In 2020, as a result of the global Coronavirus pandemic, our sense of wellbeing has dropped back down to levels last seen during the 2008-2009 recession. Earlier this month, Gallup found that barely 1 in 2 people felt they were thriving. The HIS Markit UK Household Index measures households’ overall perceptions of financial wellbeing. An April 2020 report found that the Coronavirus pandemic led the index to fall to 42.5 from a high of 47.6 just the month before. Looking ahead, UK households say they expect their financial wellbeing to decline over the next year. This marks a big difference from the record high positive outlook the index recorded just a few months ago in February 2020.
Employees are worried about the long term
While the lockdown might turn out to be short-lived, the economy itself will inevitably take longer to recover. The knock-on effect the crisis will have on working families means budgets will be tighter, savings and investments will fall, and many people will struggle. UK consumers are expected to take a £43bn hit. The CEBR has calculated that the impact on average households in disposable income will mean a monthly fall of £515.
In early April, Josh Bersin (in association with the MIT Sloan Management Review and CultureX) tried to find out how global HR teams were handling the Coronavirus crisis. When they asked what was on the minds of their employees at this time, financial issues rated much higher than anything else. Driven by lower wages, job insecurity and uncertainty in the economy, employees are becoming really worried about money.
However, long before Coronavirus was a word any of us knew, the UK had a stagnant savings habit and record levels of debt. Employees and their families will need additional help, assistance and reassurance from their employers well into 2021. How employers react to this will have a massive impact on the wellbeing of their staff.
Be aware of diversity
Although anyone can get the virus, how its impacting employee’s lives can differ greatly. Some employees are living with large gardens and the support of a big family, others are living in flats on their own. Statistically, around half of the UK population has less than £100 in savings meaning a significant portion of the working population is ill prepared to weather the effects of a recession. It’s important that employers realise that not all employees are created equal. Understanding the disadvantages diverse employees face can help us to better serve and support them.
The IFS reports there are specific groups that are vulnerable to poor health because of a coronavirus recession. Even if the crisis hits all individuals equally, evidence is already emerging that the economic repercussions of the crisis are falling disproportionately on young workers, low-income families and women. The wider impact poor financial wellbeing will have on these workers’ overall health and wellbeing should be noted.
Impact on wider wellbeing
As of 2018, a third of UK adults say their physical and mental health suffered because of their financial situation. When an employee feels in control of their finances, there can be as much as 52% uplift in overall wellbeing scores between the least and most financially confident people in society.
Worrying about money is more stressful to employees in 2020 than their work or relationships leading to more than half of us saying worrying about money is affecting our mental health. With employees struggling to find the support they need from the Government, they are turning to employers for help.
One of the universally accepted truths following the last recession was the need for everyone (regardless of age) to acquire a basic knowledge of finances and economics. However, between 2009 and 2018, there was an almost 10% slip in the amount of people who could correctly answer most questions about interest rates, inflation, financial risk and mortgage rates (from 42% to 34%).
The Bank of England reports that the UK is the only OECD country where our literacy and numeracy skills are getting worse. The problem is so big that Chief Economist at the Bank of England, Any Haldane says financial literacy is one of the big six issues that will help mend society’s inequalities. Delivering financial education at work might be a positive step towards helping employees navigate the uncertain economy of the next few years.
We have very strong evidence that financial education works. An analysis of 126 studies found that financial education significantly impacts financial behaviour and financial literacy. An individuals’ ability to cope with hardship on a personal level helps an economy to recover more quickly. More than three quarters of employees think their employer should help them with financial education. When they have it at work, 82% of employees say it has a positive impact.
In a 2018 briefing paper, the House of Commons found that increases in household debt prior to recessions leads to deeper and longer economic downturns. Chairman of the White House Council of Economic Advisors Alan Krueger believes if people were more financially literate, we would see higher household savings.
Among the lessons of previous recessions is the need for employees to be better equipped to deal with money. From understanding their choices, how products work and making a plan for themselves, arming your staff with the skills and knowledge they need to make better decisions will help them recover in a post-Coronavirus world.
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