To make matters worse, average household debt (excluding mortgages) now stands at £8,480 according to Credit Action, and the CPI rate of inflation is currently running at twice the intended 2% target, which is forcing up the cost of living and stretching pay packets to breaking point.
Economically, times are tough, and recovery is likely to be a long way off for most people. This is largely because the vast majority of the British population is ill-equipped to plan finances effectively so that debt can be paid off and future savings and investment goals can be met. According to a study by Marks & Spencer, fewer than one in 10 people (7%) think we are financially educated as a nation.
Financial literacy among individuals needs improving fast, and employers are best-placed to offer help with this, particularly as organisations will benefit too. In a difficult economic environment, organisations operating with the most efficient and focussed workforce gain a competitive advantage; whereas failing to improve employees’ financial literacy will detrimentally affect businesses’ bottom line.
Worrying about money makes people more susceptible to ill-health and has a negative impact on their working life, which costs businesses money in absences and lost productivity. Seven in 10 people admit to spending time at work worrying about their finances, according to a study by AXA and the Citizen’s Advice Bureau now deals with almost 1,000 new debt problems every working day. Plus, uptake of employee benefits such as pension scheme membership and share plan membership is not as high as most organisations would like, and this is often because employees don’t properly understand how these financial products work, what the cost is and what the risks are.
Now is an ideal time to boost employees’ financial capabilities, ahead of implementation of the national employment savings trust (NEST) scheme. Without adequate guidance, NEST is likely to meet resistance from employees since they will be automatically enrolled in to the scheme and required to personally contribute at a time when most people are already struggling to make ends meet.
Effectively communicating the benefits of NEST is of paramount importance. The scheme is a worthwhile endeavour, and enforcing personal pension provision will go a long way towards reducing the state pension burden on taxpayers and eradicating pensioner poverty in this country in future. Currently, 2.5 million pensioners are living below the breadline, according to Age UK. Plus, Prudential has found that almost two-thirds (62%) of people who had planned to retire this year are now considering working longer in order to boost their pension savings.
The aim of NEST is to ensure everyone saves at least 8% of their salary into a pension scheme. Actually, this probably isn’t enough, but it’s certainly a step in the right direction. What employers need to do now is to roll out a comprehensive learning programme to employees, which covers all aspects of personal finance. This will ensure employees understand the importance of saving for retirement and don’t exercise their right to opt out of the scheme.
What will prove most challenging is ensuring employees see NEST as an opportunity to secure a more comfortable retirement, and that this advantage outweighs the pain of losing income today.
Lauren Peters, head of financial education for Money in Mind