Financial wellbeing and productivity - Aegon UK · The reality is that, for many, financial worries directly impact their ability to be productive at work. ... understand employee

FinancialwellbeingandproductivityAstudyintothefinancialwellbeingofUKemployeesanditsimpactonproductivityOctober2018

2

©CentreforEconomicsandBusinessResearch

Disclaimer

Whilsteveryefforthasbeenmadetoensuretheaccuracyofthematerialinthisdocument,neitherCentreforEconomicsandBusinessResearchLtdnorthereport’sauthorswillbeliableforanylossordamagesincurredthroughtheuseofthereport.

AuthorshipandacknowledgementsThisreporthasbeenproducedbyCebr,anindependenteconomicsandbusinessresearchconsultancyestablishedin1992.Theviewsexpressedhereinarethoseoftheauthorsonlyandarebaseduponindependentresearchbythem.

ThereportdoesnotnecessarilyreflecttheviewsofAegon. London,October2018

3


Contents

ExecutiveSummary 5

1 Introduction 6

2 Measuringfinancialwellbeing 7

2.1 TheFinancialWellbeingScale 9

3 Theeconomicimpactoflowfinancialwellbeing 15

3.1 Therelationshipbetweenfinancialwellbeingandproductivity 15

3.2 Thecostoflowfinancialwellbeing 16

3.3 Industryanalysis 20

3.4 Regionalanalysis 25

4 Employeroptionstoimprovefinancialwellbeing 28

4.1 Financialeducation 29

4.2 Otheremployerinitiativestosupportfinancialwellbeing 31

5 Conclusions 34

Appendix:Methodology 35

ConsumerFinancialProtectionBureauWellbeingScale 35

4


ForewordbyRonnieTaylor

Therelationshipbetweenemployeeandemployerisevolving,withbusinessesincreasinglyacknowledgingthecorrelationbetweenemployeewellbeingandperformance.Thereality,however,isthatmuchofthisshiftinfocushastodatefocusedonthephysicalandmentalwellbeingofemployees,withmanyworkforcestakingactivestepstotackletheseissues.Increasingly,thereisanawarenessofathirdimportantfactorindeterminingindividualmoraleandproductivity,andthatisfinancialwellbeing.

Therealityisthat,formany,financialworriesdirectlyimpacttheirabilitytobeproductiveatwork.Moneyconcernscancausestressanddisruption,leadingtoindividualsbeingdistractedwhilstcarryingouttasksortakingdaysoffduetofinancialstress.

AtAegon,wearepassionateaboutsupportingemployerstoengagestaffintheirfinances,butcrucialtothisisunderstandingthepotentialbarrierstosavingandfinancialsecurity.WethereforeaskedCEBRtohelpustoexplorethestateofemployeefinancialwellbeingacrosstheUK.Forthefirsttime,wearenowabletospotlightandscorelevelsoffinancialwellbeingacrossdifferentindustriesandgeographiesandalsohighlighttheimpactthatpoorfinancialwellbeinghasonemployeeproductivity.

Thefindingsofthisreportareeye-opening,butwhathasprovedtobeparticularlysalientisthefindingthatemployeeswhohaveaccesstofinancialeducationthroughtheirworkplacehavegreaterfinancialwellbeingthanthosewhodon’t.Ultimately,muchofwhatstaffarelookingforisrelativelysimpleandinexpensivetoprovide,suchasabetterexplanationofbenefitsoraccesstosavingsaccountsbeyondapensionthroughtheiremployer.

Ibelievethatemployershavearesponsibilitytohelpstaffplanforafinanciallysecurefuture,andasthisreportdemonstrates,therearetangiblebusinessreasonstoinvestininitiativesthatengageemployeeswiththeirfinancialplanning.Wehopethisreportisausefulresourceforemployerslookingtounderstandemployeefinancialwellbeingandthatitbeginstoprovidehardinsightonasubjectwhichisincreasinglytalkedaboutbutpoorlyunderstood.

RonnieTaylorisChiefDistributionOfficeratAegonUK

5


ExecutiveSummary

OneofthefewsilverliningsagainstanotherwisegloomyeconomicbackdropisthattheUKhasseenapersistenttighteningofthelabourmarket,withtheemploymentratenowatthehighestithasbeensincerecordsbeganinthe1970s.However,severalyearsofunderwhelmingwagegrowthtogetherwithrapidlyrisinglevelsofhouseholddebthaveleftmanyemployeesexperiencingsubstantialfinancialdifficulties.Thesedifficultiescanmeanthatindividualsstruggletomakeendsmeetortosaveenoughforretirement.Theextenttowhichemployeesareabletoabsorbafinancialshockandwhetherornottheyfeelrestrictedintheirlifechoicesbytheirfinancesalsoplaysasignificantroleindeterminingindividuals’financialwellbeing.

Thisstudyaimstoexplorethisissueingreaterdetailbyquantifyingfinancialwellbeingonanindividuallevelbasedonasurveyof2,000UKemployees.Usingtheseinsights,ourmethodologyallowsustoanalysetheeconomiccostsassociatedwithlowfinancialwellbeingthroughworkplaceabsencesandfallsinproductivitywheninwork.

TheYouGovsurveycommissionedforthisstudyfindsthatalowfinancialwellbeingisprevalentthroughouttheeconomy,acrossarangeofdifferentsectors,agesandincomegroups.30%ofemployeessurveyedagreewiththenotionthattheyarejustgettingbyfinancially,whilemorethanathirddonotthinkthattheyareinapositiontohandleamajorunexpectedexpensefinancially.Ingeneral,financialconcernsaremorewidespreadamongyoungerdemographics,reflectingtheloweraveragelevelsofincomeandsavings.Surveyparticipantswerealsoaskedaboutthefrequencywithwhichtheyfeelcertainfinancialpressures.Wefoundthat31%oftenfeelthattheirfinancescontroltheirlife,whileaquarter(23%)oftenfeelbehindwiththeirfinances.

Theresponsesoutlinedabovepointtoalargeshareofworkersforwhomfinancialdistressrepresentsasignificantandrecurringproblem.Whiletheseareamajorconcernforworkersonapersonallevel,thenegativeimpactsoflowfinancialwellbeingarebynomeanslimitedtotheindividualsinvolved.Wefoundthat2%ofworkersinoursurveyhavetakentimeoffworkinthepastyearatleastpartiallybecauseoftheirfinancialsituation,withanaverageofeightdaysabsent.Thisinitselfrepresentsasizeablelossforemployers,notonlyduetotheforegoneoutputoftheaffectedemployees:workersincreasinglyoperateinteams,meaningthatoneemployee’sabsencehasknock-oneffectsontheproductivityoftheircolleagues.Weestimatethatworkplaceabsencesbroughtaboutbyalackoffinancialwellbeingcostsbusinesses4.2millionworkerdayseachyear,equivalentto£626millioninlostoutput.

Thecostsoffinancialdistressamongworkersisnotlimitedtothedayslostduetoabsence.11%ofworkersinoursurveysaidthattheyhaveexperiencedafallinproductivityatsomepointoverthelastthreeyearsasaresultoftheirpersonalfinancialsituation.Thismostoftentooktheformofadeteriorationinthequalityofworkproduced,afallintheabilitytocomeupwithnewideas,andincreaseddifficultycompletingroutinetasks.Studieshaveshownthatpresenteeism–wherebyemployeesstillattendworkbutoperateatalevelbelowtheirpotential–isawidespreadphenomenonandcostsemployerssignificantlymorethanabsenteeism.Basedonthis,weestimatethatabsenteeismandpresenteeismcausedbyalackoffinancialwellbeingcostsbusinessesintheUK£1.56billioneachyear,withtheconstructionandhospitality&leisuresectorstheworstaffected.

6


1 IntroductionFinancialwellbeingisrapidlybecomingamorewidelyknownconceptbothforemployeesandemployers.Itisincreasinglyacceptedthatemployerscanandshoulddomoretopromotesustainablefinancialplanningpracticesandincreasethefinancialsecurityoftheiremployees.Thismeansmorethanjusthigherpaychequesbutalsorequiresarangeofotherfinancialandnon-financialbenefitsandinitiatives.

Whatdowemeanwhentalkingaboutfinancialwellbeing?Thisconceptencompassesamoreholisticpictureofthefinancialneedsofemployeesbothnowandinthefuture.Itincludesthenotionthatindividualsseekacertaindegreeoffinancialsecurity,i.e.beingabletoabsorbanunforeseenfinancialshockaswellasbeingabletolivecomfortablyinretirement.Moreover,financialwellbeingalsomeanshavingfreedomofchoicetoacertaindegree,i.e.havingenoughmoneytomakeendsmeetandnotbeingconstrainedinone’slifechoicesthroughfinances.

Wecouldapproachthisconceptinapurelydescriptivewaybyaskingsurveyparticipantshowtheyfeelinregardstocertainaspectsoftheirfinancialsituation.Thedrawbackofsuchanapproach,however,isthatthesetypeofquestionscancoveronlycertainaspectsoffinancialwellbeing.Forthisreason,wetakeadifferentroutetoquantifyfinancialwellbeingbyusingasetofquestionsdevelopedbytheUSConsumerFinancialProtectionBureau.WiththehelpoftheirFinancialWellbeingScale,weareabletomeasurefinancialwellbeingamongUKemployeesandexaminedifferencesinpeople’sself-declaredfinancialsituationacrossvariousgroups.Thescalehasthebenefitofunifyingtheresultsofa10-questionsurvey,whichcoversthevariousaspectsoffinancialwellbeing,inacomprehensiveway.Thescoresarethennormalisedtoenableaneasyandintuitiveinterpretationoftheresults.

Thisreportis,tothebestofourknowledge,thefirstonetosystemicallyanalysefinancialwellbeingacrosstheUKemployeepopulationandcalculatetheimpactonworkplaceproductivity.UsingthefinancialwellbeingscalealongsidefurtherresultsfromouremployeesurveyweareabletoquantifythecosttoUKemployersoflowfinancialwellbeing.Thereportdoesthisviatwomainchannels:first,worriesabouttheirpersonalfinancialsituationmightdistractworkersfromtheirdailyjobs,leadingtodeclinesinworkplaceproductivity.WehaveanalysedthefrequencywithwhichthisaffectsUKemployeesaswellastheseverityofthisproblem.Secondly,financialworriescangenerateconsiderablelevelsofstressanddisruption,whichinsomecasescanleadtoabsencesfromwork.Drawingonemployeeincomedata,thereportquantifiesthecostfromabsenteeismandpresenteeism.

Finally,thereportlooksatoptionsofhowemployerscanimprovefinancialwellbeing.Manyworkplacesalreadyofferfinancialeducationinonewayoranother,informingtheiremployeesonhowtomakethebestuseofthefinancialbenefitsonofferorofferingsupportwithinvestment,savingordebtmanagement.Oursurveyshowsthatthereisdemandbyemployeesformoreofsuchservices.Otherinitiativesthatarevaluedhighlyarehigheremployerpensioncontributionsorofferingface-to-facecounsellingservices.Giventhesubstantialcostoflowfinancialwellbeing,employersshouldconsiderexpandingtheireffortsintheseareas.

7


2 MeasuringfinancialwellbeingThefirstpartofoursurveyexploresthestateofUKworkers’financesbyexamininghowtheyfareinanumberofareaspertainingtofinancialwellbeing.Theresultssuggestthatthereisasubstantialsegmentofworkerswhoarecurrentlyfacingsomeformoffinancialdifficulty.30%ofemployeessurveyedlargelyagreewiththenotionthattheyarejustgettingbyfinancially,whilemorethanathird(36%)donotthinkthattheyareinapositiontohandleamajorunexpectedexpensefinancially.Meanwhile,morethantwoinfive(41%)areconcernedthatthemoneytheyhavenoworwillsavewillnotlast.Nearlytwiceasmanyrespondentsagreethandisagreethattheyaredoingeverythingtheycantosecuretheirfinancialfuture.Thissuggeststhatinmanycases,workersfeelthattheylackthemeanstofullyresolvethetypesoffinancialdifficultiesthattheyareexperiencing.

Figure1Surveyrespondents’opinionsonthestateoftheirpersonalfinances

Source:YouGov,Cebranalysis

Theissuesdiscussedthusfarappeartobemorepronouncedamongemployeesworkinginsmallercompanies.Forinstance,34%ofworkersinsmallcompanies(withfewerthan50employees)mostlyagreethattheyarejustgettingbyfinancially,comparedto28%inlargecompanies(withmorethan250employees).Thisislikelytoreflectnotonlythelowerearningsthatworkersinsmallercompaniestypicallyreceiveonaverage,butalsothefactthatlargeremployersappeartobedoingsignificantlymoretopromotethefinancialwellbeingoftheirstaff,asisdiscussedingreaterdetaillateroninthissection.

Thereisalsosignificantvariationinfinancialwellbeingbetweendifferentagegroups.Theabilitytohandleanunexpectedmajorfinancialexpenseincreaseswithage:40%ofunder35yearoldsinoursurveydonotfeelthattheycouldhandleanunexpectedmajorexpensecomparedto30%ofthoseaged55orabove.Moreover,43%agedunder35feelthattheywillneverhaveeverythingtheywantinlifeduetofinancialconstraints,comparedto32%ofthoseaged55orover.Thesefindingsarenotaltogethersurprisinggiventhehigherincomesandsavingsenjoyedbyoldercohorts.Interestinglyhowever,theshareofworkerswhofeelthattheyaredoingeverythingtheycantosecuretheirfinancialfutureisbyfarthehighestforyoungergenerations:46%feelofthoseunder35believethatthisappliestothem,

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

IamconcernedthatthemoneyIhavenoworwillsavewon'tlast

Iamdoingeverythingto

securemyfinancialfuture

Becauseofmyfinancialsituaion,IfeellikeIwillneverhaveallthethingsI

wantinlife

Icouldfinanciallyhandleamajorunexpectedexpense

Iamjustgejngbyfinancially

IcanenjoylifebecauseofthewayI'mmanagingmy

money

Netagree Netdisagree

8


comparedto37%inthe55oroveragegroup.Thisisasomewhatconcerningfinding,asitsuggeststhatworkersinthedemographicwiththelowestleveloffinancialwellbeinghaveinmanycasesrunoutofoptionsforwaysthattheycanimprovetheirsituation.

Employeesofallagegroupsseemawareofthisgenerationaldivideinfinancialwellbeing.Amongallsurveyrespondents,athird(33%)expressedconcernoverthefinancialwellbeingofthoseyoungerthanthem,comparedto26%whowereconcernedaboutthefinancialwellbeingofothersofasimilarageandjust13%whowereconcernedaboutthefinancesofthoseolderthanthem.Thissuggeststhatworkersingeneralacknowledgethechallengesfacedbyyoungergenerations,suchasrapidhousepricegrowthandhighlevelsofstudentdebt.

Respondentswerealsoaskedaboutthefrequencywithwhichfinancialstrainsoccurredintheirdaytodaylives.Thesequestionsseektoshedlightonhowalackoffinancialwellbeingcanmanifestitselfineverydaylife.Overafifth(21%)ofemployeesinoursurveysaidthatgivingagiftforaweddingorbirthdaywouldinmostcasesimposeastrainontheirfinances,while23%oftenfeelbehindwiththeirfinances.Lessthanhalf(43%)ofworkersusuallyhavemoneyleftoverattheendofthemonth,whilenearlyathird(31%)feelthattheirfinancesoftenoralwayscontroltheirlife.Theseresultsreinforcethefindingthatthereexistsasignificantshareofworkersforwhomfinancialdifficultiesarefrequentsourceofstressanddisruption.

Figure2Distributionofresponsesto:Howoften,ifatall,wouldyousaythefollowingstatementappliestoyou?


ThemonthsleadinguptoandfollowingChristmasappeartobewhenpeoplefeelthemostfinancialstrain.Twoinfive(39%)ofworkersinoursurveystatedthattheyfeelundermorefinancialpressurethanusualinNovemberandDecember,whileaquarter(24%)feeltheirfinancesarestretchedmorethanusualinJanuaryandFebruary.Asidefromtheseperiods,afurther12%ofworkersfeelundermorefinancialpressurethanusualbetweenJuneandAugust,whichislikelyrelatedtochildcareandtravelexpensesduringtheschoolsummerholidays.Focusinginonthespecificeventsthatgeneratethis

0%

10%

20%

30%

40%

50%

60%

Givingagilforawedding,birthdayorotheroccasionwouldputastrainonmyfinancesforthemonth

Ihavemoneyleloverattheendofthemonth

Ifeelbehindwithmyfinances

Myfinancescontrolmylife

Olen-always Someimes Rarely-never

9


financialstrain,amajorityofworkers(57%)experienceaheighteningoffinancialpressuresduringChristmas,whileaquarter(24%)feelthisduringthebirthdaysoffamilyandfriendsasshowninFigure3.

Figure3:Which,ifany,ofthefollowingeventswouldyousaymakeyoufeelundermorefinancialpressurethanusual?(Multipleanswerspossible)

Source:Cebranalysis,YouGov

2.1 TheFinancialWellbeingScaleAsseenabove,financialwellbeingisacomplexconceptthatencompassesavarietyofevaluationsofpersonalfinancialresources,andtheextenttowhichtheyofferanindividualfinancialsecurityandfreedomofchoice.Thedifficultywiththisconceptisthatitissubjectiveandthereforehardtomeasure.Whilethedescriptivestatisticsabovegiveausefulintroductiontomanyoftheconcernsandworriesregardingindividuals’financialsituation,itremainsdifficulttocometoarobustconclusionthatcoversthevariousaspectsoffinancialwellbeing.Incomeandwealthareobviousdriversoffinancialwellbeingbuttheyarenotidenticaltoit.Howindividualsevaluatetheirfinancialsituationdependsonmanyotherfactorsincludingpersonalliabilities,levelofspendingandfinancialneedsanticipatedlaterinlife.

Inordertoprovideapractical,consumer-drivenmeasureoffinancialwellbeing,theUSConsumerFinancialProtectionBureau(CFPB)developedafinancialwellbeingscale.BasedonresearchamongUSconsumers,theCFPBcameupwithasetofpropertiesthatdefinefinancialwellbeing.Accordingtotheirdefinitionaperson’sfinancialwellbeingdependson:

- Controloverone’sfinances,includingbeingabletopaybillsontimeandmakingendsmeet- Capacitytoabsorbafinancialshock- Beingontracktomeetfinancialgoalsincludingpayingoffoutstandingdebtandsavingfor

retirement

0% 10% 20% 30% 40% 50% 60%

Notapplicable-Idonotfeelundermorefinancialpressurethanusualduetoeventsintheyear

Otherreligiousholiday(excludingChristmas)

Thestartofthenewschoolyear(i.e.alerthesummerholidays)

Thebeginningofthesummerholidayperiod(i.e.theendoftheschoolyear)

Specialeventsforfamilyandfriends(e.g.weddings,christenings,anniversariesetc.-excludingbirthdays)

Birthdaysoffamilyandfriends

Christmas

10


- Beingabletomakechoicesthatallowonetoenjoylife1

BasedonthisdefinitionandthesefourunderlyingconceptsresearchersattheCFPBdevisedasetofquestionsthatwereextensivelytestedforvalidityandreliability.Thequestionsaimatcapturingthevariousaspectsoffinancialwellbeinginordertoaggregatetheindividual’sresponsesintoasinglescore.TheappealoftheCFPBscaleisthatitisaprovenandtestedmethodtoquantifyfinancialwellbeingenablingustocomparescoresacrossindividuals.ThescalehasbeendevelopedusinginsightsfromexpertsandconsumersalikeandtheCFPBencouragesacademicandpolicyorientedresearcherstomakeuseofit.2

Forthisreport,wehavetakentheCFPBfinancialwellbeingquestionnaireandaskedover2,000UKemployeesquestionsabouttheirfinancialsituation.Responseswerethentranslatedintoascorerangingfrom0-4foreachquestionwithhigherscoresindicatingahigherdegreeoffinancialwellbeingandviceversa.Forexample,individualswhosaidthatthey‘always’havemoneyleftoverattheendofthemonthwerescoredwith4pointscomparedto0pointsforthosewhoanswered‘never’.Acompleteoverviewofthequestionsaskedandthescoringsheetscanbefoundintheappendix.Thepointsscoredforeachquestionarethensummedupforeachindividualtocreateatotalresponsevalue,rangingfrom0to40points.Thisvalueisthentransformedintoafinalscoreonascalefrom0to100.

Figure4showsthedistributionoffinancialwellbeingscoresamongthenationallyrepresentativeemployeesample.Thescoresachievedarangefromalowof27toahighof73.Justunder7%ofrespondentsscored50pointsonthescale,morethananyothersinglescore.Lookingatthegraph,wecanseethatthefinancialwellbeingscoresareapproximatelynormallydistributed.

3

Thismeansthatmostofthepopulationscoreincloseproximitytothemeanofthedistribution,whichliesat50.38.Relativelyfewrespondents’scoreslieattheveryloworhighextremesofthescale.Individualswithascoreofbelow45areamongthebottomquartileofthedistribution,meaning75%ofrespondentsreportedhigherfinancialwellbeing.Attheotherendofthespectrum,employeeswithascoreofatleast56areamongthetopquartileintermsoffinancialwellbeing.

1Measuringfinancialwellbeing–AguidetousingtheCFPBFinancialWellbeingScale

2https://www.consumerfinance.gov/data-research/research-reports/financial-wellbeing-scale/

3Anormaldistributionisoneinwhichmostobservationsfallinthemiddleoftherangeofpossiblevalues,whilethefrequencyofobservations

oneithersideofthemiddletapersoffasthevaluesbecomemoreextreme.Thisyieldswhatiscommonlyreferredtoasa‘ball-shapedcurve’.

11


Figure4:Histogram–financialwellbeingscoresbyshareofrespondents


InterpretingtheScore

Itisimportanttounderstandwhatthescoresonthefinancialwellbeingscalemean.Thescoreismodelledasastandardizednumberbetween0and100withahighernumberequivalenttoahigherleveloffinancialwellbeing.However,thenumberdoesnothaveameaningofitsownandwecannotsaywhichnumberconstitutes‘good’or‘sufficient’financialwellbeing.Aswehaveseenabove,mostscoreswillfallinthemiddleofthescalewithveryhighorverylowscoresbeinglesscommon.Indeed,wehavenotrecordedanyscoresbelow27orabove73.Thispartlyreflectsthefactthatalloftheindividualsinoursurveyarecurrentlyinemployment,meaningthatextremelylowlevelsoffinancialwellbeingarelesslikely.

Thescoresrepresentawaytomeasurerelativeindividualfinancialwellbeing.Wecanthereforeusethescorestocomparefinancialwellbeingbetweendifferentgroups.Thisallowsustomakeinferencesabouttherelationshipbetweenfinancialwellbeingandworkplaceproductivity,aswewillshowinthefollowingchapter.Wecanalsousethescaletoanalysefinancialwellbeingalonganumberofdimensions,suchasage,industryandregion.

0%

1%

2%

3%

4%

5%

6%

7%

8%

27 29 3132 34 35 37 3840 4142 44 45 46 47 49 50 5152 54 55 56 58 5960 62 63 65 66 68 69 71 73

12


Financialwellbeingbyregion,industryandage

AnaturalquestiontoaskishowfinancialwellbeingmightdifferbetweenregionsintheUK.Thedifferencesintheeconomicgeographyinthecountryarewelldocumentedandvisiblealongmanydimensions–fromaveragewagestohouseprices.Theeconomicnorth-southdivideispartlyreflectedintheregionalfinancialwellbeingscore,showninFigure5below.Londonshowsbyfarthehighestaveragescoreat52.1,likelytobedrivenbyhighsalariesinthecapital.Interestingly,theregionwiththesecondhighestscoresistheNorthEastat50.9.TheNorthEastisaregionmorecommonlyassociatedwithlowerwages,lowhousepricesandalessdynamiceconomy.Thefactthattheregionscoressohighlyonthescaleunderlinesthatfinancialwellbeingisacomplexconceptandcannotbeentirelyexplainedbysalariesalone.TheonlyotherregionstoscoreabovethenationalaveragearetheEastofEnglandandtheSouthWestwithscoresof50.6and50.7,respectively.ThelowestaveragescorewasmeasuredinWalesat48.6followedbytheEastMidlandsat49.1.

Figure5:Averagefinancialwellbeingscoresbyregion


Itisalsointerestingtoanalysefinancialwellbeingscoresalongsideanumberofdifferentmetrics.InFigure6,forexample,weseetheaveragescoresincomparisontomedianearningsfiguresbyindustry.Formostindustries,averagefinancialwellbeingscoresareclosetothepopulation-wideaverageofslightlyabove50.However,anumberofexceptionscanbeclearlyspotted.Inthehospitalityandleisureindustry,workersreportthelowestfinancialwellbeingwithascoreofjust48.Theretailsectorfaresslightlybetterwithanaveragescoreof48.8thoughtheindustryremainsclearlybelowtheUKaverage.Tellingly,thesearealsothetwosectorsreportingthelowestmediansalariesfor2017at£22,800and£16,000respectively.Therelationshipbetweenpayandfinancialwellbeingseemstoholdatleastforthebottomthirdofindustries.Therelativelyhighsalariesinthelegal,media,advertising&PRandconstructionindustriesarenotmirroredbyhighlevelsoffinancialwellbeing.Twooftheindustrieswith

45

46

47

48

49

50

51

52

53

NorthEast NorthWest

YorkshireandtheHumber

EastMidlands

WestMidlands

EastofEngland

London SouthEast SouthWest

Wales Scotland

Financialwell-beingscores Average

13


thehighestscores,Finance&AccountingandIT&telecoms,doalsohavethehighestmedianwagesoftheindustriesanalysed.Financialwellbeingisalsohighinmanufacturingdespitemoremodestpay.Thiscouldpotentiallybeexplainedbyalargershareofworkersbeingcoveredbycollectivebargainingdealsthatincludenon-salarybenefitssuchasmorecomprehensivehealthinsuranceorbetterpensionplans.

Figure6:Averagefinancialwellbeingscoresandmedianwagesbyindustry

Source:Cebranalysis,YouGov,AnnualSurveyofHoursandEarningsRealestateandeducationsectorsexcludedduetolowsamplesize

Finally,wealsoexaminethedifferenceinfinancialwellbeingbyage.Asoutlinedatthebeginningofthechapter,oursurveyresultssuggestthatyoungerpeoplestrugglemorewiththeirfinancialsituationinanumberofwayswhencomparedwitholdercohorts.Usingthescoresofthefinancialwellbeingscale,weareabletocomparethedifferentagegroupsandthedifferencesinmeasured‘total’financialwellbeing.TheaveragescoresinFigure7confirmourpreliminaryfindingsshowingalargegapbetweenthoseaged55andolder,whoscoredanaverageof52,andthoseundertheageof35whoseaveragescoreisjust49.4.Themiddleagecohortsshowaveragefinancialwellbeingscoresof50and50.2,placingthemjustbelowthepopulationaverage.Thisfindingconfirmsthatoldercohortsseemtobemorecomfortableintheirfinancialsituation,beitbecauseofhigherincomeorahighervalueoftheirfinancialandnon-financialassets.Giventheconsiderablehousepriceappreciationoverthepast20yearsintheUKandthefactthatoldercohortsaremorelikelytobehomeowners,propertywealthisalsoalikelyexplanationforhigherfinancialsecurityofthe55+generation.4Under35sontheotherhandfrequentlyfindthemselves

4EnglishHousingSurvey2016to2017

£-

£5,000

£10,000

£15,000

£20,000

£25,000

£30,000

£35,000

£40,000

46

47

48

49

50

51

52

53

Averagefinancialwell-beingscore Industrymedianwage(RHS)

14


pricedoutofthehousingmarketandunderpressuretoaccumulatesufficientsavingsforadeposit.Householdsinthemiddleagecohortsoftenhavetostrugglewithhighexpensesastheyhavetopayforhousing,childcareortuitionwhilealsorampinguptheirsavingsforretirement.

Figure7:Financialwellbeingbyage


49.450.0 50.2

52.0

44.0

46.0

48.0

50.0

52.0

54.0

56.0

Under35 35-44 45-54 55+

Financialwell-beingbyage Average

15


3 Theeconomicimpactoflowfinancialwellbeing

HavingexaminedtheextenttowhichfinancialwellbeingvariesamongemployeesintheUKinthepreviouschapter,wewillnowturntheanalysistowardstheeffectoffinancialdistressonproductivityintheworkplace.Worryingaboutfinancialmatterscanbealargeburdenonemployees’minds,withattentiondivertedawayfromtheirjobsandtowardsmoneyissues.Thisdistractioncancomeinvariousformsandrangesfromaquickbrowsethroughfinancialnewsontheinternettomoreseriousinstanceswhereworkersloseseveralhoursofconcentrationbecausetheyarepreoccupiedwithfinancialmatters.Inmoreseriousinstances,financialworries–similartoothertypesofstress–canleadtoheadaches,sicknessandothertypesofphysicalproblems,leadingtoworkplaceabsences.

3.1 TherelationshipbetweenfinancialwellbeingandproductivityThischaptersetsouttoexaminetheeffectoffinancialdistressonemployeesusingtheemployeesurveyandthefinancialwellbeingscale.Wefirstaskedemployeesiftheyhaveevermissedoneormoredaysofworkduetofinancialproblems.Secondly,wealsoenquiredaboutinstanceswherepeoplefelttheirproductivitydropandaskedthemtoestimatehowmuchtimetheylostbecausetheywerepreoccupiedwithmoney-relatedissues.Finally,wewillanalysewhetherfinancialwellbeing,asmeasuredinchapter2isausefulpredictorforreducedproductivityormisseddaysatwork.

Onewaytoanalysewhetherfinancialwellbeingvariesacrossthosewhohavemissedworkbecauseoffinancialdistressandthosewhohaven’tisbyanalysingtheaveragefinancialwellbeingscoreforbothgroups.AswecanseeinFigure8,thescoresaremarkedlydifferentforthegeneralpopulationandthegroupsofemployeeswhohaveeithermisseddaysatworkorhavenoticedadropintheirproductivityduetotheirpersonalfinancialsituation.

Whiletheaverageemployeefinancialwellbeingscorestandsat50.4,thosewhohavenoticedadropinproductivityscoredonly42.9.Similarly,thosewhomisseddaysatworkhadanaveragescoreof42.7.Notably,employeeswhohavemissedworkorexperienceddropsinproductivityduetofinancialworries,scoreonaverageinthebottomquartileofourmeasureoffinancialwellbeing.Thisresultstronglysuggeststhatlowfinancialwellbeing,asmeasuredbythescaleoutlinedinSection2above,iscloselyrelatedtomissingdaysatworkandlowerproductivity.

16


Figure8:Averagefinancialwellbeingscore5

Source:Cebranalysis,YouGov,*Figuresaretobeinterpretedwithcareduetosmallsamplesize

3.2 Thecostoflowfinancialwellbeing

TheprevioussectionsofthisreporthavehighlightedhowconcernsoverpersonalfinancesarecommonplaceintheUKworkforceandareaffectingemployees’productivityatwork.Thissectionseekstoquantifyhowmuchalackofemployeefinancialwellbeingiscostingemployerseachyearintheformofproductivitylosses.

Thereareanumberofmechanismsthroughwhichworkers’financialworriescantranslateintoaworseningoftheirfirm’sperformance.Oneofthemainwaysisthroughthelossofworkerdays,asemployeesarenotabletocometoworkduetosomeformoffinancialdistress.2%ofworkersinoursurveysaidthattheyhadtakentimeofffromworkatleastpartlybecauseofproblemswiththeirfinancialsituation.Amongtheseworkers,anaverageof8.1dayswerelostoverthelastyearasaresultoftheirfinancialsituation.AccordingtotheOfficeforNationalStatistics’mostrecentestimate,therewerejustover22millionprivatesectoremployeesasofMarch2018.Basedonthisandtheresultsofoursurvey,thissuggeststhatover500,000privatesectorworkershavehadtotaketimeoffinthelastyearduetheirfinancialwellbeing,leadingtoalossofover4.2milliondaysofwork.

5Differenceinmeanstatisticallysignificantatthe99thpercentile.

42.7

42.9

50.4

30 35 40 45 50 55

Employeeswhomissedworkbecauseoffinancialworries*

Employeeswhonoiceddeclineinproducivitybecauseoffinancialworries

AverageUKemployee

17


Themajorityofworkersinoursurveywhohavetakentimeoffinthelastyearasaresultoffinancialconcernsareonthelowerendoftheincomespectrum.Indeed,nearlythreequarters(73%)reportedanannualpre-taxincomebelow£25,000,whiletheaverageannualsalaryamongthosewhohavetakentime-offworkduetofinancialconcernsis£24,379.ThiscomparestoaUKaverageannualsalaryof£29,009.Basedontheexistingsplitoffull-timeandpart-timeemployeesintheUKlabourforce,wehaveassumedtheaverageemployeeworks209daysperyear.Thismeansthatthe£24,379averageannualsalaryamongworkerswhohavetakentime-offduetotheirpersonalfinancesequatesto£117perdayworked.

Assumingthatinacompetitivelabourmarket,workersarepaidanamountequaltothevaluetheyproduce,thecosttoemployersofemployeeabsencescanbeestimatedusingdataonaveragewages.However,anotherdynamicthatcomesintoplayisthefactthatworkersincreasinglyoperateinteams,meaningthatoneemployee’sabsencewillalsohavespillovereffectsontheproductivityofotheremployees.Priorresearchsuggeststhatthecosttothisphenomenonisaround28%oftheabsentemployee’swage.6Basedonthisfinding,weestimatetheaveragecosttoemployersforeachdaylostduetofinancialdistresstobe£150.Combiningthisfigurewiththe4.2millionlostdaysofworkyieldsacosttoemployersof£626millioneachyearasaresultofemployeestakingtime-offduetotheirfinancialsituation.

Estimatingthecostofpresenteeismduetolowfinancialwellbeing

Whileemployeeabsencesareclearlyamajorconcernforemployers,anotherevenmorewidespreadissueispresenteeismi.e.asituationwhereemployeesattendworkbutoperatewithalowerproductivityduetoavarietyofpersonaland/orhealthrelatedissues.OursurveyfindssignificantevidenceforpresenteeismthatcomesasaresultofalackoffinancialwellbeingforasubstantialshareofworkersintheUK.Morethanoneinten(11%)ofsurveyrespondentshaveexperiencedatimeinthepastthreeyearswherethathasbeenadeclineintheirpersonalproductivityatworkduetoproblemsrelatedtotheirfinancialsituation.Thisfigurerisesto16%forunder35yearolds,comparedtojust6%forthoseaged55orover.Theresultsofoursurveysuggestthatthroughouttheprivatesector,2.4millionemployeeshaveexperiencedafallinproductivityoverthelastthreeyearsasaresultoffinancialconcerns.

Outoftheworkerswhohaveexperiencedafallinproductivityasaresultofdifficultieswiththeirfinancialsituation,36%saidthattheseconcernscostthemuptoanhourofworkperday.Meanwhile,30%feltthiscostthembetweenoneandtwohoursandnearlyoneinten(9%)lostoutonthreetofourhours.

Presenteeismbroughtaboutbyfinancialworriesappearstoprimarilyaffectlowertomiddleincomeworkers,with69%ofthosereportingadeclineinproductivityoverthelastthreeyearshavinganannualincomebelow£30,000.Thatbeingsaid,thereremainsasignificantshareofworkerswithhigherthanaverageincomeswhohavestillexperiencedafallinproductivityduetoconcernsovertheirfinancialsituation.Thishighlightsthatalthoughfinancialdistressismostlikelytobefallthosewithlowerincomes,wealthierindividualsarealsoatriskduetothevariationinfinancialcommitmentsandexpendituresbetweendifferentincomegroups.

6Nicholsonetal.(2006):Measuringtheeffectsofworklossonproductivitywithteamproduction

18


Oursurveyalsoshedslightontotheextenttowhichworkers’productivityisreducedduringtimesoffinancialdistress.Fallsinproductivitycanmanifestthemselvesinanumberofways.Themostfrequentlylistedformsofproductivitylossidentifiedbythoseinoursurveywereadeteriorationinthequalityofoutput(48%),areducedabilitytocomeupwithnewideas(47%)anddifficultycompletingotherwiseroutinetasks(47%).Todigfurtherintothelatterpoint,amongthe11%ofworkerswhohaveseenafallinproductivityatsomepointoverthelastthreeyears,oneinfivesaidittookthematleasttwiceaslongtocompletearoutinetask.

While11%ofworkersinoursurveysaidthattheyhadexperiencedafallinproductivityasaresultoffinancialconcernsinthelastthreeyears,nearlyaquarter(24%)statedthattheyareoftendistractedbymoneyworriesatwork,whileafurther31%aresometimespreoccupiedbythesethoughts.Toputthisintocontext,only18%and17%statedthattheyhadbeendistractedatworkbyfamilyproblemsandhealthissues,respectively,asshowninFigure9.Thedistractionsbroughtaboutbyalackoffinancialwellbeingwillinevitablyfeedintoindividuals’performanceatwork,deliveringfurtherlossesforemployers.

Figure9:Shareofemployeesdistractedatwork


Thereareanumberofchallengesthatarisewhenattemptingtoquantifythecosttoemployersofworkerpresenteeism.Inmanyprofessions,productivityisnotsomethingthatcanbeeasilyobservedataworkerlevel.Furthermore,evenifproductivitycanbemeasured,itisdifficulttoattributeanyfallinproductivitytooneparticularcause,duetothewidearrayoffactorswhichfeedintoproductivity.Numerousstudieshaveattemptedtoestablishthecostofpresenteeismassociatedwitharangeofhealthconditionsinanumberofdifferentindustries.Inmostcases,itisfoundthatthecosttoemployersofpresenteeismissignificantlyhigherthanthecostofabsenteeism.

7

TheCentreforMentalHealth

7ERS(2016):HealthatWork:EconomicEvidenceReport2016

16%

16%

18%

24%

0% 5% 10% 15% 20% 25% 30%

JobSecurity

FamilyProblems

HealthIssues

Worryingaboutmoney

Shareofemployeesthatare'olen'or'veryolen'distractedbythefollowingissueswhileatwork

19


estimatesthatintheUK,thecostofpresenteeismassociatedwithmentalhealthissuesis1.5timesthecostofabsenteeismassociatedwithmentalhealthissues.8Basedontheresultsofoursurveynearlyfivetimesasmanyworkershaveexperiencedafallinproductivityatworkinthelastthreeyearsthanhavemissedadayatworkoverthelastyearasaresultoftheirfinancialsituation.Thisisnottomentionthe55%ofworkerswhoareatleastsometimesdistractedbyworriesovertheirfinances.Theseresultspointtoahighprevalenceofpresenteeismrelativetoabsenteeism.AdoptingtheCentreforMentalHealth’sassumptionthatpresenteeismis1.5timesascostlytoemployersasabsenteeismleadstoanestimatedcosttoUKemployersofover£0.9billionperyear.Thismeansthattogether,weestimatethatabsenteeismandpresenteeismcausedbyalackoffinancialwellbeingcostsbusinesses£1.56billioneachyear.

Productivityimplicationsforemployeesinmanagingroles

Theabovefindingsshowthattheproductivityimplicationsoflowfinancialwellbeingaresevereforindividuals.However,whenemployeeshavelinemanagementresponsibilitiesandshouldoversee,leadandorganiseotherworkers,thecostsfromlowproductivityanddistractionsarepotentiallymultiplied.ThecostofbadmanagementiswelldocumentedwiththeBankofEnglandevengoingsofarastopartlyblameitfortheUK’scumbersomeproductivityperformanceoverthepastdecade.9

Breakingdownthesurveyresultsbyemployeeswithandwithoutlinemanagementresponsibilitiesshowsaworryingpicture.Figure10showsthat3.8%ofemployeeswithmanagementresponsibilitieshavetakentimeoffworkduetofinancialworries,morethandoubletheshareforemployeeswhodon’toverseeotherworkersorcolleagues.Similarly,thosewithmanagementresponsibilitiesarealsomorelikelytohaveexperiencedadeclineinpersonalproductivitycomparedtotheirnon-managingcolleagues.

However,lookingatthefinancialwellbeingscoresforemployeeswithandwithoutlinemanagementresponsibility,ouranalysisfindsonlyamarginal,notstatisticallysignificantdifferenceinthemeanscore.Thissuggeststhatlowfinancialwellbeingisnottheonlydriverbehindtheincreaseinabsenteeismformanagingemployees.Thisresultisnotunexpected,giventhatmanagingemployeesonaverageenjoyhighersalariescomparedtotheirnon-managingcolleagues.Additionalresponsibilitiesandtasksthatcomewiththemanagingrolescouldincreasetheoverallstresslevelsamongthesegroupofemployeesandmightbeoneexplanationfortheincreasedrateofdaystakenoffworkanddeclinesinproductivity.

8TheSainsburyCentreforMentalHealthPolicyPaper8:MentalHealthatWork:Developingthebusinesscase

9https://www.managers.org.uk/insights/news/2017/march/boes-haldane-poor-management-to-blame-for-poor-productivity

20


Figure10:Shareofemployeeswithandwithoutlinemanagementresponsibilitieswhohavetakentimeoffworkornoticedadropinproductivityduetofinancialworries


3.3 IndustryanalysisTheshareofworkerswhoreportedtakingtimeoffworkoverthelastyearasaresultoftheirfinancialsituationvariessomewhatbetweenindustries,asshowninFigure11below.Inthehospitality&leisureandconstructionsectors,theshareofworkerswhohavetakentimeoffinthelast12monthsduetofinancialdifficultiesis6%and4%respectively,comparedto1%ofworkersintheIT&telecommunicationssector.Ratesofpresenteeismaresimilarlyvaried:16%ofemployeesintheconstructionsectorsaidtheyhadexperiencedadeclineinproductivityatworkduetotheirfinancialsituation,comparedtojust7%intheretailsector.

13.1%

3.8%

10.0%

1.8%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Experienceddropinpersonalproducivityduetoproblemswithpersonalfinancialsituaion

Takenimeoffworkbecauseofproblemswithpersonalfinancialsituaion

Employeeswithlinemanagementresponsibiliies(in%) Employeeswithoutlinemanagementresponsibiliies(in%)

21


Figure11Ratesofabsenteeismandpresenteeismacrosssectors


0%2%4%6%8%10%12%14%16%18%

Shareofworkerswhohaveexperiencedafallinproducivityduetofinancialconcernsoverthelastthreeyears

Shareofworkerswhohavetakenimeoffworkduetofinancialconcernsoverthepastyear

22


ComparingtheresultsshowninFigure11abovewiththeindustrybreakdownofourmeasuredfinancialwellbeingscoresrevealssomeinterestinginsights.AsshowninFigure12below,thereisastrongnegativecorrelationbetweenindustrymeasuresoffinancialwellbeingandtheshareofemployeeswhohavetakentimeoffworkduetofinancialworries.Thismeansthatanincreaseintheindustrymeasureoffinancialwellbeingisusuallyassociatedwithadeclineintheshareofemployeeswhohavetakentimeoffworkduetofinancialdifficulties.TheR-squaredvalueshowninthegraphsuggeststhat55.6%ofthevarianceintheshareofemployeeswhohavetakentimeoffworkcanbeexplainedbytheindustry-widefinancialwellbeingscore.

10

InManufacturing,IT&TelecomsandFinance&Accountingweseethathighfinancialwellbeingscoresareassociatedwithlowratesofabsenteeismrelatedtofinancialworriesintheseindustries.Forindustriesinthemiddlegroup,consistingofMedia,Construction,Medical&HealthServices,Legal,andTransportation&Distribution,weseethatfinancialwellbeingscoresneartheaveragescoreinthesurveyof50.4arepairedwitharangeofratesofabsenteeism.Forexample,whilethelegalprofessionandtheMedia,Marketing,AdvertisingandPR&Salesindustryhavenearlyidenticalfinancialwellbeingscores,thelatterexhibitsabsenteeismratesmorethantwiceashighasintheLegalindustry.HospitalityandLeisureistheindustrywithbyfarthehighestrateofworkerswhoatsomepointhavenotcomeintoworktoduetofinancialworriespairedwiththelowestaveragefinancialwellbeingscore.Retailworkersalsofarepoorlyintermsoffinancialwellbeing,thoughtheirratesofabsenteeismareonlyslightlyabovetheaverage.

Figure12:Absenteeismratesandaveragefinancialwellbeingscoresbyindustry

10Inthisinstance,R-squaredmeasuresthestrengthoftherelationshipbetweenindustrymeasuresoffinancialwellbeingandtheshareof

employeeswhohavetakentimeoffworkduetofinancialworries.Foranymodel,R-squaredassumesavalueofbetween0%and100%.AnR-

squaredvalueof100%wouldsuggestthatshareofemployeeswhohavetakentimeoffworkduetofinancialworriesinacertainindustrycanbe

completelyexplainedbythatindustry’smeasureoffinancialwellbeing.ThiswouldbereflectedbyaperfectstraightlinefitinFigures12and13.

Meanwhile,anR-squaredvaluecloseto0%wouldsuggestnomeaningfulrelationshipbetweenthetwovariables.

23



[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE][CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

R²=55.6%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

47.5 48 48.5 49 49.5 50 50.5 51 51.5 52 52.5

Shareofemployeesh

aving

takenim

eoff

work

Averagefinancialwellbeingscore

24


Performingthesameanalysisfortheshareofemployeeswhohavereportedadeclineinproductivityduetotheirpersonalfinancialsituationyieldsalessclearpicture.ThedownwardslopingtrendlineinFigure13indicatesthatanegativecorrelationwiththefinancialwellbeingscorestillexists,butastheR-squaredvalueof3.3%shows,thisrelationshipismuchweaker.ThiscanlargelybeexplainedbytheinfluenceoftheRetailindustry,whereaverylowshareofemployeeshavereportedadropinworkplaceproductivity.Thiscouldpotentiallybeduetothenatureoftheworkintheindustry.

11

Giventhatmanyjobsintheretailsectorarelow-productivityactivities,distractionsduetofinancialworriesorbecauseofanyotherreasonmightnothaveasmuchofanimpactonindividualworkplaceperformanceandmightthereforebeunderreported.ExcludingtheretailindustryfromtheanalysisbelowincreasesthestrengthofthenegativecorrelationbetweenpresenteeismandfinancialwellbeingscoressignificantlyleadingtoanR-squaredvalueof44.2%.Theseresultssuggeststhatfinancialwellbeingisausefulpredictorbothforratesofabsenteeismand(withtheexceptionoftheretailindustry)alsoforpresenteeismintheworkplace.

Figure13:Presenteeismratesandaveragefinancialwellbeingscoresbyindustry


Differencesbetweenindustriesintheratesofabsenteeismandpresenteeism,averageworkerproductivity,andtheoveralllevelofemploymentmeanthatthecostofalackoffinancialwellbeingvariessignificantlyacrosssectors,asshowninFigure14below.Highratesofabsenteeismlinkedtofinancialdistressamongemployeesinthehospitality&leisuresectormeanthatemployersinthis

11AccordingtothelatestONSLabourProductivityFigures,theRetailsectorranked54thoutof67sub-industrydivisionsintermsofoutputper

hour

[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE]


[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

R²=3.3%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

47.5 48 48.5 49 49.5 50 50.5 51 51.5 52 52.5

Shareofemployeesrep

orin

g

declineinworkprod

ucivity

Averagefinancialwellbeingscore

25


industryarelosingover£200millioneachyearduetotheirworkers’financialdifficulties.Thisissuealsocostsemployersintheconstructionsectornearly£170millioneachyear.Meanwhile,highlevelsofemploymentinthemedical&healthservicessectormeanthatemployersarelosingover£100millioneachyearduetoabsenteeismandpresenteeismlinkedtoworkers’lowfinancialwellbeing.

Figure14Sectoralbreakdownofannualcosttobusinessesofalackoffinancialwellbeingamongemployees


3.4 RegionalanalysisTheresultsofoursurveysuggestthatthereisconsiderableregionalvariationintheprevalenceofworkplaceabsenteeismandpresenteeismasaresultoffinancialconcerns.InWales,nearlyoneinfive(18%)ofworkersreportedexperiencingsomefallinproductivityoverthelastthreeyearsduetotheirfinancialsituation.Thiscomparestojust5%ofworkersintheEastofEngland.TheEastMidlandshasthehighestratesofemployeeabsenteeismlinkedtofinancialdifficulties–12%ofworkersinthisregionreportedtakingtimeofffromworkoverthepastyearasaresultoffinancialdifficulties.

£0

£50,000,000

£100,000,000

£150,000,000

£200,000,000

£250,000,000

26


Figure15Ratesofabsenteeismandpresenteeismacrossregions


Thedifferencesintheratesofabsenteeismandpresenteeismacrossregionsmeanthattheassociatedcoststoemployersalsovaryconsiderablyindifferentareas.TheworstaffectedregionsareScotlandandtheEastMidlands,wherebusinessesarelosinganestimated£289millionand£250millionrespectivelyeachyearasaresultoftheabsenteeismandpresenteeismthatarisesfromalackoffinancialwellbeingamongemployees.Only1%ofLondonbasedworkersinoursurveyhavetakentimeofffromworkoverthelastyearasaresultoftheirfinancialsituation.However,thehighnumberofworkersinthecapitaltogetherwithaboveaveragesalariesmeanthattheestimatedcostofalackoffinancialwellbeingtoLondon’sbusinessesis£173millioneachyear.

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Wales WestMidlands

Scotland NorthEast EastMidlands

NorthWest


SouthWest

SouthEast London EastofEngland

Shareofworkerswhohaveexperiencedafallinproducivityduetofinancialconcernsoverthelastthreeyears

Shareofworkerswhohavetakenimeoffworkduetofinancialconcernsoverthepastyear

27


Figure16Regionalbreakdownofannualcosttobusinessesofalackoffinancialwellbeingamongemployees


£0

£50,000,000

£100,000,000

£150,000,000

£200,000,000

£250,000,000

£300,000,000

£350,000,000

Scotland EastMidlands

London EastofEngland


WestMidlands

Wales NorthEast

SouthEast

SouthWest

NorthWest

28


4 EmployeroptionstoimprovefinancialwellbeingTheresultspresentedinSection4highlightthesizeableimpactthatemployees’financialwellbeingcanhaveontheirperformanceatwork,andcorrespondinglyontheirfirms’bottomline.Thisfinding,togetherwiththesubstantialshareofsurveyrespondentswhoexpressedconcernsabouttheirfinances,willnodoubtbetroublingforemployers–bothfromanemployeewelfareandfirmperformanceperspective.Employeesinoursurveyidentifiedlowpaytogetherwithhighhouseprices,rentalpricesandcostsoflivingasthelargestobstaclestofinancialsecurityandoverallbetterfinancialwellbeing.Thisisconsistentwiththefactthathouseholdincomeswerebeingsqueezedthroughout2017aspricegrowthexceededearningsgrowth.Whilewagegrowthpickedupslightlyatthestartthisyear,ithassincefallenback,andremainslowbyhistoricalstandards.Thatbeingsaid,workersinoursurveyalsohighlightedavarietyofavenuesthroughwhichfirmscanhelptoimprovetheiremployees’financialwellbeing.Theseincludecontributingmoretoemployeepensions,improvingunderstandingaboutmanagingmoneyandtheprovisionoffinancialeducation.

Figure17Largestobstaclestopeoplesecuringtheirfinancialfutures*


*questionasksrespondentstolistbarrierstofinancialwellbeingforUKsocietyasawhole.

0%

10%

20%

30%

40%

50%

60%

70%

29


4.1 FinancialeducationOneoftheprimarywaysthatbusinessescanhelptheiremployeestomanagetheirfinancesisthroughtheprovisionoffinancialeducation.While35%ofsurveyrespondentsfeelthattheywouldbenefitfromit,justoneinsevenofthesearecurrentlyreceivinganyformoffinancialeducationfromtheiremployer.Giventhemajorimpactsoffinancialdifficultiesonemployeewelfare,productivityandfirmperformance,theprovisionoffinancialeducationrepresentsarelativelycost-effectivewayforemployerstolimitsomeofthesenegativeoutcomes.

Employeeinterestinfinancialeducationisrelativelyconsistentthroughouttheeconomy,withasimilarshareofworkersexpressinganinterestacrossthedifferentindustriescoveredbyoursurvey.However,thereisnotablesectoralvariationintheleveloffinancialeducationcurrentlybeingprovidedbyworkplaces.Forinstance,athirdofworkers(33%)inthefinance&accountingsectorarebeingofferedthisservicebytheiremployer,comparedtojust8%inretailandconstructionsectors.Furthermore,theindustriesthatarecurrentlycomingupshortwhenitcomestofinancialeducationarealsothosewiththelowestfinancialwellbeingscores.Figure18showstherelationshipbetweenemployersofferingfinancialeducationandfinancialwellbeingscoresbyindustry.TheR-squaredvalueof32%indicatesapositivecorrelationbetweenthetwovariables.

Figure18:Shareofemployersofferingfinancialeducationandaveragefinancialwellbeingscoresbyindustry


Asimilarpictureemergeswhenlookingatthebreakdownoffinancialeducationprovisionanddemandbyagegroup.Morethanathird(35%)ofunder35yearoldsinoursurveyarenotcurrentlyofferedfinancialeducationbytheiremployer,butwouldlikethisservicetobeoffered.Thisfallsto24%amongthe55andoveragegroup.

Amongthosecurrentlybeingofferedfinancialeducation,themostfrequentlycoveredtopicsaretherangeandscopeofemployerbenefitsandretirementplanning,whicharelistedby61%and58%ofrelevantrespondentsrespectively.Othercommonthemesaremoneymanagementandsaving,debt

[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE]


[CELLRANGE]

R²=32.1%

47.5

48.0

48.5

49.0

49.5

50.0

50.5

51.0

51.5

52.0

52.5

0% 5% 10% 15% 20% 25% 30% 35% 40%

Averagefin

ancialwellbeingsc

ore

Shareofemployersofferingfinancialeducaion

30


managementandsupportaroundmortgagesandproperty,whicharelistedby39%,24%and22%ofrelevantrespondentsrespectively.

Figure19Mostcommontopicscoveredbyemployerprovidedfinancialeducation


Overoneinfivesurveyrespondents(21%)saidthattheiremployerdoesnotprovideinformationonhowtomakethemostofthebenefitsonoffer,butthattheywouldliketheiremployertodoso.Thisisthereforeanareawhereemployershavesignificantscopetoimproveatrelativelylittleexpensebymerelycommunicatingthevariousbenefitsthatarealreadyonoffer.

While8%ofemployeesinoursurveyareprovidedwithgeneralinformationhighlightingstepstoimprovetheirfinancialwellbeing,afurther7%areofferedface-to-facecounsellingandadvicebyspecialisedstafforexternalconsultantstoaddressspecificquestionsandconcerns.

Lookingattheeffectofemployersofferingsupportwithfinancialplanning,weseethatthesub-groupofrespondentswhodidreceivefinancialplanningshowhigheraveragefinancialwellbeingscorescomparedtothosethatarenotofferedanyoftheseinitiatives.AsseeninFigure20,employeeswhoarenotbeingofferedanykindoffinancialeducationbytheiremployersscoreonaverage50.1pointsonthefinancialwellbeingscale.Thisisaround1.9pointsbelowthegroupofemployeeswhoarebeingofferedanytypeoffinancialeducation.12

12Differencesignificantatthe99thpercentile.

0%

10%

20%

30%

40%

50%

60%

70%

Informaionaboutrangeandscopeofemployerbenefits

Financialplanningforreirement

Moneymanagementandsaving

Supportwithdebtmanagement

Supportaroundmortgagesand

property

31


Figure20:Averagefinancialwellbeingscores,employeeswithandwithoutfinancialeducationoffered


4.2 OtheremployerinitiativestosupportfinancialwellbeingAnimportantwayforfirmstopromotesavingamongworkersandtheiroverallfinancialsecurityisbymakingpensioncontributionsinexcessofthe2%legalminimum.Accordingtooursurvey,thisiscomfortablythemostwidelyadoptedinitiativebyemployerstoboostemployees’financialwellbeing,withtheemployersofmorethanathird(35%)ofemployeesofferingtoexceedthelegalminimumpensioncontribution.Accordingtooursurveyparticipants,thisisalsothemosteffectivewayforemployerstoboosttheirfinancialwellbeing,withmorethanfourinfivestating(82%)thatthiswouldbeveryuseful(51%)orfairlyuseful(31%).Theimportanceofpensionsasameansofsafeguardingfinancialwellbeingisdemonstratedbythelowopt-outratesfromauto-enrolledpensionplans.ArecentYouGovstudycarriedoutonbehalfofAegonandtheConfederationofBritishIndustryfoundthatonly16%ofbusinesseshadanemployeeoptoutrateinexcessof10%.13Whilemanyemployershavenowtakenthesteptooffertomatchpensioncontributionsabovethelegallyrequiredlevel,thereisevidencethatsomeemployeesarenotabletotakefulladvantageofthis.AseparateAegonstudythisyearidentifiedthataround55%ofworkersfindpensionsterminologyconfusingandabarriertoretirementplanning.14Thishighlightshowtheprovisionoffinancialsupporttoemployeesneedstobecomplementedbytheprovisionofinformationonhowbesttoutilisetheseopportunitiestoimprovefinancialwellbeing.

13Aegon,2017:Pensionemployeeengagementstudy

14Aegon,2018:Understandingemployeeperspectivesandengagement

50.1

52.0

49.0

49.5

50.0

50.5

51.0

51.5

52.0

52.5

Employeesnotofferedanyfinancialeducaion

Employeesofferedanykindoffinancialeducaion

Employeeaverage

32


Figure21Measuresemployersarecurrentlytakingtosecuretheiremployees'financialwellbeing


Generouspensioncontributionsarebynomeanstheonlywayinwhichemployerscanimprovetheirworkers’financialwellbeing.Ashousepricetoearningsratioshavepersistentlyincreasedinrecentdecades,propertypurchaseshaveemergedasamajorsourceoffinancialdistress,afindingreinforcedbytheresultsofthissurvey.Just2%ofemployeesinoursurveyreceivesupportfromtheiremployerinpurchasingahouse.Somewhatunsurprisingly,morethantwothirds(68%)ofemployeesinoursurveyfeelthatemployersupporttobuyahousewouldimprovetheirfinancialwellbeing.

Whiledirectlycontributingtoemployees’housepurchasesislikelytobeaprohibitivelyexpensiveoptionformanyemployers,firmscanalsoassistworkersinthisareabysupportingsavingandinvestment.Forinstance,corporateISAsrepresentaconvenientandtax-efficientwayforemployeestosaveformajorpurchasesandimprovetheiroverallfinancialsecuritybyprovidingabufferforunexpectedshocks.Theresultsofoursurveysuggestthatfirmsarecurrentlyfallingshortinthisarea,withonly5%ofemployeesbeingofferedsupportinsavingandinvestment,comparedto67%whofeelthatthiswouldbebeneficialtotheirfinancialwellbeing.

Previousresearchinthisareasuggeststhatbothemployersandemployeesseetheprovisionandsupervisionofpensionsasanemployerresponsibility.Indeed,onestudyfoundthatover30%ofworkersbelievethattheiremployershouldtakeresponsibilityoftheirpension,comparedtolessthanaquarterwhofeltthattheythemselvesshouldbeprimarilyresponsibleandlessthan10%whoviewedthisasthegovernment’sduty.15Meanwhile,anotherstudyfoundthatmanyemployersviewworkplacesavingsandinvestmentplansasa‘nicetohave’optionratherthanacorepartoftheemploymentpackage,whileothersarereluctanttostrayintotherealmofofferingfinancialadvice.16Thecontrastingattitudesheld

15Aegon,2018:Understandingemployeeperspectivesandengagement

16Aegon,2017:Workplacepensions–employerunderstanding

0%5%10%15%20%25%30%35%40%45%

Myemployermakesthelegal

minimumpensioncontribuion(currently2%)

Myemployerpaysabovethelegalminimum(i.e.morethan2%)

Generalinformaion

highlighingstepstoimprove

financialwell-being

Face-to-facecounsellingand

advicebyspecialisedstaffor

externalconsultantstoaddressspecificquesionsand

concerns

Myemployerofferssupportinsavingandinvestment

Myemployerofferssupportinbuyinga

house

33


towardsthepensionplansandadviceonsavingsandinvestmentislikelytounderpintheapparentshortageofemployerprovisionofthelatterhighlightedbyoursurvey.

Figure22Usefulnessofemployerinitiativestoimproveemployees’financialwellbeing


0%10%20%30%40%50%60%70%80%90%

Payingabovethelegalminimum

pensioncontribuions

Generalinformaion

highlighingstepstoimprovefinancial

well-being

Supporttobuyahouse

Supportforinvestmentandsavingsdecision

Supportfordebtmanagementissues

Face-to-facecounsellingand

advicebyspecialisedstaffor

externalconsultantstoaddressspecificquesionsand

concerns

Useful Notuseful

34


5 Conclusions

Financialwellbeingisatopicofincreasingimportanceforbothemployeesandemployers.Agrowingbodyofliteratureisexaminingthedeterminantsoffinancialwellbeinganditsimpactonemployeeperformance.Understandingworkers’financialneedsinacomprehensivewayisthereforebecomingincreasinglyimportant,notonlyforemployerswhowanttoattractandretainthebesttalentbutalsoforfinancialreasons.

OurreportaddstothisbodyofliteraturebyquantifyingandexaminingthefinancialwellbeingofUKworkersusingaquestionnairebasedscaledevelopedbytheUSConsumerFinancialProtectionBureau.Basedona2,000employeesurvey,conductedbyYouGov,weareabletocomparefinancialwellbeinginarobustandsystematicwayacrossvarioussub-groups.

ThehighestfinancialwellbeingscoreshavebeenrecordedacrosstheIT&Telecoms,Finance&Accounting,andManufacturingindustries,whiletheemployeesintheRetailandHospitalityandLeisuresectorrecordedthelowestaveragescores.Acrossindustries,financialwellbeingiscloselyrelatedwithincome,thoughitisnotidenticaltoit.

Ourresearchfoundthatemployersshouldtakethefinancialsituationoftheiremployeesseriously,giventhesignificantcostsassociatedwithlowfinancialwellbeing.Respondentswithlowfinancialwellbeingscoresaremorelikelytomissworkduetoworriesrelatedtotheirpersonalfinancialsituationandarealsomorelikelytohavenoticedadeclineintheirworkplaceproductivity.

Weestimatethataround520,000privatesectoremployeeshavehadtotaketimeoffinthelastyearduetotheirfinancialwellbeing,leadingtoalossofover4.2milliondaysofwork.Giveninformationabouttheincomelevelsoftheseemployeesandfurtherinsightsabouttheassociatedspill-overcostsarisinginaffectedworkplaces,weestimatethecostofworkplaceabsenteeismtostandat£626millionperyear.

Moreover,employeesinfinancialdistressaremorelikelytobedistractedatworkwhichhasconsequencesfortheirworkplaceproductivity.Morethanoneinten(11%)ofsurveyrespondentshaveexperiencedatimeinthepastthreeyearswherethathasbeenadeclineintheirpersonalproductivityatworkduetoproblemsrelatedtotheirfinancialsituation.Thisaddsanother£0.9billionperyeartothecostforUKemployers.Intotal,weestimatethatabsenteeismandpresenteeismcausedbyalackoffinancialwellbeingcostsbusinesses£1.56billioneachyear.

However,employershavenumerousoptionstoincreasethefinancialwellbeingoftheirstaff.Financialeducation,i.e.theprovisionanddisseminationofinformationregardingfinancialplanningbytheemployer,hasbecomeincreasinglycommoninrecentyearsandcanhelpemployeesnavigatetheirfinanciallifemoreeffectively.Indeed,ourresearchshowsthatthoseemployeeswhohaveaccesstofinancialeducationthroughtheiremployershowhigherfinancialwellbeingscoresthanthosewhodon’t.Otherwaysofsupportingemployeeswiththeirfinancialplanningisviapensioncontributionsabovethelegalminimum,adviceonhowtomakethebestofthebenefitsandplansthatemployersalreadyofferaswellassupportforsaving,investmentanddebtmanagement.

35


Appendix:MethodologyConsumerFinancialProtectionBureauWellbeingScale

Scoringsheet

Table1ScoringSheetPart1

Thisstatementdescribesme

Completely VeryWell Somewhat VeryLittle Notatall

I could handle a major unexpected expense

4 3 2 1 0

I am securing my financial future

4 3 2 1 0

Because of my money situation, I feel like I will never have the things I want in life

0 1 2 3 4

I can enjoy life because of the way I’m managing my money

4 3 2 1 0

I am just getting by financially

0 1 2 3 4

0 1 2 3 4

36


I am concerned that the money I have or will save won’t last

Table2ScoringSheetPart2

Thisstatementappliestome

Always Often Sometimes Rarely Never

Giving a gift for a wedding, birthday or other occasion would put a strain on my finances for the month

0 1 2 3 4

I have money left over at the end of the month

4 3 2 1 0

I am behind with my finances

0 1 2 3 4

My finances control my life

0 1 2 3 4

FinalScoretable

Table3FinalScoretable

TotalResponse FinalScore*

0 14

1 19

2 22

3 25

37


4 27

5 29

6 31

7 32

8 34

9 35

10 37

11 38

12 40

13 41

14 42

15 44

16 45

17 46

18 47

19 49

20 50

21 51

22 52

23 54

24 55

25 56

26 58

27 59

28 60

29 62

30 63

31 68

32 66

33 68

38


34 69

35 71

36 73

37 75

38 78

39 81

40 86

*FinalScorecalculatedontableforself-administeredquestionnairefor18-61yearolds

Moreinformationonthescaleandunderlyingmethodologycanbefoundat:

https://www.consumerfinance.gov/data-research/research-reports/financial-wellbeing-scale/

Financial wellbeing and productivity - Aegon UK · The reality is that, for many, financial worries directly impact their ability to be productive at work. ... understand employee

Documents