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The signs that show financial worries are denting your workforce
Many South African employees, across industries and income bands, are struggling financially. But just how much, and from an employer’s perspective, how much does it affect their work?
In this episode of Big Business Insights, host Blessing Utete is joined by Dr. Frank Magwegwe to discuss the important subject of employee financial wellness. Dr Magwegwe, popularly knowns as Dr Mags, is a personal finance and employee financial wellness expert, a financial planning researcher, life planner, educator, and an academic, and passionate about this South African dilemma.
Join Dr. Mags and Blessing as they discuss:
- The state of the SA workforce’s finances
- How HR managers and business leaders can spot the signs of financial distress
- What you as a decision-maker can do to help your employees learn the right financial behaviours to become financially healthy.
Listen now.
Blessing Utete 00:03
Welcome to the second season of Big Business Insights, the Old Mutual Corporate podcast where we discuss issues that concern senior decision makers, particularly human capital managers, in large enterprises.
Each episode focuses on one topic that is top of mind for today's business leaders, aiming to provide you with key insights to improve your employees’ work experience and financial wellness, making your business fit for the future as you navigate towards it.
I'm Blessing Utete and today we're talking about the general state of South African employees’ financial wellness, and how employers can empower their employees to live better. I'm in studio with Dr. Frank Magwegwe, popularly known as Dr. Mags, a personal finance and employee wellness expert. He is also a financial planning researcher, a life planner, educator and academic. Welcome, Dr. Frank.
Frank Magwegwe 00:55
Fantastic. Thank you for having me. What a wonderful topic we are going to talk about now.
Blessing Utete 00:59
Great. So, I think the conversation we really want to touch on is this issue of financial wellness. Could you give us a sense of the temperature at the moment? We've heard banks released results, increasing provisions for debt impairment. Could just give us a sense of where we are as a country at the moment?
Frank Magwegwe 01:19
I think we're in quite a challenging situation Blessing, because one of the indicators as you have showed is this idea that people owe money and they are struggling to pay it back. And that's already a number that's watched for when banks release their annual financial statements.
But that's really for me just the tip of the iceberg. By the time banks are chasing a consumer who perhaps is struggling with a personal loan, a credit card or home loan, a lot of other things have happened. In other words, this consumer, either they're struggling to put food on the table, or they're struggling to pay school fees, they're struggling to pay rent, water and lights.
So generally, in South Africa at the moment, what we're seeing is difficulties around consumer finances primarily driven by over-indebtedness. And the interesting thing about the over-indebtedness is that because of the sharp rise in interest rates that we've seen, consumers are actually using credit for some of their day-to-day expenses. I'm talking about getting groceries, I'm talking buying food, I'm talking paying for school fees – typically what you should be able to provide for within your cash flow. We see a lot of consumers using debt to be able to survive from one month to the next.
Blessing Utete 02:47
Very challenging times. I mean, if we just bring it closer to the state of an employee from a financial wellness perspective, what does that mean for them? The person that's going to work every day. And from an employer perspective, what should I be looking at? And what should I be worried about?
Frank Magwegwe 03:05
You know, I always say to employers, when we think about financial wellness, firstly, just kind of unpack it.
What do we mean when we're talking about financial wellness? We’re essentially talking about a couple of things. The first one, is the employee spending less than they earn? That's one of the pillars of financial wellness, because when you spend less than you earn, you've got more that you can save, but also to service debt with.
Then the second thing: Does this employee have money put aside for emergencies? One of the big challenges that employees face, should I come across an emergency, it could be a cracked windscreen, it could be a little one with lost school shoes or a bag. Or I have a relative who needs me to help them. Most people at the moment in South Africa, they can’t come up with R2 000 for emergencies, and therefore they go and get loans.
So, a key measure is if you save for emergencies. Do you have debt that you feel is manageable, in the sense of, if you have too much debt it’s a stressor for many people and at the moment many employees are finding that they have too much debt, especially when interest rates go up as much as they did.
The fourth thing that we talk about when we're talking about this idea of is somebody financially well, we are saying: Do you have a plan to manage your finances? Are you working with a financial planner? Are you getting some sort of guidance?
And then, define your relationship with money, because each one of us has a unique thing that drives our relationship with money. It could be money stands for security, it could be money stands for power, or money stands for status.
So, an employer needs to have a sense of those five dimensions – what's happening in my organisation with regard to financial wellness?
Blessing Utete 05:11
How do I get a sense of that as an employer? How do I get a sense of that? I mean, what are some of the things that I look at? What are the metrics that one could look at to say: This is where my employees are.
Frank Magwegwe 05:21
We need a dipstick! So, there's a number of things you can do. Those five dimensions I mentioned –
you could have a short survey that you confidentially launch within your employee base, and you’ll get a lot of data from those simple five questions. Let's put that aside as one of the things.
What are the other things that you can actually see happening in the organisation?
One, absenteeism. There’s a direct relationship between experiencing high levels of stress, financial stress, right? Because there is a correlation with going through a lot of financial stress, it means my financial wellness is low, right?
Because one of the markers that we use, one of the guidelines for if you have high levels of financial wellness, you've got low stress. Absenteeism is often a marker of that, right? An employee who's struggling financially, it’s affecting them mentally, they've got lots of worries around it. It's affecting their parenting, it could even be affecting not only their mental health, also their physical health. So look into your absenteeism, right, because often employers have data on that. That's one.
Another interesting one, Blessing, is working very long hours. How does that one present itself? It presents itself in the way that I could have so much financial stress, I feel I don't want to make any mistake. Imagine, with my financial stress, if I lose my job things will even get worse.
So often, that's a sign of someone who may be going through long hours at work, someone knocking off at 8, or early in the morning at 6, a manager should pick that up and have a dialogue that’s safe with the employee. Which brings me to a third one Blessing. One of the key roles an organisation can give to a manager is to make it safe for them just to have dialogues about finances, and often it’s about the manager making it safe. Also, things are just so tough for us at the moment, interest rates are going up. I wonder what's happening to car loans? I wonder what's happening to home loans?
So for me, those three things can really play a key role as a sign of what's happening. Do a survey, have your manager talk to employees in a safe space, that's also quite important. And as I've said, watch those employee records and see what's happening with long hours or absenteeism.
Blessing Utete 07:51
Yeah, that's very insightful. I think the challenge is always that there's a stigma around wellness. In fact, on the employee’s finances, employees don't want to say anything. They don't want to show up and tell the manager ‘I'm actually struggling’. But if you've got these other metrics that you're talking about, it can complement getting insights.
Frank Magwegwe 08:09
You’re right, it can complement it, but one of the things I've also seen in practice is that one of the big stigmas is if I come to you, as my manager, and I say, ‘I'm struggling, you know, a debt collector just called me, and I'm at risk of losing my car, right?’
I've been vulnerable. I've said that to you. At the back of my mind as an employee I'm saying: ‘Could this be used against me, in my role, at the workplace?’
So, the role of the manager is to make it said: ‘It’s all happened to us. Interest rates go up, you didn't do anything. It's an external factor that's now worsening your financial situation, which means you now have lower financial health.’
When the manager presents something – on an ongoing basis, not as a once off, almost like a campaign – to make it safe, to make it okay to talk about finances and stress in general, when you make it safe like that, it helps with reducing the stigma, and you can find more employees putting up their hand. ‘Oh, by the way, I'm also struggling. And of course, I need help’.
And you can come up with proactive ways to help them with that. But yes, stigma is a big challenge.
Blessing Utete 09:18
And the mental issues that come with financial wellness or a lack of it. That's another aspect that is concerning.
Frank Magwegwe 09:28
Huge thing, and Blessing, for me one of the most misunderstood concepts. Let me tell you why I say that. When an employee is going through a lot of financial stress, they show up at work. And often that showing up makes the manager, and generally the company, not realise ‘the fact that I'm here, it doesn't mean I'm not struggling with financial stress. I'm here because I have to show up at work, but I'm showing up with so much going on.’
I read a scary statistic, something like just under 20% of South Africans (and this is a representative sample of South Africans), say ‘I show up at work, but I think I spend at least 15 hours at work in a month worrying about finances – my car might be repossessed, what about my home loan, what about my school fees?’
So, the person is physically there, but they're absent (presenteeism, in other words) because they're so consumed. Think about the impact on client service. Think about the impact on safety. Think about the impact on customers and on innovation, on creativity, when you have someone who's so consumed by their problems.
Employers often don't realise that ‘I might be right, but I've got so much stress.’
One of its impacts, to answer your question directly, is the bottom line. Engagement, creativity, safety, that's one. The other one is that this employee who is so consumed with stress about their finances, think about their team dynamics, Blessing. Because when you're going through a lot of stress, what happens to you? You're highly irritable, you've got a short fuse, right? And often that shows in interaction within the team.
And finally, just to pause, and to get companies and managers to reflect on these individuals that work for you. They’re parents, they’re caregivers, they’re siblings, they’re active citizens, right? Imagine the impact, not only at work, of high financial stress on their mental health, on their physical health, and on their parenting.
So, it's really incumbent upon organisations and managers to help employees, to help them to reduce their financial stress, and improve their well-being. Because it’s a win-win for the company, for the manager and for the employee, and dare I say for the nation, if we reduce the levels of initial stress.
Blessing Utete 12:10
And I think when you started off, you spoke about the issues around savings. You know, how people move from a lack of saving to getting to saving. I think one of the things that we pick up is that, certainly from a retirement perspective, often the employers put flexibility in front of the employees, and the ability to make certain choices in the retirement fund. But often, those choices that the employee makes, they just cannot make the right choices because of their financial wellness.
Frank Magwegwe 12:42
And that's a topic you are very passionate about, right? Just the fact that when we help employees to save, for me, it's not only the behavior, but we are also improving their financial wellness, and when we improve their financial wellness, we're reducing stress. So, their human dignity, their parenting, their relationships, they all benefit.
Let's go back to choice, and why often it's a challenge for employees, when they've got so much choice, and they often make the wrong decisions. It’s not so much that there is too much choice, it’s the fact that when employees are struggling with financial stress, what your mind says is just to focus on the day to day. ‘Yes, why should you think about retirement? You might have to take your kids out of private school! Why are you thinking about retirement? See retirement in the future. Your home might be at stake!’
The stress of finances, and the pressure it brings into a marriage, for example. All those things put your eyes on today. And therefore, I look at my today and I say no, I'm going to go to HR. I'm going to ask them ‘May I please ‘reduce my contribution to the lowest possible so that I get more cash at the end of the day?’ Forgetting that ‘yes, I'm getting more cash today. But it means when I get to retirement, I won't have enough because I was getting cash today. And I think for me, helping employees see that balance, that we can't wait for financial stress to end and then we start saving more for retirement. We need to be able to do both.
So yes, maybe we shouldn't take the highest level of contribution, but maybe something moderate in dealing with our finances. We’ve got to deal with both today and the future. Why? Because the future creeps upon us. And before we know it, we are close to retirement.
So, the message for me that employers must drive is the ability to do both. And how do we do that? Through financial education, because often employees don't realise, ‘By me putting R100 more in savings today for my retirement fund, it gets compound interest.’
It grows, it benefits, and therefore, the power of doing both will serve you well at retirement.
Blessing Utete 15:23
Yeah. Very, very important. And I think for us in this field, it's really about being conscious about how you set some of the defaults. That is because often this issue of flexibility maybe does go too far, to an extent, because some people can't save themselves from just contributing at the lowest levels, as you say. So really, really important aspects to think about when you apply your mind to how much choice and what are the parameters of the choice you're giving.
Frank Magwegwe 15:49
And the number of times you've mentioned Default, Blessing, it's so aligned to the psychology of money, to behavioral finance, where they say often it’s helpful for the consumer or the employee’s financial wellness when we say to them, very interesting, remember, we spoke about maybe contribute in the middle. So you set the default to contributing in the middle, and if you don't want to contribute in the middle, you have effort to go and reduce it to the lower or too the higher.
And people often, that effort, they don't like to spend energy on that, and therefore you find the majority contributes in the middle. So, that power of default is very important. May I also Blessing, because I know it's very close to your heart, the power of default, often for young people, you will know it very well. Young people go in, what do they want? Lots of cash at the end. Net salary must be high.
We need to put them on a default that says, ‘When you are at this age, this is how much equity you need exposure to in your retirement fund. Because often I have seen young people coming in, and they don't think a lot about it, if there is no default. And perhaps their risk tolerance is a bit low. What do they do? They choose something that’s got high exposure to cash and money markets.
And that won't make your retirement money go for long when you get to retirement. So a default that is with the right exposure for the person's age to equities also plays a big role in making sure that they retire well and they have less financial stress.
Blessing Utete 17:26
Yes, very important insight that, because I mean really, it's all the various components of a retirement fund. It’s contribution rates, it’s investments, even risk benefits. And age – at what age do I need so much or so much cover? Should I be having this much cover when I'm closer to retirement? Those types of things, absolutely, do a lot to help from the education perspective.
Frank Magwegwe 17:47
I was going to say that you see the role of education? We were chatting earlier on that part of what we want to see employers doing, and you do it very well as consultants, is to say also to individuals: ‘We know protection is very important. Where there’s group life cover, critical illness cover or just funeral cover, to get people to understand that before they go and buy up. In other words, by outside, can they make sure they understand what they have within the company as well? Starting at that basis.
Because you know, we all know we don't want them to be over-insured. We just want that right amount of cover. And that’s so important, a message also to employees to say: Check what you have from a group life cover perspective, and then if you feel that is inadequate or you need to top up, then go and check what's available outside.
Blessing Utete 18:37
We’ve spoken quite a bit about education now. Maybe can you, in closing, can we just talk about what are the components of a proper financial wellness education program?
Frank Magwegwe 18:48
I think for me, Blessing, it starts with proactiveness. What I mean by that, is that it starts with you realising that people are busy running their lives, and so when we wait for them to find themselves saying, ‘maybe I think I've got too much debt,’ or ‘I want to buy a car but I don't quite understand what the balloon payment means’ or ‘I want to buy additional life cover, but I don't understand what underwriting is.’
We should not wait for them to get to those points and then they come to us. So, for me the first thing is to design an interactive, proactive financial wellness program. What are its components?
Number one, we do a dipstick in the organisation. We identify the presenting problems – what do people want to learn about? And in that dipstick we also ask them what they want to learn about. For me that's very important. So be proactive, do a dipstick.
Then, once you have done that, you now know the topics. Then they should be offered both face-to-face, because there is something about face-to-face and storytelling, but there should also be a place, perhaps an online portal, where I can go and do continued education for myself, because people want to consume education differently – videos, text, infographics.
Finally, we need financial education that shifts behaviors. How do we do that? If they are consuming that education, it's very important for the employer to constantly do short surveys, for example, in the beginning, you ask how many of you employees have emergency funds? Then you do an intervention training for six months, and ask the very same question again. And you can actually start seeing the impact – contribution to pension funds, who has increased their contribution? Who has reduced debt? So, we want to see a link between proactive financial education and improved financial behaviors, and continued dipsticks help with that.
Blessing Utete 20:46
On that note, thank you very much. That's been a very, very insightful conversation. Thank you for so much.
Frank Magwegwe 20:50
And what a topic you’ve put on the table! Making sure employees and employers take financial wellness of their people to heart.
Blessing Utete 20:59
Thank you for listening to this episode of Big Business Insights. I hope this helps you do big business better. Follow the Old Mutual Big Business Insights podcast and toggle on notifications to get an alert when a new episode is live.
To find out more about Old Mutual Corporate, visit old mutual.co.za/corporate
Melanie Walker 21:23
Old Mutual. Do great things every day. Old Mutual Life Insurance Company South Africa Limited is a licensed FSP and life insurer.