Debt has become a way of life in Britain, with consumers over one trillion pounds in the red. Jenny Keefe says when carefully handled, employers can steer staff back on track and help get them performing again
Case Study: John Lewis
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"Neither a borrower, nor a lender be," counsels Polonius in Hamlet. This might have been sound advice in Shakespeare’s time but I’d like to see how smug he’d be when trying to get a foot on the modern-day housing ladder or pay his way through college after top-up fees are introduced next year.
Debt has become a way of life in Britain, with consumer borrowing now standing at more than £1.08 trillion. Paul Webley, professor of economic psychology at Exeter University, explains that, while not all credit is inherently bad, the shift in attitude is cause for concern. "There have been major changes in generational attitudes towards debt, credit and saving. Put very simply, saving used to be seen as a virtue, derived from the Protestant work ethic, and this played a crucial role in controlling luxury spending and extravagance. In the 20th century, after consumerism became the dominant culture, the personal savings rate dropped by half and in the past two decades, the decrease in the savings rate has continued and has dropped to close to zero. This has been associated with a big increase in debt, and changes in attitudes to debt."
He adds that student loans have played their part too. "New students have a negative attitude towards debt, but during their university career – as they incur debt – they become a lot more neutral towards it."
With the last traces of social stigma eroded, the country has been on a ten-year borrowing binge and the cracks are starting to show. According to the Department of Trade and Industry, the number of people declaring bankruptcy in the first quarter of 2005 was up 28% on last year’s figure.
Keith Tondeur, director of debt charity Credit Action, warns that the borrowing bubble is about to burst and recommends that employers put together an action plan now. "It is a growing issue for employers and they need to start thinking about the issue now, before things come to a head. For the first time in a decade, the economic picture is looking far cloudier. We’ve had low interest rates, high employment and rapidly-rising house prices, now there is a slight cloud over all three of these."
So how do you spot that a member of staff is drowning in bills? HR managers need to be trained to spot certain telltale signs, says Tondeur. "The employee may be having trouble concentrating or may be feeling tired. They might come in late or be irritable."
Prevention is better than cure, so the first step is to get all employees clued up about cash. "Money education is important to help people avoid getting in to debt," he adds. So enlist a financial adviser to talk to staff or get in touch with one of the many money charities that provide advice, which is often free of charge.
Unfortunately, human nature dictates that employers probably won’t hear about the problem until it nears crisis point. This is where debt counselling comes in. The Employee Benefits/Halifax Voluntary Benefits Research 2005 found that 37% of employees offer such a scheme. These can range from a free service from charities such as the Consumer Credit Counselling Service or specialist advice offered through an employee assistance programme or financial adviser. Other organisations prefer to offer advice in-house. But Nick Lord from the Citizens Advice Bureau’s national development team, warns that while HR professionals need to be familiar with financial basics, they should be wary of dishing out advice willy nilly. "The person giving the advice needs to be very clear as to where the boundary is between giving generic advice and the stage when we say, ‘we are going to go no further than this, you need to see someone who’s authorised to give you financial advice."
Staff may also need to be directed to counselling services unrelated to debt. "Often debt doesn’t exist in isolation. A common reason that people have debt problems is because they’ve had a change in their circumstances, such as a relationship breakdown or a death in the family. It should also trigger off the question ‘what else is happening in this person’s life?’ If one of the reasons they are having problems is because of a relationship breakdown, you also need to think about getting them to go to Relate or a similar agency," he adds.
And don’t forget to let employees know what is on offer. "Put posters around staff areas so that people can pick up details of helplines. One of the problems is that employees are often very reluctant to tell their employer that they are struggling with money [or other issues] which is why having guides available without having to ask for them is important," says Credit Action’s Tondeur.
Another common benefit is interest-free loans. "If, for example, someone’s washing machine has broken down, if they can be given a loan or an advance of salary it’s a very positive way for them to address that financial issue," says Lord.
"You can think of creative ways to address the problem," he adds, giving the example of employers who offer to pay full and final settlement of employees’ credit card bills. "If you owe £5,000, the credit card company can either get £20 a month for however many years, or your employer can pay £2,500. The credit card company might accept it because it doesn’t need to waste time and energy pursuing the employee."
But, he warns, if someone is in the red because of a spending problem rather than domestic emergency, encouraging them to borrow more is not the answer. "What I would say [in that case] is that to give someone that advance of salary may be helpful but it also has to be tied in with financial advice or it could be a sticking plaster over what may be a gaping wound."
Case study: John Lewis
As a company with a long history of paternalism, John Lewis has several schemes in place for employees who fall on hard times.
Helen Hyde, corporate registrar, says: "Especially in a business that is generally fairly low paid, financial issues can come to the fore. If we can help partners then actually that will really benefit our business because they may well be able to come into work whereas they may have had to take time off, either through stress or because they [are trying] to deal with the issues themselves."
The organisation provides loans for staff deemed to be in exceptional need. "I noticed that one worker was coming in a bit late and was looking very tired, so I sat down and had a chat with her. She lived with her elderly mum, who was becoming increasingly unwell and she had to wash her sheets every day. But her washing machine had broken down and she was having to do it in the bath or go down to the launderette because she didn’t have enough money to be able to repair her washing machine. In that instance, we were able to give her money straightaway, as a gift." Loans are interest free and can be repaid over a period of up to 36 months.
The company works with local Citizens Advice Bureaux and debt advice provider FCL. Hyde adds: "We do have partners who get themselves into a pickle and if we can help sort it out then we try to. But there are times when the debt is just too big.
"I had an [employee] last year whose debt was so great that she was made bankrupt. I went with her to the High Court and to all the meetings. Her manager, knowing what was involved, was comfortable to give her time off. It helps to make what is a fairly horrid situation a lot easier."