A heady mix of rising inflation, taxes and squeezed wages means UK households are saving less than at any point over the last 50 years.
According to the Office for National Statistics (ONS), the saving ratio for households out of their disposable income dropped to 4.9% in 2017 – the lowest level since records began in 1963.
Since the UK voted to leave the European Union in June 2016, higher levels of inflation – which spiked at 3% last year – at the hands of a devalued sterling has created a consumer culture in which borrowing trumps saving.
Research by the Money Advice Service suggests four in ten adults in the UK have less than £500 in savings; worrying still, a survey by ING bank found 28% had no savings whatsoever in their account.
Middle-class families are feeling the squeeze. A YouGov poll, commissioned by the Times in 2016, revealed that 31% of households – belonging to the ABC1 working bracket – would have a hard time paying an unexpected bill of £500. For manual workers and those out of work, the figure was 46%.
Financial worries and stress can often spill into the workplace, unduly impacting on performance. A recent PwC report concluded that almost one third of employees are more likely to be distracted in the office as a result of personal anxieties over their finances. This was corroborated in a 2017 report by the Chartered Institute for Personnel and Development (CIPD), which revealed that one in four employees in the UK felt money worries had affected their performance at the grindstone.
Even those earning well above the average UK salary – which currently stands at £27,271, according to ONS – are feeling the strain. According to CIPD’s research, earners of between £45,000 and £59,999 said financial struggles had taken hold of their ability to do their job. Around 19% of the survey’s respondents claimed to have suffered from lower energy levels and fatigue during working hours as a result of sleepless nights.
Such statistics point to a greater need for employers to support their staff members going through hard times. Those that do attempt to promote better financial wellbeing and inclusion can expect to see not only happier and healthier staff, but better returns in productivity.
Put simply, employees need the help of their employers. According to SMF research from 2016, 46% of workers said they believed more financial awareness programmes could make a difference.
There are options available when it comes to boosting financial inclusion. A recent report by Harvard’s Mossavar-Rahmani Center for Business and Government proposes “employer-sponsored fintech benefits” as a solution, by way of providing employees with poor credit access to “traditional financial products”. Such products range from emergency savings accounts and loans to online and mobile financial management apps.
The aforementioned report highlights salary link – though which any financial products taken out by employees are deducted from their salaries – as a preferable way of providing a lifeline of liquidity to hard-up payroll members when they need it most.
Salary Finance, a UK-based employee loan provider, is one such group that has made it its mission to bring greater financial inclusion to the organisations it works with.
“It is about trying to deliver better social outcomes for middle-to-low income earners,” CEO Asesh Sarkar told HRD Connect in May.
“When it comes to consumer finance, mostly the case is that the less you earn, the poorer access you have to it. If you look at payday loans or credit cards, they are generally considered to be very high cost.
“To use something as transformational as fintech to create a better society – because finance is a core part of society – is a good thing. Our aim is to try and use the advancements of technology in the sector to not only deliver good commercial returns, but also to make a difference.”
By way of example, earlier this year the group partnered up with Yorkshire Building Society to launch a new savings scheme, through which workers can select the amount of cash they wish to squirrel away, which is then taken out of their post-tax salary. The savings account pays 0.75% interest on balances, while interest can be paid either monthly or annually.
Since the scheme’s unveiling, both care home provider Allied Healthcare and insurance and travel group Saga have committed themselves to launching the product.
Emergency loans and savings accounts are undoubtedly welcome products in the middle of straitened times for UK employees, but fiscal education is what ultimately helps create a culture built around saving, rather than reckless spending. This is particularly important for those with no prior understanding of money management, as Sarkar also explained.
“Lending and education are two things we see as coming very much hand in hand,” he said.
“You can create great product, but if you don’t have the change in behaviour – which education can help create – then you may not get the best outcomes. So what we are trying to do is the two things in parallel: providing product features which intrinsically create good financial habits as part of people’s lives.”
There is a glaring need for the UK to tilt the economic scales towards saving rather than borrowing and continuing on its current path is simply unsustainable. Employers – along with their HR departments – have a golden chance to help shift the balance in the right direction and create better financial inclusion all round.