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By Stephen Holliday, Founder and CEO at Level 

Financial wellbeing strategies have proved something of a headache for HR teams. Where physical health schemes such as discounted gym memberships have a tangible value, it has proved far harder to quantify the benefit of employer-led programmes that support people’s personal finances. 

The cost-of-living crisis has highlighted a lack of financial resilience among many, who are left having to make difficult decisions about where to spend their money. Figures from the Money and Pensions Service state that 11.5 million have less than £100 in savings and that 9 million often borrow money to buy food or pay bills. 

There are few organisations who would say that the financial wellbeing of their staff isn’t a priority, but too often, this becomes a tick-box approach based around a few self-help articles on an intranet or HR hub.  

The challenge for employers, then, is to make financial wellbeing schemes tangible. 

The art of ‘nudging’ 

Behavioural science is an interesting, yet relatively new field of psychology that explores how habits and behaviours are constituted. It is a practice most notably adopted by social media companies to influence buying behaviours. But the Behavioural Insight Team (BIT), better known as the Government’s ‘nudge unit’, is looking at ways to make genuine societal improvements. It is credited as the driving force behind the UK’s change to opt-out’ pension schemes, a policy that has brought millions more people into the workplace pensions system.

The payroll savings project 

In 2020, financial health and wellbeing platform Level was deployed to FTSE-listed Capita, one of the UK’s largest employers. Level partnered with the Financial Capability Lab, funded and overseen by the Money and Pensions Service (MaPS) and implemented by the BIT to understand the impact of ‘nudging’ to help people join a formal, employer-led savings schemes.  

Over the course of eight months, the partnership sought to apply insights into human behaviour to encourage more Capita employees to sign up to Level’s payroll savings product. A key aim was to encourage people to sign up to a brand new, unknown payroll savings scheme. Clearly individuals understand the need for a savings buffer, but that seldom results in action to do so. 

The project sent out various forms of communication to staff, with different messaging and tactics to encourage sign ups. 

One in three users in the study reported having no savings before signing up to the Level product, while a similar number say they would last ‘less than a month’ if they lost their main source of income. This would naturally result in a reliance on credit, or borrowing from friends and family if they incurred an unforeseen expense. 

The average user put aside £50 per month, with the overwhelming majority (95%) of users choosing to build a savings buffer, rather than meet a specified goal such as a house deposit or wedding. 

Interestingly, it was the ‘soft default’ email, focussing on the ease with which a user could start a payroll savings scheme, that proved the most effective, indeed five times more effective, at encouraging sign ups than traditional product promotion. In short, employees are happy to join a savings scheme if it involves minimal effort. 

As one user put it: “What makes it work is that once you set it up you forget about it, while my other savings accounts depend on me a lot.” 

In conclusion 

The figures around the financial resilience of the UK population are striking, particularly when compared to other nations. According to the Organisation for Economic Co-Operation and Development, the UK is well down the rankings compared to other G20 countries such as France, Norway, China and Indonesia. 

In response, the UK Strategy for Financial Wellbeing, MaPS sets out a belief that ‘a financially healthy nation is good for individuals, communities, businesses and the economy’. As a result, MaPS wants to encourage two million people in the UK to save more regularly. 

What this payroll savings project has proved is that financial health is measurable. Just look at the results. One in three set money aside for the first time. The average user saved £50 per month. Finally, there are metrics to quantify the benefits of financial health. Payroll savings schemes, whether opt-in or opt-out, are sure to be a topic of great debate. But the role of employers in encouraging staff to better manage their finances is no longer up for discussion. 

The post Can ‘nudging’ make us better savers?  appeared first on HR News.