How can employers play a role in the financial wellbeing of their employees?
A global study on trust found that since 2001, people have shifted their trust from traditional figures such as the government to their employer. Does this mean employers need to play a bigger role when it comes to the financial wellbeing of their employees?
Earnd speaks to Behavioural Scientist and author of Good Money: Understand your choices, Boost your financial wellbeing, Nathalie Spencer.
Financial wellbeing is a long game — and in your book Good Money, you write about how trust impacts long-term mindsets. Can you tell us why trust is important for our financial wellbeing in the long run?
“You need a long-term mindset to plan for the future,” Nathalie says. “This helps you to sacrifice some of your spending today to save and build up wealth for the future.
“Trust and reliability are important to financial wellbeing, because they support long-term thinking,” Nathalie says.
“You need to be able to trust that those sacrifices you’re making are going to come good in the future. That’s how trust plays such a big role in long-term mindsets.”
Do you think it make sense for employers to be this trustworthy figure for people, when it comes to their finances?
“Ideally, all institutions in our lives would be trustworthy,” Nathalie says.
“Employers definitely play a role as one of those institutions. If trust is moving away from traditional institutions, the role of the employer becomes even greater.
“If employers want to support their employees, one way is to be reliable by following through on promises or commitments. This makes it easier for employees to plan in the short term and the long term for their financial wellbeing.”
Let’s talk more about reliability. The 1972 Stanford Marshmallow test showed that patience early in life was a key to success in later life. In your book, you say a more recent version of the test found that reliability mattered too.
“So, the original Marshmallow test is one that’s used to measure people’s level of patience and self-control,” Nathalie says.
“In the original test, researchers gave children the option have one marshmallow then and there or wait for two marshmallows. The researchers found that those children who waited tended to fare better later in life.”
But a later study found self-control wasn’t the only factor at play?
“That’s right. Celeste Kidd and her colleagues conducted the same test, but with a twist — to see how trust and reliability affected the results,” Nathalie says.
“Before starting the marshmallow tests, the researchers had the children do an arts and craft task. An adult told the children she would go and bring them some art supplies.
“Well, for half of the kids, the adult did come back with art supplies, but — importantly — not for the other kids. So the researchers were effectively showing half the kids that the adult was unreliable,” Nathalie says.
“Then they gave the children the marshmallows tests. The children who never got the art supplies were less likely to wait for the promised better reward of the two marshmallows.
“What this means in the context of financial wellbeing is that when you make a sacrifice, you need to have the confidence or trust that the sacrifice you’re making now will be worthwhile.”
“The sacrifice might not be saying no to one marshmallow in the hope of getting two later,” Nathalie says. “But it might be cutting down on spending to gain a higher return on your retirement fund in the future.
“You need to trust that what you’re expecting to come in the future will actually happen. This test demonstrates this idea powerfully,” Nathalie says.
So talk to us more about what creates a reliable environment?
“Reliability is doing what you say you will do,” says Nathalie. “One way someone can build trustworthiness is by showing that they are capable, they have integrity and they are benevolent.”
“They are benevolent if you think they are on your side. They have integrity if they do what is right and they are capable if they are able to do what they have promised,” Nathalie says.
Does it make sense then for employers to support their employees financial wellbeing? And what’s in it for the employer, when it comes to supporting employee financial wellbeing?
“It makes a lot of sense,” Nathalie says. “Employers supporting employees with respect to their financial wellbeing is a win-win situation.
“We know money worries can take up valuable headspace for someone, which means they are not going to be thinking about work. If you’re worrying about money and it’s the only thing on your mind, you can’t devote that attention to your job.
“Money can be a real stressor and can lead to loss of sleep and people missing work. It makes sense for an employer to support their employees’ financial wellbeing.
“This is not only for the fundamental reason of trying to support your workforce but because there may also be a direct business benefit.”
In what practical ways can an employer support their employees’ financial wellbeing?
“It all needs to be designed with employees in mind,” Nathalie says. “The support needs to be relevant and not too onerous. Nobody is going to pick up a huge textbook, especially if it is buried in an intranet somewhere, for example.
“In terms of programs, it’s important that these fit in within people’s everyday lives. We’re already very stretched for attention and when there are money stressors, there’s even less headspace for yet another thing to do.”
“You need to understand the employees needs, what is it specifically that is on your group of employees’ minds? Each organisation needs to think about the type of people they employ and what issues will be relevant to them because it may be different in every company,” Nathalie says.
“The very design of how the workplace is set up to support employee decision making can be important too. Specifically, this could be how frequently you pay staff, how you frame choices that employees need to make on important financial decisions like superannuation or other benefits and if you provide education, offering it to the extent that it improves motivation.
“It’s about not only providing the right information. It’s also about providing the tools and the benefits that are designed to support employee financial decision making and financial behaviour. That’s what matters.”
- Behavioural scientist Nathalie Spencer works in financial services to explore financial decision making and how insights from behavioural science can be used to boost financial well-being. She is the author of Good Money: Understand your choices. Boost your financial wellbeing.
- Earnd is an app that allows employees to access their pay as they earn it in real-time and for free. Access to pay on demand gives users the option to align their income and expenses, so they can budget more effectively.