Why financial wellbeing matters

The global pandemic has brought into sharper focus the concept of “financial wellbeing”, a holistic measure of personal security not typically captured by investment returns, consumer spending and saving data or macro-economic aggregates.

On some measures, financial wellbeing has been deteriorating in developed economies for years, thanks to privatisation of social services, rising divorce rates, growth of short-term employment contracts, increasing consumer indebtedness and the shift to defined contribution retirement plans,

But the sense of isolation and loss of control that many people feel in increasingly market-driven economies with minimal safety nets became more intense in 2020 and 2021 as COVID-19 cut incomes through job losses, furloughs or reduced hours.

Coping with nasty surprises

In the US, a wellness survey by PwC showed that many American workers were already in a fragile financial state going into the pandemic, with more than a third of the full-time employed having less than $1000 saved to deal with unexpected expenses.[1]

The PwC report found with governments stretched and community services already beyond capacity, there was an important role for employers to pay in financial wellness.

“Employees are seeking guidance more broadly on how to prioritise their spending, which bills to pay, and how to handle creditors.” PwC said. “Employers have a unique opportunity here to help employees avoid making poor short-term financial decisions at the expense of their overall financial wellness”

The Australian Government last November released a report showing many people had reduced their spending in response to the pandemic. Among the worst hit, one in seven had asked for a pause in their rent or mortgage payments, one in five had asked for financial help from family or friends and one in eight had sought welfare assistance.[2]

In the UK, also, there is growing awareness of the role that employers can pay in addressing financial wellness issues, an effort that aside from the moral imperative also makes perfect business sense by helping staff regain a sense of control of their lives.

The Money and Pensions service, sponsored by the UK government, found almost eight in 10 British employees take their money worries to work, affecting their performance. In fact, money worries are the biggest source of stress for people, with 4.2 million worker days lost each year due to absences related to lack of financial wellbeing.[3]

Indeed, it is this sense of a lack of control and the absence of resilience in dealing with what life might throw at them that most people highlight first when asked about the impact that money issues have on their sense of wellbeing.

Financial wellbeing programs

While the Australia and the UK are in the early stages of financial wellbeing programs, the US has been working on this concept for several years.

In 2015, the US Consumer Financial Protection Bureau (CFPB) developed a financial wellbeing scale, which seeks to provide a structure and a set of questions to provide an objective measure of individual financial wellbeing.[4]

The scale incorporates four elements – a sense of control about day-to-day finances, the capacity to absorb a financial shock, being on track to meet financial goals and having the financial freedom to make choices that allow one to enjoy life.

“Financial well-being is a state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future, and is able to make choices that allow them to enjoy life,” is how the CFPB defines the concept.

With this framework and associated questionnaires available, US employers have been making a significant investment in financial wellness programs. Research from Bank of America found that in the four years to 2019, the proportion of US employers offering such programs increased from 24% to 53%.[5] That has increased further since COVID.

By contrast in the UK, a recent survey by CIPD, the peak body for HR professionals, found half of employers don’t have a financial wellbeing policy.

“As well as affecting an individual’s health and wellbeing, money and debt worries can impact people’s performance at work, which can have knock-on implications for their employer’s productivity and bottom line,” CIPD said.

“However, the report suggests some employers don’t recognise the strong business case for having a financial wellbeing policy.”

Coping with nasty surprises

Financial wellbeing programs

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