Resist the urge to “spend, spend, spend”
by Mike Wilson | JULY 2017
Close your eyes, sit back, stick on your “chilled” playlist and imagine a time when you had no money worries. Feels good doesn’t it?
For a lucky few this may be right now. For some it may be a distant memory. Perhaps it was the first day of university with a full student loan in the bank (soon to be gone by the start of the 2nd semester). Perhaps it was after a financial windfall, an end of year bonus, a redundancy cheque, an inheritance or even a lottery win.
Unfortunately, for many, this feeling of financial wellbeing doesn’t last. Even large windfalls don’t always provide the answer. In 1961 Vivian Nicholson’s husband Keith won the equivalent of £3M in today’s money on the football pools. She famously announced to the media she would “spend, spend, spend”. After a 4-year spending spree she was declared bankrupt following her husband’s death.
This is clearly an extreme and tragic example. However, the principle at work is the same for everyone. Financial wellbeing and long-term happiness stem from an individual controlling their urge to spend and nurturing a habit of saving. Unfortunately, we have evolved to consume and without constant effort we are inclined to think too much about the short-term and not enough about the long-term.
Exacerbating this natural instinct to spend and consume, we are also frequently encouraged to do so by the media and society; advertising, brand exposure, social media peer pressure (food photos and holidays snaps), discounts, sales and social occasions. We are also being encouraged to borrow; credit card mailers, personal loans and TV adverts for pay day loans. It is worth noting that some of these loans have scandalous AERs of over 1000%. This means every year you can add a zero to the amount borrowed, the fast lane to financial misery.
Why does this matter to employers? Recent research conducted by the CIPD found that 25% of employees worry about money to the extent that it impacts their ability to do their job, affecting attendance, engagement, productivity, concentration and decision making.
What can employers do to improve the financial wellbeing of their employees? In the same CIPD research, the top 4 most popular elements of a financial wellbeing programme voted for by employees were as follows;
- Earning a sufficient wage
- Being able to save for the future
- Being rewarded in a fair and consistent manner
- Being able to comfortably pay off existing debts
The 2 least popular elements of a financial well-being programme were both different types of discounts schemes. Put simply, the behaviours that have a positive influence on financial wellbeing are earning and saving more and spending and borrowing less. Employers need to encourage the right behaviours and stop encouraging the wrong behaviours.
This doesn’t mean giving everyone a pay rise (although I’m sure this would be happily received!). As well as offering a comprehensive benefits package communicated effectively, employers need to offer a flexible, employee-led learning and development strategy. Encourage employees to take control and allow them the freedom to develop beyond the courses that have measurable benefit to the company. Think beyond this. If an employee learns to play the piano they can have a hobby that also might bring in some extra cash, making them happier and more productive in the workplace.
Give your employees access to workplace savings, financial education and advice. Help them find a financial adviser if required. Provide guidance on financial questions. How much should they be saving? Should they save through a LISA, an ISA or a pension? How do they choose an investment strategy? If appropriate, set-up a share save scheme. Make it easy for them to save and incentivise this behaviour. This would help to address the worrying statistic that only 41% of under 34 year olds own their own home.*
Employers should see discount schemes as another encouragement to spend. Spending £80 on a meal out that normally costs £100 is not saving £20, it is spending £80. Without a holistic wellness strategy that also addresses physical and mental wellbeing, discount schemes are making the problem worse.
Set-up a financial counselling service to address the destructive cycle of spending and borrowing. Do not offer third party workplace loans as an easy way out. Instead, consider providing debt consolidation through interest-free loans as part of a holistic solution to change behaviour.
Employees need to be aware of all aspects of their benefits package. They need to understand the positive impact these could make to their future security. They need to be inspired and incentivised to take steps to implement change. They need to know where to go for assistance and not feel ashamed to ask for help. Employers need to give employees the impetus to continue to do this regularly. This is a substantial undertaking for businesses but the rewards are significant. Financial education is key; it brings all benefits to life and helps individuals appreciate how their benefits can lead to the attainment of their financial goals.
Contact us to discuss, we would love to hear your thoughts and discover what is working well for you.
*“The DNA of Financial Wellbeing”, Neyber – May 2017