Employers benefit if they help 'working poor' sort their finances

Wednesday, 1 August 2018

OPINION: In recent times there has been much discussion about the 'working poor'; those people whose income from employment is not sufficient to provide an adequate standard of living.

Financial stress is known to cause lower productivity, absenteeism and higher staff turnover in the workplace, and relationship issues at home. In turn, relationship issues can also lead to problems in the workplace, thus compounding the problem.

Increasing the minimum wage to a 'living wage' is one way of dealing with financial stress and, for low-income groups, this may well be a good solution. However, there is a large group of people living from pay day to pay day, or with increasing levels of debt, who should be able to manage on their current income. These people simply lack the money management skills to live within their means and to make the best financial choices.

Amongst this group of people are some who are on high incomes but can't stick to a budget.

* Rising living costs seeing more families turning to food banks

* My constant struggle to stay above the poverty line**

Ironically, some of the best savers and money managers are people on low incomes. That's because they have to keep a close eye on their money in order to survive. The ability to create wealth is determined not by income but by the ability to manage income.

A modest income is not a barrier to wealth creation and a high income does not necessarily lead to higher wealth.

Employers are in a position to give people the skills and support they need to manage their money better. In exchange, studies show they can expect higher productivity, and lower levels of absenteeism and staff turnover. A pilot workplace financial education programme was run by the Commission for Financial Capability in 2014 and independently evaluated.

Liz Koh: 'A modest income is not a barrier to wealth creation and a high income does not necessarily lead to higher wealth.'

After the programme, employers saw higher levels of engagement and loyalty, positive attitudes to work, greater satisfaction with pay, less crisis borrowing, reduced absenteeism and turnover and increased confidence within participating staff. Workplace financial education really does make a difference, yet it is still a rarity.

Education and support can take many different forms, ranging from financial literacy seminars to access to independent financial advice and even workplace loans at low interest rates. Basic skills such as budgeting and setting aside money for emergencies can make a huge difference to financial stress. Without these skills in place, pay increases are less likely to solve the problem of not having enough money to go around. In some cases, employees may need to be referred to debt management and budgeting specialists or charitable organisations for assistance.

As the population ages, employers can support workers who are wanting to work past the age of retirement, work part-time or gradually transition into retirement. Fears about not having enough money to retire can cause people to stay working longer than they really want to.

Resentment, loss of motivation and anxiety can all lead to reduced productivity and at the same time these people are forgoing the opportunity to enjoy life while they still have good health.

Help with the financial and psychological aspects of retirement planning can prevent problems for both employees and employers. Of course, retirement planning starts with joining KiwiSaver and selecting the right contribution level and investment option. While employers cannot give financial advice, they can make arrangements for employees to receive training or independent personalised advice on KiwiSaver. Not knowing who to turn to is a major barrier for people needing advice.

Workplace financial education can present some challenges. Not all employees want to discuss their finances in the workplace. People of different ages and backgrounds may need different advice and so it is important to offer a range of topics at different levels. Not everyone has the same learning style, and a variety of formats should be offered. Evidence shows that employers who run education programmes consistently over a long period get the best results. Changing behaviours takes time.

Employers are in the best position to connect with the working population en masse and face-to-face and they have much to gain from a financially capable workforce. Offering workplace financial education and support is not only the right thing to do, it's the smartest thing to do.

Liz Koh is an authorised financial adviser and author of Your Money Personality; Unlock the Secret to a Rich and Happy Life, Awa Press. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.