deficit, which amounted to nearly £25bn, was equivalent to almost a quarter of the NHS budget. Though most households fell into the cycle of overspending with the money they had borrowed, a number of the households also ran down their savings.

The government, in its autumn budget, announced new measures to help citizens in debt. Referred to as the ‘Breathing space’ scheme and the ‘No-interest loans’ scheme, these measures aim to tackle the problem faced by about three million people in Britain, who are facing the pressure of debt caused by borrowing from high-cost lenders such as payday and credit card companies.

Currently, over 16.8 million people in Britain have less than £100 savings. This leads to financial stress and takes a toll on their mental health. Over a million people turned to high-cost credit last year to meet their basic living expenses, which is in the end counterproductive both for households and the country’s economy. The problem of high-cost credit is intensified by insecurity in the labour market and the growing use of zero-hour contracts. This, in turn, implies that when people do not plan their budget and overspend, they get into debt, as they have no savings. This will have a negative impact on their credit ratings, distancing them even further from fair credit opportunities.

Therefore, the UK government, working with leading debt charities and the banking industry, has decided to launch a feasibility study to help design a pilot for a ‘No-interest loans’ scheme in early 2019. While, under the other ‘Breathing Space’ scheme, people who are in debt will get a 60-day period of protection against creditor action. This will give them more time to seek advice and make plans to repay their debt in a manageable way.

The decision makers drew inspiration from the No Interest Loans Scheme of Australia, which provides people with low incomes access to safe, fair and affordable access to credit. The scheme offers loans of up to $1,500 for essential goods and services and not for cash. Repayments are structured over 12 – 18 months. There are no interest charges or fees.

Though there are many organisations imparting financial education to create awareness for lowering debt and increase savings, there is a need for a strong practical solution that can work alongside these plans. FairQuid, a financial wellbeing platform, believes credit unions play a central role in tackling these issues.

Currently, credit unions in the United Kingdom could help millions of Britons who are excluded from mainstream finance. They play an important role in facilitating savings and offering affordable loans to their members. The Financial Conduct Authority (FCA) regulates credit unions but as they are run for the benefit of members, not shareholders, they can offer ethical saving schemes, competitive loans and other financial products, not usually available to individuals excluded from traditional financial organisations.

The FairQuid Wellbeing Platform has been designed to work in tandem with employers to develop innovative solutions that benefit both credit unions and employees. It is a win-win situation for all. The platform educates employees about personalised financial tools to make better finance-related decisions and take control of their finances. On the other hand, for employers, it prevents mental health issues in workplace, boosts engagement levels, and increases employee retention.

The budget also has a provision to support this credit union sector. To help people increase their financial resilience while boosting awareness and membership of these community organisations, the budget commits to launch a pilot of a new ‘prize-linked saving’ scheme for credit unions.

By helping households manage their unexpected costs through increased access to fair and affordable credit, and motivating them to create a safety net of savings, the government is taking a big step towards its citizens “being and feeling financially secure, today and in the long run.”

How to Save as you Borrow (as an Employee)

2 min read

Saving money isn’t easy. Especially when you’re juggling debts. Putting money aside for a rainy day isn’t something we, as a nation, are very good at anymore.

Since the recession, banks have encouraged consumers to borrow money. Interest rates are low, so why not treat yourself? Get a new sofa. A new car. Go to Spain. Buy that shiny gadget you’ve had your eye on for a while. Treat yourself. Treat the kids. Have fun! You only live once (YOLO).

Unfortunately, this mindset has, for millions of families, created an unhealthy relationship with money. For the first time in 30 years, UK households collectively spent more than they earned in 2017. Since over 16 million people have less than £100 in savings, how does one support all this spending? In one word: Debt

Low savings and debt: Impact on employees

Low levels of savings alongside debt is a toxic combination. It causes stress. A lot of it. With sleepless nights, one in four employees has struggled to perform at work due to money worries.

Ultimately, it’s felt at the workplace. Anxiety and stress can cause accidents and absenteeism. With struggling staff, it can also drag down productivity and most importantly – the overall well-being of your people.

Many think that financial stress is something of a taboo, especially at work. Team members aren’t likely to raise these issues with a manager or HR. This puts employers in an unfortunate position that they’re negatively impacted by problems they aren’t aware of and seemingly can’t do much to control or improve.

So what can you do, as an employer, to help your employees where they need it most?

Encouraging positive change

So we already know it’s tough to save when you’re steeped in debt. Without the safety net of savings, anything can go wrong, putting employees at risk.

When you’re looking for credit, there are many barriers to affordable access to credit. For one, your credit score history can leave you with nowhere else to turn but high-interest rate options such as credit cards, overdraft accounts and payday lenders.

It’s not all doom and gloom, though. We’ve got a solution! We enable loyalty and performance with the employer to be used as a credit currency.

What does that mean? Instead of historical credit scores, we measure the current length of service and performance to assess the eligibility of a loan. Using these innovative metrics, means we solve the problem of access to credit because our approval rates get up to 97%. There’s no point providing an employee benefit if it can’t benefit all your employees, right?

Couple this with an attached savings component which nudges employees to, ‘Save as you Borrow’, and voilà – we are changing behaviour for the future! And we really are. Most employees continue saving long after they have paid off their loan.

So how do we pull this off? Our partners are not-for-profit, member-owned, financial cooperatives. In short, Credit Unions. We connect employees to these ethical organisations through our platform, giving them access to the fair credit they deserve.

Partnering with responsible employers that want to offer a benefit that really matters, we are on a mission to bring fair finance to all. We want to put people back on track to saving, becoming debt-free, and being part of the co-operative financial community – one employee at a time!

Get in touch! Let’s be part of the movement to improve employee’s lives together!

Supporting Credit Unions through the #WorkNotWorry Campaign

Read time: 2 mins

Not enough savings and too much debt is a painfully stressful reality for millions of people across the UK. Credit unions are at the forefront of driving change and we, at FairQuid, are right beside them providing access to fair credit.

ABCUL (Association of British Credit Unions Limited) has launched the #WorkNotWorry campaign, with the aim to get more people to start saving and benefiting from credit unions. If you haven’t heard of them, credit unions are not-for-profit, member-owned financial co-operatives. Members (anyone who has an account with them), enjoy the same saving deposit scheme protections and services as high street banks but with better benefits. They can earn dividends, so when the credit union and local community does well, so do the members.

What causes worry at work?

Research shows that 46% of employees are worried about money, and 59% of those feel they’re not performing at their bestbecause of this stress. It doesn’t help that 1 in 4 are not getting enough sleep, which is understandable when 16 million adults have less than £100 in savings, according to the Money Advice Service (MAS).

Media stories about record levels of debt and people with not enough savings always sound like these are problems that happen in other companies, to other people. However, as we know from working with companies across the country, these problems have an impact on more staff than companies realise.

It’s a scary reality that millions of people, including those with families to support, are carrying more debt than they can afford and living one pay cheque to the next. Together with the employer, we can change this.

What can employers do?

When employees are caught in a vicious cycle of perpetual debt they need practical help. As money worries persist, team members can become less productive, take time off sick, make mistakes, and could start looking for another job.

In partnership with credit unions, we offer a practical solution through our innovative wellbeing platform. At FairQuid, both our employee financial wellbeing products have attached savings components whether you Save as you Borrow or Save with a Purpose. We have found that when nudged to save, the majority keep saving after the debt has been fully paid, changing behaviour for the future and working towards becoming debt-free. Combined loan and saving payments come direct from net wages, making it easier for people to budget without having to find spare cash for savings.

Most financial institutions only use credit scores to assess eligibility for credit. However, we know that doesn’t give everyone the fairest chance at accessing finance when they need it most. With our partner credit unions, we reward employee loyalty by assessing eligibility on the length of service and performance. This way, we give employees a way out of debt and into savings, changing long-term attitudes to money, and significantly reducing stress at work.

We believe in the power of the community to help each other and therefore are proud to support credit unions to increase their impact and raise awareness through the #WorkNotWorry campaign.

Want to support your team where they need it most? Join the FairQuid movement and help your staff to #WorkNotWorry! Contact us today.

Improve Your Employee Financial Wellbeing With Practical Solutions

Once known as a nation of savers, UK consumers are now more likely to use credit than savings for emergencies and other purchases such as holidays.

Savings are at the lowest levels since 1963. Over a decade of low-interest rates since the recession, have made it easier to borrow and reduced the benefits of keeping money in savings accounts.

Since the Office for National Statistics (ONS) started collecting data on borrowing in 1987, UK households became net borrowers in 2017. A worrying trend. It means the amount people borrow now exceeds the amount they’re depositing in bank accounts, pushing savings ratios to record lows, currently at 4.9% of their disposable income.

We’ve seen this before

High levels of debt, governments, banks and property companies encouraging people to buy houses, low levels of savings, and some economic uncertainty. It sounds too familiar, too much like the opening scenes of the world economic meltdown.

Brexit doesn’t help matters either, throwing a whole other set of uncertainties into the mix.

A debt charity, StepChange spokeswoman, said to the BBC “If we could shift that balance a bit, especially for lower income households, we could improve the financial wellbeing of many households and prevent many experiencing problem debt.”

An accessible emergency savings fund of £1,000 per household would lift 500,000 out of problem debt. People could use savings when necessary, instead of turning to predatory lenders.

Can and should employers help?

Yes, but that doesn’t necessarily mean you need to lend money to staff or increase wages. Companies can only afford salary increases in-line with their own budgets and revenue forecasts. Lending money comes with huge challenges and implications so isn’t always advisable either.

Financial education, although well-meaning, only goes so far and fails to tackle the real problem: Managing too much debt and not enough savings. Companies rarely get much of an ROI from such programs, and employees don’t feel the benefits.

Offering practical solutions, for a practical problem, is the way forward. FairQuid Employee Wellbeing Solutions are a practical solution that is proving popular amongst employees at companies we are working with. Members of your team can gain access to loans (with automatic, built-in savings accounts) from Credit Unions.

Not only do these services reduce employee financial stress, it means they can start saving straight away.

With debts reducing and savings growing, employee absence, time off due to stress, and turnover, reduces. Be a responsible business and join us to support employees to become debt-free, today.

Putting Nobel Prize Winning Nudge Theory in Action With FairQuid

Richard Thaler won the Nobel prize for economics in 2017 for his contributions to behavioural economics. His ideas, known as “nudge theory” could play an important role in encouraging staff to reduce debts and save more, which improves retention and reduces recruitment and training costs.

Nudge theories have already been put into practice across many countries.

In the UK, Thaler’s belief that when policies are skewed towards people’s long-term self-interest, have already positively impacted pensions, reduced smoking and increased organ donation.

Championing the concept of “nudging” people was behind the government’s 2012 pensions auto-enrolment policy that meant private businesses and employees needed to opt-out rather than opt-in. It has successfully and massively increased private pension contributions.

Nudge Theory in Action

In 2010, the behavioural science and economics professor at the University of Chicago was part of the coalition government “nudge team”, which explored everything from vaping to energy and organ donations. Known as the Behavioural Insights Team, it’s credited with encouraging 100,000 extra organ donations and persuading 20% more people to shop around for a cheaper energy provider.

The theory achieved widespread attention when Thaler co-wrote a book with US professor Cass Sunstein in 2008: Nudge: Improving Decisions about Health, Wealth, and Happiness. Since then, nudge concepts have been put into practice around the world in the public, private and charities sector, many times with resounding success.

Not that they are without critics. Some on the right say they’re too paternalistic, even when they achieve results that help those directly involved and the public. Whereas, some on the left claim these concepts are neoliberal – concepts popular during the Bush administration – since they rely on individual choice instead of overt state action.

Although popular with academics and governments, we need to see how these theories could be applied in the workplace. Could nudge theories help employers retain more staff, reducing talent acquisition and training costs?

In our view and with the experience we have had with employers, we know they can. FairQuid is putting nudge theory into practice.

Staff and Employer Benefits

Far too much data exists to show that people in the UK are in more debt than ever and are saving far less than we should. We are, unwittingly, leading ourselves down the same road that led to the last global recession.

Too much debt and not enough savings directly impacts employees. Staff are stressed about money. This won’t affect all of your team all of the time, of course, but once a percentage of your staff are worried about money often enough it will impact productivity, absence rates, stress levels and illnesses. Especially this time of year, in autumn and winter, when the need for money is greater (Summer is gone, and Christmas is approaching) and colder weather makes people more likely to get colds and flus.

What happens when existing credit limits prevent staff from spending much more, yet they need more for presents and other seasonal costs?
One of two things: People try and borrow more, which could mean payday loans, or they look for a new, better paying job. Either way, you lose a member of staff, or stress and absence rates increase as a result of larger debt burdens.

There is another way. With FairQuid, we offer consolidation loans that include a savings account and savings products. Financial wellbeing for staff, which costs your business nothing. Below is a table outlining what happens when someone takes out a consolidation loan that automatically includes a savings account.

(1.) Christmas is approaching. A customer spends too much, pushing them further into debt since they haven’t had time to pay down debts since the Summer.

(2.) They are offered FairQuid Financial Wellbeing products at work, taking out a consolidation loan that gives them a little extra credit whilst paying off existing debts and opening an automatic savings accounts. Funds are taken directly from source, so they get used to budgeting a new amount whilst reducing their debts and starting to save.

(3.) In time, debts are fully paid off, and savings continue, which is what 90% of FairQuid Financial Wellbeing customers do after they clear their debts.

That is, one of the ways, how we can help you put Nobel prize-winning ideas into action, which means employees don’t look for a new job and are less stressed and more present at work.

As an employer, you can do something about these issues (whilst also ensuring your staff are more productive and engaged) – thanks to FairQuid Credit Union savings accounts. Best of all, these won’t cost your business a penny. Find out more today.

Why Savings Through Payroll Deductions Benefits Employers and Employees

Wages are not rising as fast as living expenses. Growth is slow, and companies are, understandably, hesitant to increase payroll costs. At the same time, employees – consumers – are borrowing more than ever and savings are at a record low.

This isn’t some scene setting exercise for an article in The Economist. Unfortunately, this is the economic reality of Brexit Britain.

Retailers need consumers to keep spending, So do service companies and house builders. Banks are keen they keep spending too, but all of this means it’s easier to borrow money than save.

At the same time, the cost of living – inflation – keeps increasing, up 2.7% in May 2017 – from 2.6% in April, according to The Consumer Prices Index (CPIH), which can’t keep pace with salary increases. Again, forcing consumers to borrow or dip into savings when costs increase or they need to spend more.

With the Summer behind us and Christmas on the horizon, most parents will be feeling an acute pain in the wallet or when the next credit card statement hits.

Savings Recommendations vs Reality

Debt charity, StepChange, recommend most people have at least £1000 set aside in savings. For one in four families in the UK, those that earn less than £1,500 per month (after tax), that simply isn’t realistic or practical. In reality, savings amongst low earners is usually around £95 – an amount that can be easily wiped out when an unexpected bill hits or one month is more expensive than another, such as during the Summer or Christmas. Even that £1000 figure is too high for 70% of adults in the UK.

Saving money is not easy for employees who live paycheque to paycheque.

For most families, even those with two paycheques and working tax credits or another government benefit, getting to that £1000 in savings can be a struggle. Once money comes in, it’s usually allocated to something – mortgage/rent, bills, food shops, kids, everyday money and the occasional treat. Savings is a nice to have, but when credit is cheap and easy to access, not a must-have, at least not every month.

An alternative: A benefit employers can offer employees?

Companies can offer staff an alternative solution.

An employee benefit Savings account, with the amount an employee wants to save automatically deducted from salary payments. Instead of staff struggling to find money to put aside after they’ve been paid, with automatic deductions before the funds hit their bank accounts, they can adjust personal budgets whilst knowing a savings pot exists they can tap into when needed, making it far easier to start saving.

Every month, your team could have money going into savings accounts, putting aside a little extra that grows with dividends, from our Credit Union partners. At the same time, if any of your team need to borrow from a credit union, the interest they pay goes back into the pot that pays out dividends to themselves and everyone else with a savings account.

Similar to automatic enrolment, except this is a voluntary scheme and one that employers don’t need to make contributions towards. Staff control their savings, including withdrawals anytime they need.

Not only will employees gradually build up savings, but for employers, you can rest easy knowing:

  • Workplace stress levels would reduce. Money is one of the main reasons behind absenteeism, stress-related illnesses, poor engagement at work and staff looking for new jobs.
  • Mental health at work will improve. Knowing that staff have savings, money in the bank will reduce the impact of stress, making your team more engaged, focused and able to hit targets.
  • As a workplace benefit, savings accounts are one of the most effective, practical, financial benefits you can offer that doesn’t cost the company money. Now is the perfect time to introduce workplace savings accounts as an employee benefit.

As an employer, you can do something about these issues (whilst also ensuring your staff are more productive and engaged) – thanks to FairQuid Credit Union savings accounts. Best of all, these won’t cost your business a penny. Find out more today.

How to Get Financially Fit and Stop Living Paycheque to Paycheque

Average weekly pay is increasing, but at the same time, so are living expenses. One of those figures, according to recent Office for National Statistics (ONS) data, is not increasing as fast as the other.

Can you guess which is rising faster: Inflation – the cost of living – or what most people are paid?

If you guessed inflation, you would be correct, according to April 2017 ONS figures.

Average regular pay (not including bonuses, etc.) – before tax and other deductions – is £472 per week, up from £464, in April 2016. However, the cost of living – inflation – keeps increasing, up 2.7% in May 2017 – from 2.6% in April, according to The Consumer Prices Index (CPIH).

Most of us are being paid slightly more – unless you have a ‘gig economy’ job – but that money isn’t stretching as far, with goods, services, food and electricity prices going up again.

At the same time, more of us are struggling with debts with fewer savings to fall back on.

The Bank of England is increasingly concerned with the surge in personal borrowing – up 10% in just over a year. No one wants to return to pre-Credit Crunch conditions (2007-08), and banks lenders are keen to prevent this – with a 24% increase in CCJs in 2016, compared to 2015 figures.

Consumers that struggle with debt, either due to an unexpected bill, changing financial circumstances or unemployment, could enter the collections process sooner than expected. With the average CCJ amount as low as £1,495 per person, this is a worrying sign that the majority of people are only a few missed payments from default and long-term credit score damage.

But that isn’t the only worrying sign.

One in four UK families are classed as low-income, according to Aviva UK, with monthly income below £1,500. High earners are those with an average monthly income above £5,000 (the top 8%). Part of this emerging crisis is that savings amongst low earners is now £95 (in February 2017), compared to £136 in the same period the previous year.

Numerous financial experts and the debt charity, StepChange, recommend a minimum savings amount of £1000 – which is simply unrealistic for most low-income families or those currently servicing a sizeable amount of debt, in relation to income.

A Real, Practical Way Forward?

Banks, credit cards, payday lenders and consumer finance partners aren’t the only ones that can lend money in the UK. Not-for-profit, Credit Unions can make responsible lending decisions, even when people have previous blots on their credit file, but a decent recent financial health; e.g. at least one year’s employment with the same employer.

FairQuid partner Credit Union loans are more affordable. Loan payments come directly from your salary, which means they take the affordability of this into consideration too. Loans through credit unions also automatically include a savings account, which means, over time, your financial health keeps getting better. Ever heard of a Personal Loan that also builds your saving account?

Don’t let your debt get the better of you: Time to get financially fit, with FairQuid: Your Money, Your Way. Find out more and apply here.

Your Money, Your Way

Wouldn’t it be great if you could apply for a loan without worrying that one mistake or debt from years ago is going to prevent you getting some extra money?

Banks and the majority of finance companies only make decisions based on your credit score. This magic number – which not enough people know, or want to know – is the only number that matters to most financial companies. We don’t think that’s right or fair.

A system where the deck is always stacked against you

Credit scores prevent too many people from accessing finance that they are perfectly able to manage and afford. In the building where we are based, there’s an entrepreneur – let’s call him Dave – running a successful company, with investors, paying customers and staff. But Dave can’t get a loan. He pays himself a decent salary – not a huge amount, but enough to live in London, and all he wants is a small loan to consolidate some debts and buy some new furniture.

Unfortunately, when Dave was a student, he got a credit card. Then another, then another. Five in total. Most students have more than one card and overdraft. Being a student is expensive, and banks advertise at them aggressively to take out as much credit as possible. Banks love students. They spend as much as they can, but rarely pay off a card or overdraft in full so that they can make money off them for years afterwards.

He was bombarded with free offers, and the credit cards were ridiculously easy to get. He did keep up all the repayments, except for one card – unfortunately forgotten in a move to London. It had a small unpaid balance – only £50.00.

It took a while for the demand letters to catch up with Dave. Once they did, he paid the balance, including the arrears, but the damage was done. The unpaid card left a black mark on his credit file for six years, making it impossible for him to access low rates in the meantime. His issue wasn’t the debt; it was that he never would have signed up for so many student cards if it wasn’t for aggressive targeting, easy applications and free offers. As a young student, he wasn’t mature enough to realise the long-term impact of these offers.

Banks stack the deck against those who need access to finance the most and credit scores are one of the main ways they screw people over.

A fairer system, with Credit Unions

Credit unions need to make responsible financial decisions, which means they need to factor in the results of a credit check. However, this isn’t the only way they judge loan applicants.

When you apply through FairQuid, they take your employment history and salary into consideration, alongside affordability. One black mark on your score from years ago isn’t going to prevent you getting a loan. Employment history – such as whether you’ve been with your current employer for a year or more. This shows positive financial behaviour, stability and your ability to earn a living. People, not algorithms decide if you can get these loans.

Loan payments come directly from your salary, which means they take the affordability of this into consideration too. No responsible lender should ever provide credit you can’t afford. Loans through credit unions also automatically include a savings account, which means, over time, your financial health keeps getting better.

Now is the time to take control of your finances, with FairQuid: Your Money, Your Way.

Find out more and apply here.

Your Wages Your Way

Worrying about money is a horrible feeling. It stops people sleeping at night. It grips you in the pit of your stomach. Money worries can get in the way of even the brightest summer day.

No one wants to worry about money, but even those who earn decent money – or at least have a stable job – can find themselves in a tricky position. In the UK, average household debt is around £13,000, and around 70% of us have no savings.

So it doesn’t take much to unsettle most people finances: A boiler breaking, car fails an MOT, an expensive month with too many Birthday’s, not to mention, for families, Christmas and the Summer Holidays.

The problem is, banks aren’t always willing to lend extra money when someone is in a tight spot. Banks assess whether they can lend based on credit scores. When applying for a loan, overdraft extension or credit card, it doesn’t really matter what you say. That is one reason you can apply online without speaking to anyone these days – people don’t decide who gets money anymore, algorithms and credit files do.

If you have a good credit rating, then getting access to a little extra money – or having that money (or credit) already available shouldn’t be an issue; but we know this isn’t always the case. Not everyone has an ‘excellent’ credit score.

Millions of people are stuck in ‘persistent debt’, paying off old credit cards, loans and overdrafts. And then there are others, whose credit files are still affected by acts of kindness that get turned into bad debts, such as when people get phones or loans out for other people who then don’t pay, or move away.

Bad credit scores still penalises people who have steady jobs and salaries that cover all their costs, except for unexpected bills and other expenses. You shouldn’t have to turn to payday lenders to rescue you from a tight spot.

There is another way. For anyone who’s been employed at least one year with their current employer, you can – through credit unions – get a loan that should pay off any current debts and help you start to build up some savings.

All you need is your employer to verify your employment. If you are accepted for the loan (which comes with an automatic savings account – starting from a minimum of £10 per month). People, not algorithms decide if you can get these loans. Loan and savings payment come straight from your salary every month, just like Ride to Work schemes, travel and childcare schemes and other salary deductibles (council tax).
…
All your employer needs to do is verify your employment and adjust your payroll if you are approved. It doesn’t cost them a penny. Find out more and apply here

FairQuid: Your Wages, Your Way.

Lending Money to Staff: Pros and Cons?

We aren’t born worrying about money, as Yorkshire Bank likes to remind anyone who uses their cash machines.

And yet, for the majority of adults in the UK, money worries cloud our waking thoughts – and troubled nights sleep – more than we realise. Old debts, credit cards, overdrafts, store cards, consumer credit purchases – such as cars and sofas – can make it difficult to save for a rainy day, for a holiday, or for buying a house. Most of us work to live, making money a recurring source of worry.

It is worse when you are in debt, which most households are, to the tune of £12,887, according to recent figures from the Office for National Statistics (ONS), on average, which includes student loans. Mortgages aren’t included in that figure.

Sudden unexpected costs can throw a household budget into turmoil. From new tires to a broken boiler (1 in 5 break every year), we can’t always control how we spend our money. It would be great if we could, but life can get in the way.

When people don’t have a rainy day fund – which is easier said than done – it can force them into a limited range of options, especially if poor credit scores and other lines of credit prevent them from borrowing more from banks and building societies. Under these circumstances, some will turn to an employer, especially if there is a history of lending money to staff in need.

Should You Lend Money to Staff?

There are a few different ways companies lend money to staff. In London, interest-free annual TfL travel passes are a great way for employees to save money on tubes, trains and buses, with the payments deducted monthly from salaries. For this article, we are talking about when an employer transfers money to an employee as a loan.

Although there are risks, there are a couple of benefits to lending money to employees.

Loans encourage loyalty. Unlike loans from banks, credit unions, or even payday lenders, this money is directly tied to an employer; therefore, an employee is more likely to feel a stronger sense of loyalty to the company. Taking money worries off their mind means they can focus on work, which in turn means they will be more productive, thereby creating more value for your company.

However, there are downsides, which businesses should consider before lending money.

#1: Potential Consumer Credit Implications

Loans to employees can become voidable if there is no 14 day cooling off period given, no annual statement of accounts, and if there are any restrictions on how the funds are used.

The Consumer Credit Act casts a wider net than many employers probably realise, with fines of up to £5,000 and, potentially, two years in prison, if a company is caught issuing consumer credit without a license. Without realising it, companies that lend money to staff could be in breach of the Act.

#2: Discrimination Concerns

From a financial perspective, some employees are a lower risk than others. Unfortunately, lending to one and not the other can cause tension, bad feelings, and potentially, charges of discrimination being levelled against a company.

#3: Loans as a Source of Stress, Financial Dependence

Loans aren’t always a one-off. When the same staff are coming back for loans, emergency advances and quick cash injections, it raises the question as to whether you are doing more harm than good. Clearly, in these cases, they have become financially dependent on the extra money and are living beyond their means.

In the long-term, this is an unhealthy cycle that needs to be broken. Plus, this places an undue financial strain on a business when it is constantly acting as a credit line to employees. There is an alternative solution: Employee benefit loans, combined with a saving account.

Give employees the option of taking a loan connected to their employment – contingent on years of service and performance – with repayments funded directly from their salaries. Credit ratings are still important, but finally, there is a way to ensure past financial performance isn’t the only criteria to judge future stability.

Employee benefit loans take the strain and financial risk off employers, whilst providing staff with a way to consolidate debts and start putting money aside in that rainy day fund. Now that is an employee benefit your staff can take to the bank. Find out more today.

Sources:

> http://www.macfarlanes.com/media/1731/loans-to-employees-consumer-credit-act-implications-ric-march-12.pdf
> http://www.hrpayrollsystems.net/are-employee-loans-a-good-idea/
> http://www.personneltoday.com/hr/how-to-offer-loans-to-employees/