Is there a need for financial education in the workplace?

Transcription

1 Is there a need for financial education in the workplace? Secondsight White Paper October 2014 Secondsight is the employee benefits division of the national firm of financial advisers, Foster Denovo, IFA of the Year 2013.

2 Contents Executive summary: 2. What is financial education in the workplace? 2. Why is workplace financial education important? 4. White Paper overview 4. Key findings Survey findings: 5. People are not receiving financial education in the workplace 6. Financial education in the workplace 7. Why employers should consider providing workplace financial education 9. Why don t employers provide financial education? 9. What do employers currently provide? 10. Future workplace plans 10. Who should provide financial education? About Secondsight: 11. The Secondsight Financial Education Programme 11. Darren Laverty - Director of Sales and Marketing, Foster Denovo 1.

3 Executive summary Workplace financial education is about empowering employees to make their own informed financial decisions. What is financial education in the workplace? Workplace financial education is about encouraging employees to think about their money. It is not about advising them to choose a particular path or product. Rather, it is providing information to enable them to make their own financial decisions. For some this may include going on to seek the help of a financial adviser; for others they will have the confidence to make their own choices. Ultimately, the purpose of workplace financial education is to empower the individual and provide them with as much knowledge as possible. Why is workplace financial education important? Financial education is more important than ever. There are so many areas that consumers need guidance on and yet many do not know where to start looking for the right support. And age is no barrier. As a nation, we are living longer. Life expectancy for men in the UK is currently 79.5 years and for women, 82.5 years. According to the ONS 1, one third of babies born in 2013 will live to 100 years. This means that they will be in retirement for longer. People living and working today, as well as recent newborns, will need to know how to support themselves, particularly if they have to pay for care in their latter years. The UK Government borrowing, whilst down from 2013, is still high - standing at 107.7bn in the financial year to April With that in mind, it seems unlikely that people will be able to rely on the Government to support them in their old age. The new pension rules also make it imperative for people to understand the choices they have and the implications of the actions they take. From April 2015, retirees will be able to withdraw all their pension money immediately; leave it invested and take income when required, or buy an annuity. Financial advisory firm Hymans Robertson forecasts that up to 5 billion will be taken out of pension funds in the three months after April next year and that 3 billion of that will be spent on luxuries such as new kitchens, conservatories and cars 3. It is estimated that up to 5 billion will be taken out of pension funds after April next year; most of which will be spent on luxuries. 1 Office For National Statistics - based/sty-babies-living-to-100.html

4 A single first time buyer in the UK needs to earn 4.9x their salary to buy an average priced property Access to financial education in the workplace can help people decide whether going on a spending spree with their pension pot is the right choice for them. Meanwhile, younger people, sometimes referred to as Generation Y and even Generation Z, need all the information they can get to try to improve their financial position. For the first time in living memory, they face the prospect of being poorer than their predecessors as jobs become scarcer and housing less affordable. Whilst unemployment is coming down, it still remains at over 2 million 4. The average price of a house in the UK is 272,000 and in London it is 514, A single first time buyer in the UK would need to earn 4.9 times their salary to buy a property against the UK average and 8.8 times in London 6. Furthermore, many of the young are also saddled with student debt. A recent study, entitled: Payback Time? found that a typical student now leaves university owing more than 44, Stuck between the two are middleaged workers, the vast majority of whom have no financial plan in place. These workers also face new financial pressures as their cashstrapped offspring increasingly lean on them for help. One in five parents now helps their children to buy their first home, handing them an average of 23,000 each, according to housing charity Shelter 8. There is hope the next generation will be financially savvy. Following much petitioning, financial 1 /5 parents now help their children to buy their first home education has been confirmed as an official part of the English national school curriculum 9. But it is crucial that today s adults have access to financial education, particularly in the workplace. This should not be seen as an added cost or chore for the employer. Workplace financial education may help save employers money; through improved levels of staff engagement, a reduction in employee turnover and - for some - a decrease in employee stress levels. It is crucial that today s adults have access to workplace financial education First Time Buyer House Price Earnings Ratio - Nationwide (Q2, 2014)

5 White Paper overview In September 2014, the multiaward winning employee benefit advisers, Secondsight, commissioned Censuswide to conduct two surveys. The first survey went to 250 HR employees in companies with 100+ employees, the second to 1013 full-time employees. Bringing the results of both surveys together, the company has been able to gauge the extent of workplace financial education. The research findings provide the premise for this paper. Key findings: More than half (52%) of companies are not providing financial education to their employees. Some 38% of organisations, however, state that they do provide some form of financial education to their staff. Yet when asked, two thirds (67%) of employees in the UK claim to not receive financial education from their employer. 50% of employers said that their employees had requested financial education in the workplace. 76% A higher proportion of older people, in the 55 plus age bracket, (76%) claim they had not received any form of financial education at work. 73% of employees said financial education being offered made them feel more positive about their employer. 23% stated it made them more loyal. This rose to 43% for the year age bracket. These figures were backed by 51% of employers who said that the reason for offering it was to improve engagement. of people aged 55+ claim they have not received financial education Commenting on the findings, Darren Laverty, Director of Sales and Marketing at Foster Denovo, said: This survey clearly shows how important workplace financial education is in this rapidly changing world. Around 20 or 30 years ago people were encouraged to be sensible with their money and put some aside. That no longer happens and not enough people give sufficient thought as to how they are going to maintain their current life style in the future. The trends are worrying. There is also a shocking lack of provision when it comes to proactive financial education in the workplace, which does not meet with employee demand. 51% of employers offer financial education to improve engagement 4.

6 Survey findings People are not receiving financial education in the workplace. The survey indicated the vast majority of employees have no idea how to pay for their future, with less than 20% having a solid financial plan in place, according to the survey. Meanwhile, only 38% have a vague idea about how to manage their money. Worryingly, it does not seem as though people are losing sleep about it, with only 12% saying they were concerned by the lack of planning. Laverty puts this down to the psychological state known as unconscious incompetence, where an individual does not know something and does not recognise that this is a problem. Financial education is about moving people towards conscious incompetence, where they realise there is a problem and then do something about it, he said. If you educate people on an emotional level about what it means to them and their family, they then become engaged and take action. Less than a quarter of employees (22%) have a financial adviser and, in the South-West, this figure drops to 13%. The introduction of the Retail Distribution Review (RDR) at the end of 2012, has forced people to pay upfront for investment advice rather than allow the financial adviser to take it all from a policy. I am therefore not surprised by the above statistic, Laverty adds. Nevertheless, given the need for people to become better educated about their finances, this remains a worrying trend. Most employees have no idea how much their pension is worth, with only 11% knowing how much they ll retire on. 38% 11% have a vague financial plan know how much they will retire on less than 20% have a solid financial plan Following the outcomes of the 2014 Budget, new pension rules from April 2015 will allow people to withdraw all their pension money 5.

7 38% of organisations claim to provide financial education immediately, but it seems many will have a shock when they realise how little they have. Laverty added: It s about having a retirement asset pool - pensioners should be looking to optimise where they can take their income from. When you educate people, they begin to worry about when their money may run out, but the knowledge they are provided with should help to remove some of the stress. 6% of people rely on a friend for financial advice Perhaps worryingly, 6% of people claim they rely on a friend for financial advice. A lot of people have friends who they think are doing well and are happy to take advice from them, but this is a dangerous policy, said Laverty. You re placing a high degree of trust in your financial future in a friend who may not have any great knowledge of managing money or making the most of it. Financial education in the workplace According to the survey findings, more than half of employers (52%) don t provide any form of financial education to employees. These findings are backed up by employees responses. When asked if they received any form of financial education at work, two thirds (66%) said they did not. However, there is a disconnect; more employees say they don t receive education, or information, when they do. This could be attributed to a lack of communication on the part of the employer. As a result, some employees are simply not aware of what is available and how to access it. On a positive note, some 38% of organisations claim to provide financial education in the workplace, although it is not known in what form. This could be as little as providing booklets about their employee benefits, or basic information on the company intranet. In my opinion, neither is enough said Laverty. Worryingly, a higher proportion of older people, in the 55 plus age bracket, (76%) claimed they had not received any form of financial education at work. This comes at a time when they have more need for retirement planning than ever before. Laverty said: The continued roll out of auto-enrolment over the next couple of years will see millions of workers across the UK paying a portion of their pay packet automatically into a savings pot for their pension, compounding the need for financial guidance. In addition, the recent changes to pensions following the 2014 Budget, will see increased flexibility around pension drawdown at retirement. It is positive to see the increased flexibility, but there will be concerns around individuals potentially, and recklessly, spending their money, if they are able to take it all in a lump sum. This is very concerning when you consider that - today - the average pension pot stands at circa 36,000 according to the ABI 10. I would argue that now, more than ever, older workers need financial education to get the most out of their retirement. Changes to the pension landscape means older workers require education when it comes to planning for their retirement Figures.ashx 6.

8 50% of HR professionals have been asked for further financial guidance by their employees Financial education in the workplace For many individuals, the largest purchase they will ever make is buying a house, yet less than 1 in 10 (8%) employees have access to mortgage advice at work. 8%have access to mortgage advice at work According to the HR professionals surveyed, 50% of them have said their employees have requested further financial guidance and education in the workplace, demonstrating significant demand. Not surprisingly, with the higher standard of living and house prices, this figure rises to 57% in London, but more employers (55%) claim not to offer any form of financial information or guidance. When asked, 73% of employees who received financial education at work felt more positive about their employer. The last statistic is very positive, indicating real enthusiasm towards the theme of providing financial guidance in the workplace, said Laverty. However, there is a perception that financial education is too expensive and not worth the cost. According to the employers surveyed, 39% don t offer financial education as they think it would be too expensive. Providing financial education in the workplace doesn t have to be at a high cost. It should be seen as an investment, because the benefits significantly outweigh the costs, added Laverty. Why employers should consider providing workplace financial education Companies can reap huge benefits from offering financial education, because: It is good for employees and is the right thing to do 73% of employees felt more positive about their employer, when they received financial education It improves employee engagement It makes employees feel more positive about their employer It makes employees more loyal Some would say it can reduce levels of employee stress The survey highlighted that some 73% of employees said if they had access to financial education at work, they would feel more positive about their employer. Laverty said: These results indicate that employees who can access financial education at work will hold their employer in higher regard than they may otherwise. This could - in turn - be translated into better levels of staff retention. With the economy picking up, employers are looking at ways to retain their valued staff financial education should be one avenue to consider. Meanwhile, 23% said it made them more loyal to their employer and this was significantly higher, at 43%, among the younger age bracket. Laverty said: This is an interesting statistic, but clearly providing financial education instils increased loyalty from this group of individuals than others. I think it is because those leaving school and university have been finding it more difficult to get the job they want, and when they do find the right job they are motivated to stay in it. 7.

9 36% of employees said they would be more proactive with their money if they had access to workplace financial education 23% say financial education made them more loyal to their employer among year olds this increased to good for employees, whilst more than two in five (42%) employers felt it was the right thing to do. Supporting this sentiment, 36% of employees surveyed said they would be more proactive with their money if they had access to financial education at work. More than one in five employers said offering financial education at work reduced stress levels, while one in seven said offering it cut down absenteeism. Although providing financial education at work is perceived to be a cost, the survey results show there is a strong case for it actually saving companies money. A report by Oxford Economics reveals that replacing a staff member costs an employer on 43% 72% average 30, Yet if staff feel positive, they are less likely to leave. Furthermore, productivity can be significantly affected by staff attitude, stress levels and absenteeism 12. Secondsight offers an off-the-shelf financial education programme for companies, which can be adapted to individual firms, costing from 10,000. The package includes a marketing communication programme to encourage employees to participate in the initial financial awareness presentation, followed by targeted workshops on specific financial planning areas, ranging from a young person s guide to finance to options close to retirement to estate planning. Employees can opt to attend just one, or all of the workshops. Equally, they face a huge amount of financial challenges - saddled with student debt, and finding it difficult to get on to the housing ladder. Financial guidance goes a long way for this group, and employers would be wise to take heed of that. The figures were backed up by employers, with 51% saying that the reason for providing financial education was to improve employee engagement. 72% said they provided access to financial education because it was of employers provide financial education as it is good for employees Financial education is surprisingly cost effective for a company to provide. Financial education is about making people aware of the options available and the course of action they may want to take. It is surprisingly cost effective for a company to provide, said Laverty

10 Why don t employers provide financial education? Many employers don t provide workplace financial education because they think it would cost them too much, or because they do not feel it is their responsibility. Some 38% believe the service is prohibitively expensive and a similar figure thinks it is not something they should be providing to their staff. 38% believe financial education is prohibitively expensive Laverty said that this was further proof that financial education was being confused with advice. We need to inform companies about the difference and explain the benefits to them clearly, he said. Workplace financial education is very different to providing financial advice. It is about empowering employees to make their own financial decisions with their newfound knowledge; however, some will want a professional to help make their financial planning decisions. For those that don t have an adviser, but who are provided with financial education their knowledge will improve and they will no longer be making decisions in the dark. One fifth of HR professionals said they didn t offer financial education at work as it would take up too much time. While one in seven did not feel it would make their staff more productive. Meanwhile when asked, 31% of employees wouldn t be prepared to pay for any form of financial advice. In some sectors this is markedly higher, with 49% of employees in the travel sector saying they wouldn t pay for it. The beauty of a company taking on the responsibility of financial education is that the individual would not have to pay, said Laverty. The company would benefit from more productive and loyal staff, while the individuals would benefit from knowing more about the financial options open to them. It s a win-win situation for all. What do employers currently provide? Many employees are not even aware their companies offer any form of financial education, according to the survey. When quizzed, half of employers claimed they offered their employees access to retirement planning. Yet two thirds (67%) of full time employees said they did not receive any financial education from their employer. Laverty said the figures indicated the levels of financial education offered by many firms was minimal and that they were not communicating properly to their staff. I m a little bit sceptical about these results because some 67% of employees do not receive financial education firms will say they offer financial education when, in reality, they may just have a leaflet outlining the company s benefits and pension scheme. That isn t really financial education and I very much doubt that half of companies offer proper retirement planning. The fact that most employees are not aware of the financial education on offer would indicate that they are either disengaged from their company or that information available is minimal and/or difficult to find. Either way, companies need to be reversing that trend. Meanwhile, 32% of employers admitted that they do not provide any form of financial education on their employee benefits. The number of firms offering financial education in particular areas was consistently low, as highlighted below. 27% provided access to education on at retirement planning and 26% offered access to education on their company s income protection and life cover. Only 8% of employers polled said they provided access to financial guidance on mortgages to their employees. 9.

11 It is not until you are an adult that you are required to put theory into practice; this is when you really need financial guidance. Future workplace plans 27% of employers quizzed said they would offer a financial education programme in the workplace over the next two and a half years, demonstrating that some employers do see the benefits of such a programme. 27% 2018 of employers said they would offer financial education before 2018 Meanwhile, 32% said they had no plans in the future to provide workplace financial education. Laverty said there was a clear gap between what employees wanted and what their employers provided. Elsewhere in the survey, we have seen a clear demand for access to financial education from employees, he said. This is an excellent opportunity for employers to engage their staff and reap the benefits. Who should provide financial education? Schools, banks, the Government and employers have all been told they should be providing financial education. Some 64% of the HR professionals surveyed think schools should be where individuals learn how to 78% of HR professionals think children would be better prepared with some financial education manage finances. And, 78% think children would be better prepared for adult life if they received some form of financial education. Employees agree that schools have a role to play, with 67% of those asked believing it should be on the curriculum. The sentiment is particularly strong among year olds (standing at 71%), many of whom will have children of school age or who are coming out of further education with considerable student debts. Laverty said that although it was important to educate people at school, the learning process needed to continue into their adult life. You can teach the facts but if you want people to take action you need to engage them emotionally, and you re not going to get that at school, he said. It is good to get those building blocks in place so that financial education doesn t feel alien to them in the future. But it is not until you are an adult with responsibilities that you are required to put this theory into practice. Meanwhile, 35% of employees felt banks should provide access to financial education and 39% of employees believed it was the responsibility of the state. Although a significant proportion (65%) of employers thought that the responsibility of financial education should lie with the state. Laverty said it was unrealistic to expect banks to provide financial education in the future. Banks are moving away from this area and from offering financial advice, they simply want to concentrate on what they re good at and that s banking. Laverty added that the Government could only offer a limited service. There is a Citizens Advice Bureau and a Money Advice Service, but neither provide a comprehensive financial education package, he said. Meanwhile, some 31% of employees felt their employer should be providing financial education in the workplace. This is supported by the fact that more than half (52%) of HR professionals think the employer should be providing access to financial education to staff. 31% feel their employer should provide financial education 10.

12 Adviser Awards Best Professional Development About Secondsight The Secondsight team are multi-award winning employee benefit advisers. The company works with SMEs and corporate clients offering advice, strategies and solutions for clients employee benefit and pension needs. This includes financial education for employees. Secondsight is the employee benefits division of Foster Denovo, a national firm of financial advisers and Money Marketing s IFA of the Year in Secondsight is a trading name of Foster Denovo Limited, which is authorised and regulated by the Financial Conduct Authority. Foster Denovo Limited was originally established in The Secondsight Financial Education Programme October 2014 sees the launch of the Secondsight Financial Education Programme. 11. Darren Laverty Darren Laverty is Director of Sales and Marketing at Foster Denovo, the parent company of Secondsight, and was one of the company s founding partners. Following a 20-year career in financial services, principally in the employee benefits arena, as one of the industry s leading financial advisers, Darren was invited to join the Leadership Team of Foster Denovo in 2012 in the newly created role. Darren s extensive hands-on sales experience and marketing knowledge makes him the ideal candidate to lead the continued development of the business. During his career, he has been instrumental in the successful design, implementation and communication of numerous employee benefit and pension schemes. Darren is a master practitioner of NLP and his passion is to continually find ways of improving how benefits are communicated and valued by employees. Today, he and his team place heavy focus on the area of financial education, and the importance for the workplace to support employees towards building better financial futures. He is an accomplished public speaker and a leading pension and benefits commentator, and he is frequently quoted in the HR, employee benefits and pension press. Working with its corporate clients, Secondsight hosts introductory high-level financial awareness programmes for company employees. Delivered in a fun, engaging and stimulating style, the presentation is designed to provide employees with an insight into the most popular financial planning topics. The aim is to raise employees financial awareness and provide a new perspective on their own financial situation. We aim to help employees build better financial futures. Should they wish to improve their knowledge and understanding further, employees can opt to attend specific financial planning workshops and seminars, delving deeper into each topic. For many, the introductory presentation and deep dive sessions provide enough information on the areas that are of interest. Yet there may be employees who wish to seek advice. Secondsight can employ a pre-agreed strategy to enable employees to access financial advice, should they wish to, from its parent company, Foster Denovo; a leading firm for financial advisers. For your no obligation meeting to learn more about financial education in your organisation, please call or info@second-sight.com. The Financial Conduct Authority does not regulate taxation and trust advice. Secondsight is a trading name of Foster Denovo Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: Foster Denovo Limited, Ruxley House, 2 Hamm Moor Lane, Addlestone, Surrey, KT15 2SA. t: e: info@fosterdenovo.com w: SSFEPWP_1014