The recession means staff are taking more interest in their finances and there are key messages employers can pass on to help them cope, says Katrina McKeever
Times of economic downturn can cause stress and anxiety for a large number of employees, as they face mounting problems keeping up with debt management, mortgage payments and rising household bills, all against a backdrop of concern about job security and typically declining pay increases.
As employees struggle to cope with the pressures of managing their personal finances, their work may be affected while their concentration is elsewhere, which can cause problems for employers as their workforce becomes less productive.
Financial concerns can run deep, says Dudley Lusted, head of corporate healthcare and wellbeing at Axa. “Money permeates so much of one’s life,” he says. “Not only does it affect you personally if you feel like you have not got enough money but you also start to worry about your mortgage and your home, the impact on your family and so on. “[Stress] manifests itself much worse as far as finance is concerned because the implications are greater.”
The precise effect of employees’ financial concerns on productivity is difficult to measure, but 77% of HR professionals believe that employees would be more productive if they were less concerned about their own financial issues, according to Axa’s Productivity pressure 2008 survey, published last November.
Consequently, employers may wish to consider offering financial education to staff during times of economic downturn. Even providing employees with some time during working hours to manage their financial affairs can help, says Lusted.
“Employers can help by giving their employees a few minutes a week to think about their personal finances and consider what they can do,” he explains.
Targeting messages to help employees with their financial affairs can have advantages for both employers and staff. Paul Frost, regional delivery manager at the Financial Services Authority (FSA), says: “Anything that employers can do to relieve employees’ stress [over money worries] in terms of financial education will make staff feel better about their money and also help them to manage their [finances] better. This will help employers as well, in terms of increasing productivity and reducing absenteeism.”
Financial education can be used to help employees understand products based around short and long-term borrowing. It can also offer information on mortgages, explain how interest rates work and decode jargon, such as explaining what annual percentage rates (APR) are and how they work. Even providing simple tips on debt management can go a long way towards helping employees better manage their affairs.
Encouraging employees to spend time shopping around for better deals on insurance and mortgage rates – for example, by using price comparison websites – can also pay dividends. Any savings that they make can reduce the burden of their household debt or expenditure, allowing them to feel more in control of their finances and, in turn, making them more productive at work.
To achieve this, employers can send out key messages to staff about managing their finances in a downturn by using tailored financial education programmes. These can take a number of forms including seminars and workshops, CD-Roms, presentations, and tips and guidance posted on a organisation’s intranet site.
Some employers may also use third-party organisations, such as the FSA or independent financial advisers (IFAs) to provide financial education for staff. For example, this can encourage employees to take some simple steps to look at what their outgoings are in relation to their income in order to identify where problems lie, if any. “Once you have that under control, everything else becomes simpler,” says Frost.
Employers may also be able to help employees overcome financial concerns by promoting the benefits contained in their reward packages. Darren Laverty, director of Secondsight, says now is the time to capitalise on employees’ general heightened awareness of financial issues.
“The difference is that before [the financial crisis] employees needed education, [but] they did not necessarily want it,” he explains.”The current economic climate has made people want it [and] they have become interested.”
In particular, employers should promote the value of financial perks such as workplace credit unions, occupational pension schemes, share schemes, income protection and health insurances. Such benefits can help staff to think long-term about their finances, save for the future, and increase confidence in their ability to cope with the downturn.
Pensions in peril
However, in times of recession, some benefits can be double-edged swords. For example, many pension schemes have been hit by the financial crisis. Last month, The Pension Protection Fund reported a total deficit of £209.6bn to the end of December 2008 for defined benefit (DB) pension schemes, while many staff belonging to defined contribution (DC) plans will have seen the value of their funds plummet due to stock market fluctuations.
Angus Jones, chief executive officer of IFA firm Clarity, says: “[Employers] which have not yet put [financial education] strategies in place should be careful as employees invariably blame their pension plans for the poor performance of the funds within them.”
In the case of employees who still have plenty of time to go before retirement, however, the best advice employers can give at the moment is to do nothing, says Laverty. “This is a cycle,” he says. “Things go up and down and employers can reassure [employees] that over the longer term things tend to go up, and refocus [them] on what they are trying to achieve.”
Providing financial education, therefore, can keep staff focused on the goal of saving for retirement, even when recession hits and they may be living from one pay cheque to the next. Employers can also reassure staff in DB schemes that their savings are covered by guarantee through the PPF, while DC scheme members can buy greater quantities of their chosen investments when stock markets are low. Reassuring employees about their pension during times of economic crisis is vital to maintaining engagement with the perk.
Staff will require similar reassurance about the value and security of employee share schemes, such as sharesave and share incentive plans (Sips). Falling share prices will inevitably have led to concerns about their impact on share schemes and some employees may find the results of maturing plans disappointing after the market slump. Employers should remind those in sharesave schemes that their savings are guaranteed if they choose not to exercise their option should their scheme go underwater.
Low share prices also mean this is a good time for employees to join sharesave schemes as the price at which they can buy shares when the schemes mature three, five or seven years later will have been set at the start and in the interim the value of the shares may have risen.
If staff are struggling to maintain their monthly payments into a scheme, employers can advise them on practical steps they can take. Malcolm Hurlston, chairman of the Employee Share Ownership Centre, says: “In practice, there are rules in sharesave [schemes] so that if [employees] are temporarily strapped for cash they can take a six-month holiday without making contributions.”
Employees in Sips are exposed to stock market risk and may find the value of the shares they hold is less than the savings they have paid in, even after discounting the effect of tax savings and any matching or free shares issued by their employers.
Hurlston says employers should be cautious when addressing employees on this as share prices may fall further. But he adds that prices could even out over the duration of a scheme. “This is a good time to reinforce the message that investment in shares is a long-term business,” he explains.
In the meantime, employees can buy more shares per pound while prices are low.
As well as providing staff with financial messages, employers can direct them to other sources of support and information, such as employee assistance programmes. Other external sources of free and impartial help on financial matters include the FSA, Citizens Advice Bureau, National Debt Helpline and the Consumer Credit Counselling Service.
Whatever they opt for, employers must not stray into the realm of offering financial advice, but imparting key messages to staff in times of economic uncertainty can help those with worries.
“The main message is do not panic,” says Frost. “If you look at past recessions, we [have always] come out the other end.”
Key messages to pass on to staff
- Take time to evaluate household budgets: Work out income and outgoings, and identify where savings can be made.
- Shop around: Finding a better interest rate on a mortgage deal, household insurance or health insurance can pay dividends.
- Don’t panic in tough economic times: The financial markets have often seen peaks and troughs so employees should be encouraged to think long-term about their investments and savings.
- All is not lost: Savings held in sharesave schemes are guaranteed, while members of share incentive plans are buffered from falling prices to a degree by tax breaks.
- Finally: Keep saving for retirement.
Case Study: Abbey
As a financial institution, Abbey regards financial education as being paramount to the wellbeing of its 16,000 employees, particularly during the current economic climate.
It is planning to launch a workplace financial education programme to help staff cope with the credit crunch, following on from an initiative built around its sharesave scheme last year.
Maria Strid, head of reward, says: “We feel it is important to keep investment in financial education high.” The company’s intranet site is also used for updating staff on perks. “To ensure employees can easily access all benefits, we have invested in an online benefits communication platform. This has made it easy for staff to see what Abbey offers that can make a difference to take-home pay, for example, discounted retail vouchers.”