Know your workforce: understanding what makes people tick can help improve financial well-being

New guidance from the CIPD highlights the role of behavioural insights in improving employers’ efforts to raise financial capability

During Financial Capability Week last November, the CIPD joined employers across the UK in encouraging employers to take greater responsibility for the financial well-being of their workforce. New research from the CIPD this week added weight to the argument: one in four UK employees report that money worries are affecting their ability to do their job.

To combat this, the CIPD - in partnership with Close Brothers - has issued new guidance to help employers implement a financial well-being strategy. There are some simple and inexpensive steps organisations can take to raise awareness and levels of financial capability amongst their workforce, but voluntary participation in financial well-being programmes can be hard to achieve - and individuals who are most in need of these programmes may also be most likely to avoid taking them up and completing them. One of the four new resources the CIPD has published this week, Employee financial well-being: Behavioural insights, is therefore encouraging HR professionals to use their insights into what makes their workforce tick in order to increase the take-up, effectiveness and staying power of financial well-being programmes.

The report explains how understanding your workforce and what influences their behaviour can go a long way to increasing the effectiveness of financial well-being programmes. Behavioural insights combine psychology and economics to investigate how individuals actually behave in real-world situations. This enables us to understand the hooks and triggers that influence employees to make the best long-term decisions and employers can therefore design information, advice and support accordingly. Lessons from behavioural insights can be used to:

  • encourage people to spend enough time looking at their financial well-being
  • increase take-up of and engagement in financial well-being programmes
  • uncover and challenge biases that impede financial capability and well-being
  • discover attitudes, ethics and values common to your workforce.

Research shows that we make many of our decisions in life by short cuts or rules of thumb known as heuristics, particularly when we have a lot on our minds. For example, people are more likely to follow the status quo and, when presented with a series of options, choose the default or simplest option - which isn’t necessarily the best option. Employers can capitalise on this inertia and turn inaction into positive action by designing sign-up procedures where the default options encourage the most positive types of behaviour - such as defaulting to the level of pension contribution considered to be optimum for a given segment of the workforce, or by automatically enrolling people into schemes and giving them the opportunity to opt out, rather than putting the onus on them to opt in. Similarly, because most people have a tendency towards loss aversion, employers could give employees the option to agree in advance to automatically allocate a substantial part of their future pay rises to savings, overcoming the perceived loss of income associated with savings.

There’s also evidence that our actions are influenced by sub-conscious cues such as the deliverer of the message, or the channel or format used. Employers should therefore pay close attention to the look and feel of their programmes, the vividness of promotional materials and how interventions are delivered. All of this should be designed with the target employee segment in mind. Knowing your workforce, and understanding the characteristics of different segments, is crucial too. It’s effective to target employees at critical ‘teachable’ moments by linking financial well-being messages to HR systems in order to harness significant life events in employee lifecycles - such as returning from maternity leave, receiving a bonus or being promoted. However, it’s not just about recognising the different life stages people go through, but also about understanding that we don’t all make decisions in the same way. For example, research suggests that young people may have a tendency to be overconfident in their financial skills. In this case, asking employees to take part in a quiz that will help bust some of the myths and misperceptions they hold, can be an effective way of priming an over-confident audience before offering information and advice. In contrast, employees with low confidence may respond better to information that emphasises self-efficacy and a ‘can do’ message, as well as the reassurance that there is support available to them. Employers should also recognise that it’s not just those on the lowest salaries who suffer from money worries. In fact the higher up the pay scale, the more likely it is that discussing money worries is a social taboo, potentially leaving these employees feeling isolated. What’s more, even highly educated individuals demonstrate flaws in their ability to estimate risk and accurately interpret probability and percentages. Visual and verbal explanations can therefore be far more powerful than overwhelming people with figures.

Finally, employers should not underestimate the power of the ego. Emotional associations can powerfully shape our actions, so demonstrating how small steps towards financial independence are both desirable and ego enhancing can be really effective. Similarly, ‘gamifying’ financial well-being programmes, for example by adding lotteries that give people a chance to win randomly allocated prizes when they participate, combines the emotional thrill of winning with the logical notion of saving and can thus encourage take-up.

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