Leave nobody in the dark: shedding light on financial inclusion
By Annie Makoff on 19 November 2020
Financial wellbeing had been moving up the corporate agenda long before the Covid-19, but with many employees being furloughed and countless others facing redundancy and unemployment, the pandemic has brought the long-standing issue of financial inclusion into fresh focus.
- 11.5million people in the UK have less than £100 in savings according to the Money Advice Service while 1 in 4 UK households have no emergency savings at all
- A 2020 CIPD report found that 60 per cent of those earning less than £20,000 said their financial situation had worsened
- More than half of employees have not considered their financial needs beyond the end of next year, according to new research by Fidelity International
- Money worries costs UK employers £15bn a year due to high turnover, staff absence and lost productivity, according to financial wellbeing provider Neyber
The issues at play
“It’s important to remember that financial inclusion isn’t just about access to basic financial products and services but access to services which are fair and affordable,” says Hanadi Al-Saidi, social researcher and advisor at Fair4All Finance. “Unemployment rates are still rising and households are having to use their savings to cover basic living costs, while the ability to draw from a savings account is a luxury few can afford.”
As Al-Saidi explains, systemic failures have meant that financial exclusion disproportionately affects certain groups of people such as women with caring responsibilities, those on low incomes or in precarious employment, ethnic minorities and those with disabilities.
“Black-owned businesses are four times less likely to be approved for loans and there is also a short-term income shock for those who have been newly-diagnosed with cancer which can make it difficult to meet mortgage or other monthly payments for example,” she adds.
Surriya Walters, digital social inclusion outreach manager at the charity Good Things Foundation points to a correlation between digital access and financial exclusion: those with no online access or who are lacking digital skills at working age but also including the older generation and those with limited English, can’t connect to financial services for help and support. Many are also unaware of money-saving websites and money budgeting tools.
So given that even state benefits such as Universal Credit require online access, it’s not surprising that ‘digital poverty’ has a negative impact on financial inclusion and social mobility.
The pandemic has exacerbated this divide which Good Things Foundation says makes it harder to earn, save on essentials and get help. In response, a coalition of partners including Good Things Foundation and Mastercard launched Nobody in the Dark campaign to provide immediate support to digitally and financially excluded people in the UK.
Walters points to another issue the divide creates: a ‘glass ceiling’ with no progression or opportunity to upskill.
“It’s a social mobility issue,” agrees Duncan Brown, principal associate at the Institute of Employment Studies. “In Europe, the UK has one of the highest relationships between a parent’s class of income and their offspring’s class of income. There appears to be less progression and both government and employers invest less in training and development than our European neighbours. We’ve become less socially mobile as a society.”
The way forward
So what can employers do to improve financial inclusion in the workplace?
“Employers need to think about the bigger picture”, says Brown. “They may assume if they haven’t made any pay cuts or redundancies their staff are OK, but as most people live on dual incomes, a partner or spouse may have seen a drop in or a loss of earnings.”
Data from employee assistance programmes (EAPS) can also provide valuable insight around the financial health of the workforce, Brown advises. “Employers can make use of EAP data as it’s anonymous and providers are happy to provide it by category. What proportion of calls have been around debt? What financial issues are people calling about? What areas are they struggling with?”
Fintech industry advisor Devie Mohan points to the growing number of fintech solutions and robo-advice platforms which traditionally targets higher earners but are now starting to target middle to lower earners. But, she says, some social groups continue to be excluded from these platforms. “Those on zero-hour contracts and minimum wage have major problems with regular income and a lack of savings and investments. The government needs to do more to help encourage workplace financial inclusion.”
According to Mohan, there are three steps to financial inclusion: trust (transparency and security around pay), financial education (back-to-basics financial literacy groups and tools) and sophisticated financial learning (Pensions and investment webinars and workshops).
“There is a real financial literacy issue in the UK and employers need to address that. Financial education is taught in school in Nordic countries but in the UK, there is very limited knowledge, from opening bank accounts to setting up savings and investments. It’s just not taught at all.”
Meanwhile, Brown advocates pay progression and internal promotions rather than ‘stagnant’ pay packages to improve social mobility and financial inclusion, while Al-Saidi advises employers to support employees during critical ‘life moments’:
“Financial support for ’life moments’ or ‘moments that matter’ can make a big difference particularly in companies with high numbers of employees in vulnerable circumstances,” she insists. “So for new starters, employers could offer affordable loan to bridge the gap from their previous work.”
Employers should also review whether their sick pay is at an appropriate level, and whether they should encourage savings through linked payroll savings accounts.
For Walters however, there’s an issue around employer awareness of digital and financial exclusion. Some individuals she says, do not even know how to open an email let alone set up an email account. “So there’s a need for collaboration to address financial exclusion between employers, organisations and services,” she explains. “We need to provide a holistic approach and for employers not to think it’s about giving someone a website address and then leave them to get on with it, but instead helping employees identify the digital skills enabling them to excel in current and future employment.”
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