Steve Herbert, Head of Benefits Strategy at Howden Employee Benefits & Wellbeing, discusses why Financial Education is still only considered a learning “nice to have”, when it should actually be an essential for every worker in the country.
The education system in the United Kingdom goes through significant change periodically. Governments – and Education Ministers – come and go, and each administration seeks to stamp its own take on what the nation should (or should not) be teaching the adults of tomorrow. Yet despite decades of change, the basic shape of schooling still reflects the Victorian approach of embedding the “three Rs” (reading, writing & arithmetic) into our children’s heads. Whilst important, this narrow focus often results in other important topics being overlooked.
A patchwork approach
Over the years this has resulted in the coaching of many other subjects and skills falling entirely outside of the formal education system. So generations of children and adults have learnt basic life-lessons from non-curricular campaigns and slogans, and particularly those Public Information Films produced and promoted by the Governments of the day.
Readers of this article will doubtless remember (and indeed be able to quote from) many of them. Classics such as Charlie Says, Keep Britain Tidy, Clunk-Click-Every-Trip and (of course) The Green Cross Code are now part of our collective national DNA. These Public Information films worked, and certainly helped the nation understand some specific risks and take corrective action accordingly. Yet it was a patchwork approach to education that was and is prone to some serious oversights. And probably the key omission over the years has been the failure of the UK to adequately educate its population to the risks associated with the poor management of their everyday personal finances.
As a result of this significant oversight, the vast majority of the British workforce has been left without any formal guidance in this most basic and vital of life-skills. So as a nation we have had to work out how to handle money on our own, and the fact that the UK is regularly near the top of the personal debt statistic charts suggests that we are really not that good at doing so. Of course external factors don’t help either. The financial crisis last decade took its toll, and 1 in every 8 UK workers is now estimated to be in poverty. Worryingly many more working families are just one missed payment away from a very real personal financial crisis.
This is awful news for employees, but also really bad news for employers too. The reality is that financially stressed employees are unlikely to be as focused or productive as their employer would ideally like. And with the uncertainty over the financial implications of a possible No Deal Brexit still hanging ominously over the nation, this is one topic where employers would be well advised to revisit the support offered to their workers.
Employ slogans as well as workers
So what can be done?
Obviously offering online Financial Education tools will be helpful, and certainly the use of professional onsite Financial Education experts will make a huge difference too. Either or both of these approaches can be combined with onsite workshops which will harness the inherent financial skills of colleagues and co-workers to benefit others within the wider workforce.
But whatever approach is taken, the key component is to embed a simple, strong, and consistent message that workers can remember and implement. And here we can learn something from those Public Information campaigns of the past. For instance The Green Cross Code told children to “Stop, Look and Listen”. This approach works just as well for managing personal finances too.
The first step for anyone trying to understand and improve their finances is to take some time-out to give genuine consideration as to how they see their current financial position. This important step is not intended to be a detailed insight into outgoings v income, but instead just an expression of how bad (or indeed good) things might currently be for the employee. Sometimes it helps to use imagery, or perhaps a scale of 1 – 10 so that people can really comprehend their current situation.
It may also be useful to ask employees where – on the same scale – they would ideally like their finances to be this time next year, and in (say) 5 years’ time. This provides a positive focus for the future and encourages early actions to achieve that objective in the short term.
The next stage is to persuade workers to drill-down to the detail of income v expenditure.
One of the challenges here is that in an increasingly cashless and paperless society people often don’t have any sort of concrete knowledge of their cash flow in or out. So persuading people to really look at the detail of both payslips and bank statements is a vital step towards a real understanding of how much money should be left at the end of each week or month.
An important point here is not to assume knowledge. A surprising number of people rarely look at their payslips. Of those that do, many don’t necessarily understand everything they see there. So talk employees through an example payslip, and encourage and empower them to challenge items that they don’t understand.
Likewise advise employees to work through several months of bank statements to identify regular outgoings that they are not aware of, challenge amounts and venders they don’t recognise, or identify significant spending habits that could perhaps be controlled or curtailed.
At the end of this exercise you may want to revisit the 1 – 10 scale. Many will find that their perception of their financial wellbeing has actually got a little worse. This can be used as a strong motivator to the next step.
With the stark reality of income and expenditure now established, it’s time to plan some serious corrective action. And part of that process is listening to the good practice used by others.
In today’s internet-enabled world there is bucket-loads of advice on how to save money available online, together with an ever increasing number of free-to-use tools that will enable workers to compare prices on everything from food prices, utilities, or even petrol for the family car.
But wherever employees choose to start the process, the important thing is to review all regular expenditure to see if cost reductions can be achieved. Small savings can add up, and the combined impact of reducing spending across multiple products and services can certainly generate a significant annual saving overall. It’s about reviewing everything and managing down every wasted £ spent.
This process is undoubtedly a big and time-consuming step, but the returns achieved will often make it one of the most productive income days that many employees will ever experience. Finance expert Martin Lewis suggests that one day undertaking this step will often save the individual £1,000 per annum or more. That’s a serious day’s earnings, and one that will make a real difference to an employee who is struggling to make ends meet.
Proceed (with care!)
So we have dealt with the Stop, Look and Listen approach, and by now your employees are hopefully on the right approach to improved finances.
But there is one more final – and very important – instruction in the The Green Cross Code. The adverts always made it clear that once we were committed to crossing, we should all continue to take great care, looking and listening all of the time. And again that’s true of Financial Education too. To maintain good financial health it’s important to stay alert to changes in both income and expenditure. It follows that employers should be encouraging employees to undertake a regular annual review of their finances.
It would also be remiss of employers not to further help employees to an even better financial position. So employers might also want to encourage regular savings through payroll deductions, be that for short-term, medium, or long-term savings. These can be facilitated via Christmas or Holiday Clubs, Workplace ISAs, Workplace Finance providers, or the company-supported Pension Scheme.
Encouraging employees to insure against risks is another useful and important step to take. This could be combined with a quick reminder of the important Employee Benefits that a good employer will often already provide as standard, including Life Assurance, Income Protection and Private Medical cover. Highlighting these benefits will drive-home the value of these offerings to employees (and possibly help improve staff retention levels at the same time).
The important thing for both employer and employee is that the financial education and understanding becomes a regular routine rather than a one-off exercise. Like crossing the road carefully, it’s one of those important habits that it’s well worth everyone learning and adopting.
Steve Herbert is Head of Benefits Strategy at Howden Employee Benefits & Wellbeing