The importance of financial education
I always think it’s interesting to imagine companies as people.
Although it’s invariably a bit depressing when you do as you soon realise just how selfish most companies really are. And that’s particularly true of financial services companies.
Financial services companies consistently place their own interests ahead of others (this ‘other’ category includes their employees, their customers, the environment and the broader community). They do this because they’re measuring their success through a single lens. Profit. And this means they tend to behave in a way our friends would not. They’ve lost the values and the personality that once made them human.
In fact, financial services companies have taken things to such an extreme that they’ve effectively outsourced their conscience to the regulator. It’s why they’ve paid out more than £250 billion in fines and compensation since the financial crisis of 2008. It’s so prevalent that it’s almost like the companies in question consider this £250 billion as a necessary cost of doing business.
Financial services, however, doesn’t have to be like this. In fact, far from it. Lots of financial services companies were set up to make the world a better place. Whether that’s at a macro level by helping to channel trillions of pounds of investment towards fighting climate change. Or at a micro level by helping individuals get onto the housing ladder or providing income or life protection to families when something terrible happens.
Finance isn’t easy
The bottom line, however, is that finance is inherently complicated. Most people struggle to understand it which means it tends to be something that gets swept under the carpet or put into the ‘I’ll do it tomorrow’ camp.
It’s probably not surprising therefore that the #1 cause of stress in the UK is money. In fact, 18 million adults worry about money every single day, and 47% of the population has never discussed a financial problem with anyone. And these problems and worries span all age groups. Those at the start of their lives worry about their student debt, getting on the housing ladder or simply surviving from month to month (44% of employees in the UK run out of money before their next pay cheque at least once a year). And those in their 40s or 50s are often concerned about the cost of supporting their children or whether their pension pot will be sufficient to fund them in their retirement (1.9 million adults in the UK retire into poverty).
All this worry and stress has been exacerbated by the pandemic. Almost 5 million people in the UK have been put on furlough, which has led to a huge amount of uncertainty as to how they should be managing their finances.
But, companies can help
So, armed with all this information, what should companies be doing to help? Well, if companies were people, I think they’d recognise that their responsibility to their employees extends far beyond paying their wages. They’d take on responsibility for their broader financial wellbeing.
Now, it’s always easy to assume that the problem isn’t quite this bad in your own business, particularly if (like us) you operate in the financial services sector (where you might assume a higher level of financial literacy and awareness). But rather than make that assumption, we thought we’d find out for ourselves.
So, we asked financial coaches to run free, anonymous, financial coaching sessions for all of our employees. 67% of employees asked, took us up on the offer and here’s what we found.
Finding #1: Money is, by far, the #1 cause of stress for people. 75% have had difficulty focusing at work because of money stress, 83% of people think about money at least every week, and 8% of people have no-one to talk to about it.
Finding #2: 35% of employees did not have 3 months of salaries saved for emergencies and 12% of employees had <£1000 in savings.
Finding #3: 80% of employees did not have a will including 63% with families.
Finding #4: Most employees were not making the most of their money. 38% of employees did not have any money in ISAs. 50% of employees had <25% of their assets in investments and 40% of employees did not know what type of pension they have.
Finding #5: At least 50% of employees were not on track to achieve their financial goals. 50% of employees who want to buy a property had less than a 5% deposit and average retirement pots were 40% lower than what was needed.
That’s the wakeup call we needed. It became clear that financial wellbeing and financial security do not always come hand in hand, and money-related stress was clearly impacting on the performance of our employees and our business. In a fundamental rather than trivial way.
The answer: financial coaching
So, we’ve done something about it. We’re now offering financial coaching to everyone (we cover the cost for those at the start of their career) and the feedback has been fantastic. From the employees. And their partners. And their extended family. It’s genuinely helping them to live the lives they want.
There aren’t many times in business when you do something that turns out, in hindsight, to be a ‘no brainer’. Financial coaching is one of them. Which is why, about six months ago, we decided to buy the company that provided this coaching.
It’s rebranded now (as Octopus MoneyCoach) and is already working with dozens of the UK’s most forward-thinking employers. We’re hopeful that over the next five years or so we’ll play a meaningful part in solving the financial literacy problem in the UK, removing employee stress and helping millions of people to live the life they want.