Recent analysis from the National Debtline* offers some interesting insights into personal debt in the UK. Half of the calls the service receives are from people struggling to repay what it describes as ‘smaller but trickier’ debts of £5,000 or less. In 2008, just 22% of its callers fell into that category.
The size of individual debts might be comparatively small, but the number of people who are struggling to make ends meet is on the rise. The National Debtline expects that by the end of this year it will have fielded 189,000 calls – its highest volume for five years.
The Money Advice Trust, which runs the National Debtline, identified ‘broken budgets’ as the reason why so many are finding it hard to eliminate smaller debts. People have a shortfall of money every month driven by everyday factors such as rent, council tax or utility bills, and they are borrowing to cover those essentials.
Neyber’s DNA of Financial Wellbeing 2018 research backs up the National Debtline’s findings. Our survey of 10,000 UK employees found that workers are regularly borrowing money to cover day-to-day expenses. Half (50%) said that they have borrowed within the last year, and a quarter have used credit cards to do so. Personal savings (14%), bank overdrafts (13%) and family or friends (13%) are other sources of lending that employees use to cover regular shortfalls. Younger staff in particular are struggling, with 70% of 18-24 year olds and 69% of 25-34 year olds saying that they borrow to make ends meet.
It’s clear from the National Debtline’s analysis that reckless over-spending isn’t the reason why many staff need to borrow – but the struggle to make ends meet day-to-day is widespread and persistent.
What can employers do to help?
Businesses are aware that their staff are facing financial shortfalls. Seventy-seven per cent of the 500 employers that Neyber surveyed said they know employees borrow money. But perceptions about borrowing patterns differ from reality. Half (50%) believe their employees are using credit cards, compared to 25% of employees who say they use cards to get by. There are similar disparities between borrowing from friends and family (36% of employers believe employees do this, compared to 13% in reality), and bank overdrafts (41%, compared to 13%).
While employers might not have the full picture of employees’ borrowing patterns, businesses are in a great position to help staff with a combination of financial wellbeing, education and employee benefits. Here are five easy ways to get started:
Find out what is really keeping your employees awake at night financially. The more you know about your staff’s financial situation, the easier it is to help them. Not everyone will want to give their employer details about their debt situation but anonymised surveys, aggregated data from an employee assistance programme or feedback from financial advice and education programmes can all help.
Help staff reduce their regular outgoings. Many household costs, such as utility bills, credit cards and loan arrangements can be reduced either by shopping around for better deals or by offering benefits through the workplace. Giving staff the time and tools to review their everyday expenditure and find ways of lowering their outgoings can be a real help, as can workplace deals on mobile phones or other services.
Use workplace loans to reduce borrowing. It can be tempting to see workplace affordable loans as enticing employees to take on more debt. But for employees with small persistent debts, a low-cost loan could be the difference between enabling an employee to fix a broken budget and continuing to fall into the red each month.
Educate staff about debt. Not all debt is dangerous debt. Having a mortgage, for example, is a low-cost, long-term form of borrowing that makes sense. In contrast, borrowing on a credit card is costly making it harder to reduce or eliminate debt. Neyber’s survey also showed that 4% of staff are using payday lenders, and 3% turn to loan sharks. Both charge excessively high rates of interest that make it very difficult indeed for individuals to free themselves from borrowing. The more employees understand about cost-effective ways of borrowing, the better equipped they will be if they do need to take on debt.
Be supportive. While £5,000 might be classified as a relatively small debt, it can be overwhelming for the individual who owes that money – especially if it’s not obvious how he or she will pay it off. Building a supportive work environment where workers feel confident that they can fix a broken budget offers huge advantages in terms of broader wellbeing, staff engagement and employee retention.