Cost of living | The current state of financial wellbeing

The current state of financial wellbeing

By Tracey Ward, Head of Business Development & Marketing at Generali UK Employee Benefits

To have any kind of significant and positive impact on financial wellbeing, employers need to consider this issue through a diversity, equity and inclusion (DEI) lens, says Emily Trant, Head of Impact and Inclusion at Wagestream.

Wagestream, a financial wellbeing platform, recently published its latest State of Financial Wellbeing research report ‘Essential and excluded’. It focuses on the problem of financial exclusion and examines how and why women and ethnic minorities are particularly at risk.

We took a deep-dive into the report findings, as part of a webinar hosted by Generali UK, in partnership with Wagestream. In this article, we include some of the headline findings, but for more information, please contact us for a free link to the full recording.*

It's worth noting that Wagestream’s financial education services are eligible for Generali UK’s Wellbeing Investment Matching initiative, where we’ll part or fully fund a wellbeing service on behalf of a Group Income Protection client where a specific need is identified.

Tracey: We’re probably all suffering from cost of living fatigue. But in what ways is it still impacting people?

Emily: In the UK, we have a really progressive minimum wage regime, as a proportion of median pay among full-time employees. In fact, the UK is on course to have one of the highest minimum wages in the world, rising from 59% of the median wage in 2022, to 62% by 2024, if the current target is met. This would put the UK ahead of the majority of Organisation for Economic Cooperation and Development (OECD) countries.

So, we’re actually doing quite well in the UK in terms of pay. Where we’re not doing well is in protecting pay, in terms of state benefits. Let’s consider that aspect for a moment. If you are off work and only entitled to statutory sick pay, a four week sickness absence in the UK only replaces about 11% of average pay, which is much, much lower. The rest of the OECD sits at around 64%.

In other words, we’re doing a good job in the UK on pay. But we’re not looking after people well in periods of absence.

Looking at this through a cost of living lens, you can start to understand why some people are still really feeling the bite. Although inflation is down on last year, meaning some earners are back into positive real wage, where there’s sickness absence or any other kind of time off work where you’re not earning and you’re only entitled to statutory benefits – for example, maternity – you’re actually really struggling. You don’t have the coverage to help bridge the gap between being in work and being out of work.

Tracey: Tell us a bit more about financial exclusion and why this should be considered a DEI challenge?

Emily: In the UK, women make up just under half of the workforce, around 48%. But it was noted in 2021 that women make up the majority of workers on low hourly pay (61%). The same report noted that women are more likely than men to remain in low-paid work over the long term. And there’s a strong correlation between doing low-paid work and not having access to various minimum standards, such as parental pay, minimum holiday entitlements and sick pay – from statutory sick pay to occupational sick pay.

Additionally, people from ethnic minorities are also doing a disproportionate share of low paid work. And, in fact, they’re much more likely to be in what we call ‘highly insecure’ work. Low pay itself indicates financial exclusion, especially when it comes to access to credit tools – overdrafts and credit cards – to help smooth out the peaks and troughs in earnings.

There’s also a kind of ripple effect to that financial exclusion. For example, there’s lots of state support in the UK for people in work. But an estimated £19 billion in benefits goes unclaimed each year. This includes core benefits such as Universal Credit, as well as benefits such as carers’ allowance, warm home discounts, tax free childcare. It even extends to social tariffs on things like your water, broadband and other utilities.

Our research shows that individuals from white backgrounds are twice as likely to tap into this support as people from ethnic minority backgrounds, even if they’re in the same pay bands. So, similar financial circumstances, but ethnic minorities aren’t always accessing the support available. That’s making them twice as likely to report that they’re struggling to pay their bills.

In other words, a really interesting picture starts to build when you look at cost of living through a DEI lens.

Tracey: What’s the rationale for employers getting involved in equipping employees to help with behaviour change and supporting financial resilience?

Emily: There’s some fascinating and also worrying research out there, that distractions – such as financial concerns (in this case termed ‘financial scarcity’ or lack of rainy day savings) – can significantly impact performance, even leading to lower intelligence scores. This study was repeated, this time focusing on sleep deprivation (an issue often correlated with financial worries) and those deprived of sleep lost around 13 IQ points. A loss of this size can take you from ‘average IQ’ to ‘borderline-deficient IQ’. The same sleep deprived person had even fewer IQ points when they were preoccupied by scarcity of some sort. One example of scarcity provided by the article is tight finances.

In short, it’s arguably the case that lack of finances – or financial stress – combined with associated lack of sleep, can have an enormous impact on the ability to think clearly and make rational decisions.

So, when you are worrying about money and thinking about how to manage the timings of income coming in and payments going out, how to afford holidays, never mind the day-to-day, all of this consumes bandwidth.

In short, when people are stressed about money, they’re less able to make good decisions about money because they’re losing bandwidth to the problem. This has a knock-on effect on other areas of life, such as productivity at work.

Imagine having that on repeat, day in, day out. It can be incredibly difficult to come out of that.

The good news though, is that when people are given the tools that enable them to clearly understand their financial circumstances, they’re better equipped to take action. It’s then that we see some really powerful behavioural changes, with a positive knock-on effect on mental health and productivity.

Our own research shows that when people have visibility over their earned wages, they, on average, work 11% more and spend 78% less.

4 things employers can do to support their employees

  • Communicate. You cannot over-communicate your benefits.

  • Get the stakeholders in the room, including DEI. Financial wellbeing is not a single stakeholder issue. Pay, benefits and workplace policies crafted in isolation end up cutting across each other.

  • Consider opt-out payroll savings. This is where employees automatically start saving into their own accessible short-term savings account through regular payroll contributions unless they choose not to. Money can be withdrawn when needed.

  • Look at financial wellbeing toolkits that are data-driven and enable people to take action.

*To access a free recording of the full 30-min webinar, please email [email protected] 

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All information contained herein represents the views and opinions of the author as of the date of writing and is provided for general information only. Nothing herein constitutes or is intended to constitute financial or other form of advice and no individual should rely upon the information provided in making a specific investment decision without first seeking independent professional advice.

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