• From an employer perspective understanding this gap is crucial to avoid misplacing support efforts: More lower earners have no money left each month, no savings, more frequent money worries, low financial resilience and more frequent limitations on their ability to participate in social and recreational activities. People leaders often place a heavy focus on financial education, rather than a focus on financial inclusion.
USING BEHAVIOURAL SCIENCE TO LEVEL UP YOUR FINANCIAL WELLBEING STRATEGY Financial stress doesn’t just make employees anxious. It can also affect their ability to think clearly and make rational choices, influencing life at work and home. One way to address this imbalance is to help employees make good financial decisions by harnessing the power of behavioural science. Owain Service, CEO of CogCo and Honorary
Professor of Behavioural Science at Warwick University, was co-author of the financial wellbeing report. He was previously the co-founder and managing director of the UK Government’s Behavioural Insights Team and before that deputy director of the Prime Minister’s Strategy Unit. He told the CIPD that by understanding behavioural
science principles – such as “nudging” people toward better choices – employers can create financial wellbeing programmes that are intuitive and effective. The right behavioural interventions can empower employees to make more sustainable financial decisions, enhancing their wellbeing and, in turn, lift productivity and engagement. He explained that behavioural science explores
how people make decisions and why they often choose immediate rewards over long-term benefits – a tendency known as “present bias”. This can be seen, for instance, when people say they will go to the gym tomorrow instead of today and then keep deferring it. This bias is not limited to fitness goals. It also impacts financial decisions, like saving money. Financial wellness programmes can harness the power of behavioural science to simplify the process of making financially healthy decisions, so employees can be nudged towards positive financial decisions.
“ The right behavioural interventions can empower employees to make more sustainable financial decisions, enhancing their wellbeing and, in turn, lift productivity and engagement.”
OWAIN SERVICE, CEO, COGCO AND HONORARY PROFESSOR OF BEHAVIOURAL SCIENCE, WARWICK UNIVERSITY,
22 Employers can guide people towards beneficial
choices without requiring drastic mindset changes. For example, employers can help their staff build up savings by making it an automatic part of payroll and giving employees the option to opt out rather than requiring them to opt in. This small difference can lead to greater engagement with savings programmes and has already been shown to work very effectively in the auto-enrolment into workplace pension schemes, a rule established in the UK under the Pensions Act of 2008, which has led to £114 billion worth of pensions savings over ten years. Another fascinating insight from behavioural science
is that people treat money differently based on how they acquired it. For example, people are more willing to spend money that they win as a lottery windfall than they are from a legacy or money they have inherited. This suggests people attribute different meanings to money depending on its source and that this can affect their spending and saving decisions. “When we experience windfalls, we tend to deal with
that pound in a completely different way from a pound that we receive from our salary,” Owain explained. “The least-spent pot of money is from something like an inheritance because we treat it very, very differently.”
BUPA – THE POSITIVE IMPACT OF AUTOMATIC SAVINGS ENROLMENT One recommendation in the ‘State of Financial Wellbeing’ report is to implement payroll savings programmes and ideally structure it on an opt-out basis so that employees build up savings by default. This is an approach Bupa, the healthcare company,
decided to trial. Rather than requiring employees to opt into a savings plan, Bupa reversed the default by automatically enrolling new employees in it, giving them the option to opt out if they wished. This led to impressive results: over 70% of employees retained their savings accounts and made regular contributions. Behavioural science reveals that when employees
don’t have to actively transfer money from their main account to a savings account then they are more likely
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