Insights

WHY DO SO MANY OF YOUR EMPLOYEES THINK THEY CAN’T AFFORD TO SAVE?

By
Adrian Howard
on
November 15, 2021

There are 11.5 million adults in the UK with less than £100 saved (1). People tend to adjust their spending to match their salary, so pay increases mean they spend more rather than saving. Learning some simple tricks for money management can help ease the stress of financial worries.

Financial wellbeing is vital to the health of individuals, the workplace and the wider economy. But many Britons struggle with money problems and there are 11.5 million adults in the UK with less than £100 saved (1).

Poor financial wellbeing is holding the UK back. But the inability to save is not always linked with financial hardship – sometimes, it’s the result of poor budgeting at the start of every month.

How money worries affect performance at work

These money troubles can reduce a person’s competence in the workplace.

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.

Worrying about how to meet 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.

When employees lack the savings to see them through life’s ups and downs, workplace productivity is reduced and people’s health suffers, which can lead to more sick days. Employers can step in by helping staff become more financially capable, which will be paid back with improved workplace performance and fewer demands for pay rises.

Why people don’t save – and how to change

Psychologically, people are hardwired to prioritise current needs and wants over future needs. This ‘present bias’ 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.

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

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 subconsciously adjust their lifestyle to match their means and find that most of their income gets swallowed up.

The way to get around this is to understand that there is little correlation between higher incomes and increased happiness, after people reach a salary level where they can live comfortably.

Once people’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.

Quick tricks

  • Separate 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 for immediately after payday. Save money first and then live off the remainder by sticking to a budget.
  • Make your pension a priority. Extra disposable income today doesn’t make you happier, but the future ‘you’ needs sufficient savings to live comfortably.

We can help your staff improve their financial wellbeing. Get in touch to find out more.

Sources:

1 The UK Strategy for Financial Wellbeing 2020-2030, Money & Pensions Service, January 2020, based on a survey of 5,974 adults