The cost-of-living crisis is a term used to describe the rising cost of living in the UK. This is causing increased financial pressure for employees, with many struggling to afford to pay bills and maintain their lifestyles. Many employees are finding it difficult to pay for basic necessities such as housing, utilities and transport, also having to reduce the amount they spend on leisure activities – affecting their mental wellbeing and therefore, workplace productivity.
Causes of the cost-of-living crisis
It is important to understand what has caused living costs to increase so dramatically.
One major contributing factor is inflation which reached 5.4% in December 2022. The increase has been triggered by a huge demand for goods and services since the global pandemic lockdown, with the impacts reaching factory production and global trade. Fuel prices have also increased, meaning that employees having to travel to work are facing higher costs.
Furthermore, rising energy prices have caused panic among many employees. Although the government’s energy price cap has protected customers until now, this will change in April 2023 when Ofgem (the industry regulator) recalculates the price limit to reflect market prices. Lower-income households are expected to be affected more as they tend to spend more of their income on energy. Research indicates that low-income single-adult households could spend up to 54% of their wages on gas and electricity.
Another factor is rising housing costs. With the price of rent and increased mortgage payments comes an increase in concern for employees who dedicate a large amount of their salary to housing. Concerningly, research shows that nearly 2.5 million renters are either behind or constantly struggling to pay their rent. This is an increase of 45% since April 2022!
Despite inflation and rising living costs, many employees’ wages are not increasing to reflect this. As businesses struggle to cope with increased costs, employers must consider alternative ways of supporting employees at this challenging time.
Effects on employees’ financial wellbeing
The increased cost of living is having a significant impact on employees’ financial wellbeing, with many individuals struggling to save enough to cope with unexpected costs, and increasingly relying on loans to survive. 68% of employees have admitted to feeling stressed or overwhelmed due to rising costs. Heightened stress can lead to poor mental wellbeing, increased workplace absenteeism and a lack of concentration on regular tasks.
The effects of rising costs on employees’ finances include:
- Reduced savings: Many employees are not saving enough, focusing instead on immediate essential needs such as housing and food. According to a recent Mintago survey, 72% of employees are prioritising essential costs such as mortgage repayments and utility bills instead of saving for the future.
- Increased debt: With employees taking out loans to make ends meet, many are seeing a decrease in their credit score, affecting their ability to be approved for a loan in the future.
- Unable to afford essentials: Employees are struggling to afford basic necessities such as food and energy. This is particularly concerning for low-income households.
Helping employees manage financial concerns
In order to prevent employees from becoming overwhelmed by rising costs, employers must take actionable steps to provide valuable support.
Employees should be encouraged to think about budgeting to ensure they know where their money is going and can keep track of what they are spending. This will help individuals to group outgoings in order of importance, avoiding spending too much and not having enough money to afford basic necessities. Free, online budgeting calculators could be recommended to help employees get started.
Employees should also be urged to start an emergency fund (rule of thumb is to have 3-6 months of living expenses) if possible. Even if they can not afford to reach this figure, any savings are helpful. In times of financial difficulty when unexpected expenses occur, an emergency fund will help employees deal with costs without facing unmanageable stress.
In addition, employers should provide access to financial education for employees within the workplace. Mintago’s financial wellbeing platform allows employees to keep track of their finances, including their pension, in one convenient place. Therefore, employees can set manageable goals and work towards a financially healthier future. Employees can also use the Mintago platform to speak to a financial adviser for free, gaining guidance on their specific situation and how to move forward with problems such as debt, housing costs and struggling to pay energy bills.
Facing the truth
During this challenging economic time, it is vital not to ignore the impact on employees’ finances. This does not only affect their ability to live their everyday lives but can also take a serious toll on their mental wellbeing. A domino effect is caused, and business productivity is greatly impacted due to a lack of employee motivation combined with an inability for teams to put as much effort as possible into their workplace tasks.
In order to reduce the negative impact the cost-of-living crisis is having on employees, focus on learning what support your team needs before tailoring your approach to suit them. This will ensure that employees feel valued and listened to. With research showing that employees would like more help from their employer when it comes to managing their finances, now is a great time to start a conversation and work out a successful strategy moving forward.