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How to help employees manage debt and improve their financial wellness

Close Brothers Asset Management

Few aspects of financial wellness are as sensitive or as personal as being in debt.

Every employee who has borrowed will have a different story, from a one-off unexpected expense, to an ongoing struggle to make ends meet each month. And everyone will respond to being in debt in a different way.

Some will have borrowed at a low rate of interest, be in a position to reduce spending elsewhere and easily pay off what they owe.

At the opposite end of the scale, others may be battling high interest rates, feel unable to cope and simply bury their head in the sand when it comes to debt problems.

There could even be a link between debt and a mental health issue such as depression or anxiety.

The sensitive nature of debt might make some employees loathe to speak out about their financial situation at work.

However, employers are ideally placed to help them manage debt and improve their overall financial wellbeing as a result.

Here is a five-step plan to create the right environment for supporting and managing debt at work:

1. Be sensitive. Many employees may not want their employer to know that they are in debt. They could worry (wrongly) that it will affect their career, or that it could make them appear less competent. Offering a ‘how to handle your debt’ workshop where individuals are required to sign up in advance through HR is therefore unlikely to get many takers, no matter how good the quality of support on offer.

2. Build a supportive culture. While employees might not want to be up-front about their debt problems, it may still be obvious that they are struggling. Worrying about money affects productivity, drives increases in absenteeism and can change the way that individuals behave at work. Creating a supportive culture where employees feel they can approach their manager if they are worried – and managers are trained to spot signs of distress in their team members – can make a real difference. If employees feel they’d like help from a third party, an employee assistance programme can be a good way of offering objective support.

3. Educate employees. Free information from websites such as the Money Advice Service can be a good starting point for employees who want to make a first move towards reducing their debt. However, some workers may also need more tailored advice to enable them to gain control over their borrowing. Understanding the difference between ‘good debt’ (such as a mortgage) and ‘bad debt’ (such as high-cost payday loans) is an essential starting point.

4. Consider affordable loans. Offering loans through the workplace can be a good way of ensuring that employees avoid excessive rates of interest, and can enable them to pay money back through payroll.

5. Look at the big picture. Our Seven Steps series shows that every aspect of financial wellness is interlinked. For example, managing debt can also be about building savings. If employees have a savings buffer to help protect them from unexpected bills or a period with no income, then they are less likely to fall into the borrowing trap.

Similarly, good financial planning such as shopping around for the best deals on utility bills, cancelling redundant subscriptions and budgeting effectively can all free up money to pay off debt more quickly or create a financial safety net for the future.

For more information please email financialeducation@closebrothers.com, visit www.closebrothersam.com or call 0800 028 0208