Employee wellbeing and financial capability

Written by
Changeboard Team

06 Jun 2011

06 Jun 2011 • by Changeboard Team

Maintaining financial control

Managing your money is often easier said than done, and when things get out of control the impact can be significant. There is evidence linking poor money management with stress, anxiety and overall wellbeing. Intuitively, being ‘in control of’ money should benefit someone’s overall wellbeing; evidence shows that money worries are often at the heart of relationship breakdown, poor health outcomes, crime and being able to participate more fully in society.

Here, Eugene Farrell, chair of the UK Employee Assistance Professionals Association (www.eapa.org.uk) and Alice Howard from the Money Advice Service (www.moneyadviceservice.org.uk) discuss the relationship between money management and psychological wellbeing. They also look into how employers can empower their staff through financial education, and the positive impact this investment can have on a business.

Money management and psychological wellbeing

Research published in 2009 by the Financial Services Authority explored the relationship between money management and psychological wellbeing. It looked at how an individual’s ability to manage and take control of their finances impacts on their psychological wellbeing; and illustrated that there is a strong link between money management and psychological wellbeing.

It also highlighted the extent to which increasing someone’s capability in this area also increases their wellbeing. For example, moving an individual with relatively low levels of financial capability to an average level of capability, improves their psychological wellbeing by 6%. This is significant when compared to an 8% deterioration in wellbeing associated with being divorced and a 10% deterioration from being unemployed.

The research also shows that higher financial incapability is associated with higher risk of mental stress, lower reported life satisfaction and health problems associated with anxiety or depression. For example improving money management results in an increase in life satisfaction by 2%, and decreases the likelihood of suffering from anxiety and depression by 15% (FSA, 2009).

“The results of this research lead us to conclude that financial capability has a statistically significant impact on psychological wellbeing. This suggests that improving people’s financial management skills would substantially help prevent stress-related illness,” says Alice Howard from the Money Advice Service.

This is particularly notable when one considers that stress is a major cause of absenteeism. According to a report by the Chartered Institute for Personnel Development and Simply Health (2010) over one third (35%) of employers report stress-related absence has increased over the last year and in the public sector is the main cause of persistently high levels of long-term absence.

“The CIPD research also demonstrates the importance of improving money skills as a way of building resilience to manage periods of financial stress and difficulty. This is particularly important in the current climate of economic austerity where people are worried about ‘making ends meet’ and there is a general increase in stress and anxiety due to money worries and fear of job losses,” Alice Howard says.

The FSA study goes on to identify that poor financial capability is compounded at times of stress, including being out of work. In these uncertain times many employees are unable to switch off from personal financial worries when they come to work. This can lead to decreased productivity, absenteeism or even stress-related illness.

Worryingly, we also know that the impact of poor money management is not only felt in the present, but has been found to have lasting consequences. New research from the Money Advice Service found that poor control of money can leave a scar that lowers a person’s income and continues to detract from life satisfaction years later. It also puts a dent in a person’s living standards over many years.  So, the message from this is clear. The sooner people act to take control of their money, the greater the benefit in years ahead.

The employers role in financial education

AXA’s Money Sickness Syndrome report, published in 2010, really puts the impact of poor financial education on employees and their workplace into perspective. According to the study up to 42 million adults from top managers to manual workers could be suffering from finance related stress. And with 1.4 million workers admitting to taking time off work because debt and bills are a daily worry (YouGov poll using AXA’s My Budget Day tool), the potential impact of poor personal financial management on an organisation is significant.

“With nearly seventy per cent of people admitting to spending time thinking about their finances instead of working, and 5% of people have taken time off work during the past year because of money worries this is certainly an issue that employers need to get involved in,” comments EAPA’s Eugene Farrell.

“It is almost impossible for debt not to have an impact on performance at work, whether it comes down to the impact of stress on an individual, their performance and their interaction with customers or colleagues, or the time an employee is distracted from their work because they are on the phone to creditors to resolve debt issues, for example,” says Farrell.

Taking steps to support employees

Worryingly, a quarter of those with financial stress do nothing about it. Employers ought to consider how they can sensitively help staff get to grips with their financial problems before they get out of control and so make an individual employee too ill or too stressed to work.

“There are more solutions than an employer might first think, though”, says EAPA’s Farrell. "Financial education programmes are an increasingly popular way for employers to support their workforce. The Money Advice Service for example, offers a free, impartial programme which is delivered to employees in their workplace. To date the service has worked with over 1,500 employers and reached over 4 million employees”.

Other options include: giving employees regular access to financial experts so they can discuss money concerns with professionals in a confidential environment; or publicising details of useful contacts (such as their own employee assistance programme helpline) or external organisations (such as the Citizens Advice Bureau) that can offer support. Some employers also encourage staff to spend a set period of time every month or week focusing on their personal finances.

Employee Assistance Programmes (EAPs) are set up to help people with the emotional – as well as the practical – aspects of financial stress through, for example, money advice, debt counselling and budget planning tools. Around 1 in 20 cases seen by EAP’s seek debt support and advice. This number is likely to be much higher considering the coexistence of debt behind other issues such as relationships, property division and child support.

“EAPs are often accessed during working hours so employers that invest in this solution have really acknowledged the importance of wellbeing and the payback that can be achieved by letting employees get on top of any issues or worries,” says Farrell.

Of course, much of the success of helping employees with personal debt or financial issues comes down to the attitude of line-managers. “Organisations should consider how the approach or response of line-managers affects employee’s willingness to tackle or even acknowledge debt or money issues in the workplace,” says Farrell, and Howard agrees:

“Just as many organisations encourage employees to approach their line-manager with any other issues or concerns, the same must be true when it comes to financial concerns. Line managers should be made aware of the signs and behaviours that could point to personal financial issues and be equipped to provide the appropriate referral information for employees to seek assistance,” concludes Howard.