Many leaders think the answer to employees struggling with the cost of living is financial education. But while education is helpful, understanding perceptions of employee savings gaps can help build better solutions, as Emily Trant explains.
The lack of savings among the UK population is a growing cause of concern, with surveys suggesting that a quarter of adults having less than £100 tucked away. This isn’t just a personal finance issue, it’s a pressing responsibility for employers too.
The cost of living crisis has put a heightened focus on financial wellbeing, prompting an increase in the number of businesses offering financial wellbeing support; 90% now have some form of support in place, up from 50% in 2021.
This rise in support is encouraging, but with UK savings levels lower than ever it raises the question: are employers approaching this challenge in the right way, and introducing the most effective forms of support?
Financial wellbeing programmes can vary widely from workplace to workplace, and are typically decided by management. However, new research has revealed that this top-down approach could have significant drawbacks.
Empathy gap
Since 2021, Wagestream’s State of Financial Wellbeing research programme has explored how financial wellbeing is experienced and understood within the context of the workplace.
In our latest research, undertaken in partnership with behavioural science consultancy CogCo, we sought to answer the questions: do higher earners understand the financial lives of lower earners and, when you extrapolate that to the workplace, what are the implications for the policy decisions that higher earners make on behalf of others?
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To explore this, we asked participants who we classify as higher earners and lower earners ten questions about spending, saving, using financial products and how their money impacted their lives. We then asked each group to predict answers for the other group.
The most striking finding is the existence of an “empathy gap” between high and low earners – specifically higher earners persistently underestimating the financial savviness of lower earners.
The gap is particularly stark when we look at savings. Lower earners have a median savings balance of £3,000; for higher earners it’s £25,000.
When questioned about the savings of the other group, a perception gap emerges. Higher earners substantially underestimate the median savings for lower earners, predicting just £1,000.
This is not only a third of the actual savings balance but is one twenty-fifth of what higher earners themselves have themselves saved.
Though they accurately predict that lower earners spend less and are fairly close in estimating how much money is left at the end of the month, they cannot translate this into an accurate savings balance.
Lower earners also underestimate the median savings for higher earners, although relatively their prediction is much closer at £10,000 vs actual savings of £25,000.
Lower earners accurately predict that higher earners spend more, accurately predict that they have more money at the end of the month and also that higher earners have over three times as much in savings.
So, while low earners made broadly accurate predictions as to how higher earners might spend and save, higher earners cannot fathom how lower earners are capable of logically managing tight budgets.
Education is a red herring
In the context of workplace financial programmes this “empathy gap” can be problematic.
Well-intentioned senior leaders who underestimate the financial capability of their people prioritise financial education as the “fix” to financial wellbeing rather than addressing the true root causes.
Education is important, but our research shows that focus on this is actually a red herring. Everyone – regardless of income – understands the importance of saving and can articulate the appropriate savings behaviours that they should adopt.
However, for lower earners and those who are financially stressed, this knowledge doesn’t translate into action.
For example, 90% of people agree saving for an emergency fund is a wise move to make but just 35% of people follow through by saving 10% of their income each month and 41% keep an emergency fund of six months’ expenses. Less than half of all people who agree that this savings behaviour is important are taking action.
For lower earners and those who are financially stressed, this knowledge doesn’t translate into action.”
This finding is a call to action for employers to consider using the power of the workplace to implement more interventions and nudges that go with the grain of what people say they want to be doing – which is saving.
People know what choices they should be making, so employers should avoid the temptation to try to ‘solve’ financial wellbeing through education and information on its own.
Employees are tired of hearing the same old tips and tricks when it comes to saving. Instead, employers should seek positive interventions which turn the workplace into a true force for good when it comes to financial wellbeing.
Check your privilege
These findings should be taken as a call to action; to remember that your lived experience, your financial wellbeing, your experience of saving is likely to not be representative of the majority of workers if you are in the minority of earners.
There is a temptation to try to address financial wellbeing solely with education and information and this does a disservice to the individuals who already know what should be happening but for various reasons struggle to act on it. In this case, knowledge isn’t power, action is.
So how can employers create real action around savings? By taking the time to understand the financial exclusion faced by your people, by delivering financial products and tools that everyone can use, and by making them as easy to use as possible.
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