Saving money is vital for both financial and psychological well-being. It provides a pot of money to draw on in emergencies and helps avoid using costly short-term loan services or credit cards to meet financial obligations. By having savings, individuals can avoid spiralling into debt which causes problems with mental health as well as social, employment and relationship problems. Having savings builds financial security and helps independence.
According to the Financial Capability Survey carried out in 2018, 22% of the population have less than £100 in savings, with 21% of the population rarely, if ever, saving any money.
Pre-pandemic, over 17% of the population were classed as ‘overly-indebted’ but less than a third of those questioned sought or received help. At the end of September 2021, it was calculated that people in the UK owed £1,749.2 billion.
Emergencies – it’s almost inevitable that there will be some ‘emergencies’ in life. This might be a simple thing like a washing machine breaking down or a car needing some major work, but if they’re not budgeted for, they can be financially challenging. With a pot of savings set aside to deal with emergencies, financial and emotional stress can be reduced and the emergency can be dealt with quickly and efficiently.
Life events – getting married and having children is expensive! Financial difficulties are one of the major causes of relationships breaking down, so planning for future life events helps meet these financial obligations.
Financial Independence – the less savings an individual has, the more debt they potentially accrue. This leads to less financial independence. To become more financially independent, it’s important for individuals to build savings, making them less reliant on expensive borrowing.
Later life – at the time of writing, the national state pension is £179.60 per week, which calculates to just over £9,300 per year. This figure is dependent on having a full record of National Insurance contributions throughout the working life. State pensions are paid 4-weekly, in arrears.
The Pensions and Lifetime Savings Association carried out research on the cost to live a moderate lifestyle in retirement. This was estimated to be over £20,000 per year. For an especially comfortable requirement, the figure was estimated to be over £33,000 per year. With the gap between the two, it is essential to have savings to top up the pot. Savings can be money in the bank, investments, a private or workplace pension or a combination of savings provisions.
Big purchases – buying a car is often the second biggest investment an individual will make after a home purchase. Critical for getting to work and ferrying round the family, they can be a necessity with a big impact on monthly finances, both for outright purchase or down payment and ongoing finance payments. Being able to save in advance for major purchases eases the financial burden.
In an article published by CNBC Make It in the US in 2019, research found that Millennials who save more and buy less are happier than their higher-spending counterparts. Having the ability to live within their means and setting aside some money for the future, or emergencies, was found to have very positive effects on mental health.
“People who save money report better overall well-being, including less psychological distress.” Sabrina Helm (report author)
There is a direct impact on businesses when employees don’t have financial provision to deal with life events and emergency situations. In a study by Neyber, it was reported that financial stress costs the UK economy nearly £121 billion each year. It was also reported that 17.5 million hours were lost due to absence from work because of financial stress.
It is in employers’ best interests to support their employees’ financial well-being. One way in which they can do this is educate their employees as to the importance of savings and to give them the education and tools to make better financial provision for the future.
There are many studies that have been carried out to assess the impact of debt and the positive impact on having savings. The consensus is that individuals should have three to six months’ worth of savings. In the event of unemployment, this eases the burden on the individual, leaving them the opportunity to find new work whilst alleviating some of the stress for meeting their financial commitments.
Many sources recommend an individual saves 20% of their income per month. This can be a combination of saving towards retirement and general savings. There is a basic 50/30/20 rule which recommends:
- 50% of income should be used for living expenses include mortgage/rent, household bills and food.
- 30% should be reserved as disposable income for discretionary spending.
- 20% should be reserved for savings.
In the UK, new pension regulations came into effect in late 2012. This meant that any company who has more than one employee has to set up a workplace pension scheme and both employer and employee have to make payments into the pension (unless the employee specifically ‘opts out’ of the scheme). The aim of the legislation, known as auto enrolment, was to make better financial provision for employees for later life. The current minimum contribution for a workplace pension, valid from April 2019 onwards, is 8%. This is a contribution of a minimum of 5% of gross pay from the employee and 3% additional contribution from the employer.
With the recommendation for monthly savings to be around 20%, a workplace pension is a good start towards the goal. Some employees, of course, may opt for a larger voluntary contribution over and above the 5% minimum.
Financial planning calculators are available from organisations such as TIAA, to help individuals plan for retirement needs and their financial goals.
PayCaptain has auto-enrolment functionality built into the payroll engine. Employees are automatically added to the workplace pension when they have completed three months of work with a new employer. This functionality can help individuals work towards their financial goals.
PayCaptain partners with Collegia, a pension provider that offers sustainable or ‘green’ pensions. Sustainable pensions were found, in research carried out in 2020, to perform above average in comparison with traditional portfolios. 59% of sustainable pensions were found to out-perform traditional pensions, whilst aligning with employees’ social and environmental values.
With PayCaptain, it's also possible for employees to set up automatic payments into a savings account from the PayCaptain mobile app. If an employee does not have an existing savings account, PayCaptain can help employees to open a new account for regular, as well as one-off, payments. Employees can create a savings pot in the PayCaptain app, letting them access their savings at anytime in the event of emergencies or during periods of higher financial demand.
If you’d like to know more about how you can support your employees’ financial future-proofing, please contact us. We’ll be happy to demoPayCaptain and talk about how you can help your employees build for a better future.
*This material is for informational or educational purposes only and does not constitute financial advice. For investment advice, speak to a financial advisor. Savings and investment decisions should be made based on the individual’s objectives after seeking financial advice.*
PayCaptain Payroll Solutions Limited, www.paycaptain.com is an HR/FinTech company that delivers a fully automated cloud payroll service. The solution contains many unique and innovative features for employees, helping them to take control of their pay and increase their financial well-being. PayCaptain is a payroll solution that helps employers pay their workforce, regardless of income and personal circumstances. The solution also incorporates functionality that is specifically designed to positively impact financial resilience for people struggling with money, or vulnerable and low-income employees.
We'd love to talk about how PayCaptain can add value to your company and your employees - Click the button below to arrange a demo and see PayCaptain in action!