Member Article

The link between poor financial wellbeing and workplace productivity

Harriet Shepherd, Workplace Financial Wellbeing Manager at St. James’s Place Wealth Management.

The average fulltime employee will spend most of their waking lives at work. Therefore, it goes without saying that the troubles and stress they experience in their personal lives will inevitably seep in.

Productivity and employee wellbeing are inherently linked. An employee’s relationship with their finances can have a substantial impact on wellbeing. A study in 2019 found that 94% of UK employees had money worries, with three-quarters reporting that those concerns affected their work (1). Almost nine in ten larger UK businesses say they have been impacted by poor employee financial wellbeing, through outcomes such as reduced productivity, loss of talent and more short-term and long-term absences . Put simply, poor financial wellbeing is holding the UK back.

Financial wellbeing is vital to the health of individuals, the workplace and the wider economy, but currently, 11.5 million adults in the UK have less than £100 saved. (2)

But the inability to save is not always linked with financial hardship – sometimes, it’s the result of poor day-to-day management.

Poor financial wellbeing and work

In a speech, Andy Haldane, the former Chief Economist of the Bank of England, explained that every individual’s decision-making ability, patience, and ability to improve their education, skills and experience are heavily influenced by their financial environment.

Meeting one’s day-to-day needs consumes a person’s ‘cognitive bandwidth’, effectively reducing the amount of brainpower they have available to dedicate to their work. Remarkably, these effects can even be seen in experiments where people were asked to merely contemplate suffering a financial loss.

For employers, poor financial wellbeing equates to days lost from the workplace. A ‘financial wellbeing in the workplace’ report by Aegon in 2018 estimated that 4.2 million days of work were lost by private sector workers. When employees lack the savings to see them through day-to-day life, workplace productivity is reduced and a person’s health suffers, which can lead to days absent from the workplace.

Employers can play a significant role in helping staff become more financially capable. An initiative that will be paid back with improved workplace performance.

Why people find it hard to save

Psychologically, people are hardwired to prioritise current needs and wants over future needs – otherwise known as a ‘present bias’. It means that even those who are well informed about the importance of financial planning can struggle to effectively carry out their intentions to budget, reduce expenditure and put money aside for their future.

When people are in financial difficulty, it intensifies this focus on the here and now, making it even harder to think about future needs. This leads to a vicious circle, where people struggling financially end up worse off.

And a pay rise doesn’t necessarily mean that it’s easier to save. People tend to adjust their lifestyles to their salaries and get used to a certain standard of living, whatever their income. For example, someone on a salary of £25,000 may have living costs and spending habits that consume most of their income. If their income increased to £40,000, £50,000 or £60,000, they might consciously or subconsciously adjust their lifestyle to match their means and find that most of their income gets swallowed up.

There is little correlation between higher incomes and increased wellbeing, after people reach a salary level where they can live comfortably. After all, once a person’s basic needs and some of their lifestyle ‘wants’ are satisfied, spending more money on day-to-day desirables doesn’t really enhance life satisfaction. A well-known study in 2010 found that happiness began to ‘level out’ when a person reached a salary of $75,000. (3) Remembering this can help a person to save as the priority is less on buying luxury items.

Helpful tips on how to save:

• Create a saving mentality by separating out ‘needs’ from ‘wants’ and decide how much you want to spend on each, every month.

• Set up a direct debit to a savings account on or immediately after payday. Once this money is saved away, you can then learn to live off the remainder by sticking to a budget.

• Saving for your future goals and lifestyle. Extra disposable income today doesn’t make you happier, but the future ‘you’ needs sufficient savings to live comfortably.

References:

1. 25 million UK employees affected by money worries while at work, Close Brothers, March 2019 (Based on a survey sample size of more than 5,000 employees and more than 1,000 employers)
2. The UK Strategy for Financial Wellbeing 2020-2030, Money & Pensions Service, January 2020, based on a survey of 5,974 adults
3. People feel happier the more money they make, up until a point, estimated to be about $75,000 a year per person, Princeton researchers Daniel Kahneman and Angus Deaton, 2010 (based on 450,000 responses to the Gallup-Healthways Well-Being Index).

This was posted in Bdaily's Members' News section by St. James's Place Wealth Management .