Having savings is critical to good financial wellbeing and mental health. We look at why that is – and why employers looking to support their team through the cost-of-living crisis must first look at savings if they want to truly make a difference.
Having savings is one of the core pillars of good financial wellbeing, mostly because it insulates against financial shock. Being able to absorb financial shocks means avoiding taking on expensive forms of debt, which can lead to cycles of borrowing.
There are further benefits. As savings build up, the cost of living becomes cheaper, for example because you can pay for insurance annually rather than by direct debit once-a-month or buy a new phone outright rather than through monthly payments, which are always more expensive.
The end of living month-to-month?
Overall, having savings means better budgeting and avoiding living month-to-month, a precarious financial situation very vulnerable to job loss, reduction in hours, relationship breakdown and other negative life events that significantly affect your financial situation.
There are also significant psychological benefits to having savings in terms of stability, security and the ability to meet the needs of your own life and those of your dependents.
As well as an ongoing need to empower staff to build their savings because saving is so essential to financial wellbeing, there’s an acute, urgent need – for two critical reasons. The first reason: Covid-19 decimated savings across the UK. The second reason: facing the cost-of-living crisis with limited or no savings is scary.
How Covid-19 has destroyed peoples’ savings
Pre-Covid, 11.5m people had less than £100 in savings. This is obviously a precarious situation to be in at any time, but during the pandemic income shocks such as job loss and furlough rose by 45%. Without savings, it’s extremely hard to absorb such a loss of income.
For those with savings during the pandemic, income shocks ate away at them over time, especially for workers in industries hit severely by lockdowns such as hospitality and retail. It’s perhaps unsurprising given the impact of the pandemic on savings that half (50%) of UK employees responding to our State of Financial Wellbeing 2022 research said that help with savings was the thing they most wanted their employer to assist them with.
Facing the eye of the storm – the cost-of-living crisis
The cost of living is rising for most people across the UK, with some estimates suggesting the overall impact will be the biggest fall in living standards since the 1950s. If costs go up and income doesn’t rise, more and more people will not be able to afford the cost of living and will need to borrow to survive.
While debt is not inherently bad, an urgent need for debt tends to require higher-interest solutions that can contribute to a cycle of borrowing. Saving is essential for UK employees affected by Covid-19 so that their financial wellbeing doesn’t suffer further as we head into further increases in the cost of living.
How can employers support staff to build their savings?
Most people understand why savings are so important and have a generalised desire to save. But what stops them saving is the difficulty turning this generalised desire into concrete action.
Employers should look to product innovation to support staff with saving. Most traditional products are rigid, whereas the latest automated workplace savings products allow micro-savings and flexible contributions, perfect for employees that struggle with variable income, cashflow and budgeting.