By Fleur Iannazzo CFA MSc PCC, senior consultant, financial wellbeing at Aon.
There is little mystery around what makes a person financially capable. The key is that people need to believe they have the skills to manage their money. There is a clear link between financial literacy, financial stress and mental health.
That is why it is vital that employers invest in integrated financial wellbeing programmes which bring together analytics, information, education and behaviours.
Aon’s 2024 Defined Contribution (DC) Pensions Survey highlighted that 75 percent of employers surveyed have some financial wellbeing offering in place or under planning. Often this will be a long-term investment opportunity (36 percent offer employee share save plans) rather than a near-term savings tool (22 percent offer workplace ISA savings).
However, for many employees, the key challenge is less about accessing long-term tools and opportunities, and more about coping with managing cashflow in the here and now.
Challenges With Financial Education
No-one doubts that employers are motivated to put effective financial wellbeing programmes in place, but they face challenges getting employees to engage with financial tools and education. Dealing with this in the context of pensions provision is essential to improve retirement outcomes and to reduce the risk of poor decisions.
However, employees need support to make financial decisions in the face of overwhelming information overload - a paradox of choice and the difficulty of managing current financial needs vs those of the future. This can leave employees disengaged and feeling even less convinced they understand how to manage their finances well.
It is the responsibility of employers and the financial industry to make financial enablement accessible to everyone. We should consider financial wellbeing as part of career progression and succession planning, and integrate financial wellbeing initiatives with employee benefits, not least in pension planning.
Challenges with Employee Engagement
Financial literacy does not happen by magic, and even financially literate individuals can struggle with money management. While clear communication is key, individual employees prefer to engage with financial information in different ways. Some prefer workshop sessions, some want to read information online, while others prefer to interact with chat bots. It is vital for employers to understand their workforce and how they prefer to receive financial information.
Cultural Change in the Workplace
There is a cultural change needed in workplaces to talk openly about money and financial wellbeing. We can learn much from how many employers have been able to successfully change the culture around support for mental and emotional wellbeing in the workplace in the last 10 years.
Employers now have an opportunity to apply this knowledge and experience to drive a positive change in employee financial wellbeing. Doing this can bring beneficial knock-on effects such as reduced absenteeism and health costs, as well as increased productivity. Employers should be tailoring financial wellbeing programmes to different employee needs and preferences, as it can have a big impact on talent management, diversity, and knowledge retention in the workplace.
Applying Behavioural Change
Meanwhile, in-workplace behavioural change support is crucial, so that individuals can be more empowered to make financial decisions confidently and ably. Managers trained in financial wellbeing could integrate it into performance reviews and catch-ups, proactively reaching out to employees and facilitating a culture in which talking about money is not taboo.
Financial wellbeing has a direct effect on mental health and wellbeing, and employers have a duty of care to address this. I believe it is crucial to turn negative discussions about financial wellbeing into positive ones, and to avoid absolutely any kind of language of blame and demonisation in financial wellbeing discussions.
As has happened with positive changes in attitudes towards mental health in the workplace, addressing behaviours is as important as providing tools and information directly.
Financial Wellbeing and DEI
Financial wellbeing has a key role in diversity, equity, and inclusion (DEI) efforts. Systemic barriers have created self-perpetuating wealth and financially empowerment gaps across various demographic groups. The higher educated you are, the more likely you are to be financially literate. Beyond technical knowledge, financial empowerment builds confidence in making key financial decisions – especially with regards to taking advantage of career opportunities and self-advocacy in the workforce – especially for women and minority groups. There is an ethnicity gap in financial literacy as well, and more can be done to help people overcome this.
Retirement Transition and Financial Wellbeing
Effective financial education goes beyond the foundations of understanding a budget. The reality around us is that technology has made transactions quicker and easier than ever. This increase in frequency and speed of transactions encourages people to overspend. In the face of pressure to spend from all sides, individuals are discouraged from changing their habits and are getting into debt, which leads quickly to stress and mental health issues.
This is why I believe that to support people saving for their retirement, it is vital to help them with money management today. Financial Conduct Authority research in 2022 found that interventions to address support for people struggling with cash flow will have a more immediate effect on their long-term financial resilience. Being able to manage money better today, is likely to mean higher personal contributions to retirement savings.
Retirement transition undoubtedly causes anxiety for many people, and many employees may need support with the skills and capabilities to manage their financial wellbeing during retirement. To bring a real shift in attitude, employers have a key role in facilitating conversations about retirement and financial wellbeing.