Cost of living crisis impacts employee wellbeing

New ONS data shows 83% of adults are impacted by increased household costs this month. With wages not rising enough to cover the increase, the CIPD says financial wellbeing policies make a difference.

oung brunette curly female reading her bill papers, looking stressed

Ruth Holmes

30 March 2022

The rising cost of food shopping (90%), gas, electricity (79%) and fuel (71%) were the most common reasons reported by adults who said that their cost of living had increased. People aged over 45 are being squeezed most, with around eight in ten saying their cost of living had increased.Financial wellbeing is often one of the most overlooked elements of employee support, despite money worries impacting psychological, physiological and social wellbeing. One in four (28%) of people responding to a new CIPD survey said money problems had affected their job performance. This figure rose to 34% of those earning less than £20,000.

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Unexpected costs could spell financial crisis

The ONS data warns that the rising cost of living risks putting more households into debt and financial stress. Around a third (29%) of adults reported that they could not afford an unexpected, but necessary, expense of £850. The scale of the cost-of-living crisis is further highlighted in new findings from the CIPD. One of the conclusions from its YouGov survey of 2,000 working adults is that around one in eight employees (12%) say their pay is not enough to support an acceptable standard of living without having to go into debt to pay for food/bills.Echoing ONS data, more than a quarter (27%) in the CIPD survey report their pay is not enough to cope with a £300 emergency (without having to use savings). Only 47% said their pay is enough to help save for retirement. One in ten (10%) do not think their job protects them from falling into poverty.

Financial concerns – the impact on wellbeing

Lee Chambers, a psychologist at Essentialise Workplace Wellbeing, comments: "The cost of living and mental health are deeply interconnected and it’s becoming more unequal by the day. In our work, we meet thousands of employees and they are becoming increasingly sensitive to costs and increasingly worried about how it doesn’t feel like the crisis is being properly addressed. There’s an overarching feeling of powerlessness and for many people their psychological immune systems are run down due to the pandemic.”Employers offering greater financial wellbeing support to their workers can make a difference, says the CIPD. A financial wellbeing policy that sets out its commitment to supporting people to achieve a decent standard of living is an essential part of good work and responsible business.As well as focusing on paying a fair and liveable wage, the CIPD recommends employers also provide financial wellbeing support – such as offering targeted benefits and normalising conversations about money – and do more to support in-work progression, to help people increase their earning potential.

Support positively impacts wellbeing

The CIPD’s research underlines the difference a financial wellbeing policy can have on a workforce – as well as the high value employees place on it. Eight in ten (81%) of those whose employer has a financial wellbeing policy say it’s important any future employer has such a policy.People employed by an organisation with a financial wellbeing policy are also far more likely to say their employer does enough to support their financial wellbeing (60% versus 28%).Importantly, they are also more likely to say they are keeping up with all bill and credit card commitments without any difficulties (70% versus 58%). Employees working for an organisation with such a policy are also far more likely to report having a good level of benefits (70%) than those with employers who don’t (28%). This could include such benefits as occupational sick pay, training and career development opportunities, flexible working, and gym membership. They are also much more likely to say their employer offers them a generous pension (64% versus 26%) and that their pay is enough to help them save for retirement (61% versus 41%).

Supporting long-term financial health

Charles Cotton, the CIPD's Senior Reward and Performance Adviser, said: “Even before the current cost-of-living crisis unfolded, work was failing to protect many people from poverty and failing to support good financial wellbeing in the way it should. “While the Government is best placed to provide immediate support for people affected by the cost-of-living crisis, our research shows there are opportunities for employers to do much more to support the longer-term financial wellbeing of their people. “The biggest difference an employer can make is to pay a fair and liveable wage. But even organisations who can’t afford to increase wages right now can support their workforce in other ways. “Our research highlights that employers with a financial wellbeing policy really do make a much-valued difference to the lives of their people. Unfortunately, the cost-of-living crisis is likely to push more and more employees into in-work poverty. This, along with the competition for talent right now, should motivate all organisations to adopt a financial wellbeing policy or improve their existing one.”

Taking action against in-work poverty

The CIPD has launched a new web hub, in collaboration with the Joseph Rowntree Foundation, which hosts a range of explainers and resources for employers who want to take action against in-work poverty. The hub explores the three areas of HR practice that a financial wellbeing policy should cover:

Pay a fair and liveable wage: pay a wage that enables people to lead a dignified life and meet the real cost of living. Protect people on low incomes from working arrangements that don't suit their needs; and be transparent about how pay is set and how people can secure a pay rise.
Provide financial wellbeing support: create a safe place to talk about money worries; sign-post relevant advice and guidance; and offer targeted and easy-to-access employee benefits that help incomes go further.
Support in-work progression: help people to maximise their earning potential by developing skills that enable them to take on higher-paid roles and remove any barriers that prevent them from progressing or working more hours.

Louise Woodruff, Policy and Partnership manager at Joseph Rowntree Foundation, said: “Work is a huge part of our lives, and employers have the power to make the difference between staff being on the edge financially, and offering them a firm foundation to be able to build a better life for themselves and their families. This isn’t just a question of paying people more, it’s also about policies and support that allow people to plan, to know what their income will be in advance, and to know how they would meet an unexpected cost. “Where employers can help their staff through the current pressures on their cost of living, they are likely to reap the benefits in terms of loyalty, retention, and a healthier, more content workforce, as well as helping to eliminate the huge injustice of in-work poverty.”