Pressure to spend on gifts, gatherings, and year-end treats often coincides with pay challenges, creating a perfect storm. This is where employers can make a real difference. By supporting your employees during this time, you can alleviate financial strain, enhance engagement, and build loyalty.
Here, we explore the challenges employees face during the festive period, as well as practical solutions that HR and payroll leaders can consider—both general approaches and specific options aligned with Wagestream’s toolkit.
1. Early Paychecks Leading to a "Pay Gap"
One of the most common challenges during the festive period is that many businesses pay employees earlier in December to accommodate the holidays. While this gesture is well-intentioned, employees often find themselves grappling with an unusually long stretch between paychecks as the January payday remains fixed. This extended gap leaves little room for error, causing financial anxiety just as holiday spending peaks.
2. Increased Seasonal Expenses
The holidays come with significant added expenses—presents, dinners, decorations, travel, and more. For individuals already living paycheck to paycheck, these additional costs can feel insurmountable, forcing some to rely on high-cost credit options.
3. Accumulated Debt and Financial Stress
January can often arrive with the harsh reality of overspending during celebrations. Dealing with debts while day-to-day expenses continue can leave employees feeling trapped and demotivated, directly affecting their mental wellbeing and productivity at work.
Understanding these challenges is the first step, but a truly supportive workplace goes beyond acknowledgment. Proactive solutions can make all the difference in fostering a healthy, engaged, and financially resilient workforce.
Solutions to Support Festive Finances
1. Financial Education and Planning Tools
Empower your employees with resources to better understand and manage their finances. Workshops, webinars, or guides on how to create a festive budget or save on holiday expenses can be incredibly valuable. Practical advice on avoiding debt traps and managing holiday spending ensures everyone can handle their finances with confidence.
2. Flexible Pay Options
Offering greater flexibility in how employees access their earned wages can help bridge the gap between pay periods. Giving employees access to their pay when they need it—not just at month’s end—ensures they can handle seasonal expenses without resorting to costly alternatives.
3. Building a Culture of Support
Encouraging an open, empathetic culture around financial wellbeing normalises these discussions and reassures employees that they’re not alone in feeling financial pressures. Highlight resources, offer personal finance content, and actively communicate your organisation’s support during the holidays.
4. Savings Made Simple
Wagestream offers a payroll savings feature. This makes it easy for employees to set aside small amounts of money gradually, building a financial cushion for occasions like the festive season. By encouraging employees to save throughout the year, employers can contribute to long-term financial resilience.
5. Transparent Budgeting Insights
Wagestream provides employees with month-long visibility over pay, spending, and upcoming shifts. This clear picture of their income can empower better decision-making at a time when managing expenses is particularly critical.
The festive period doesn’t have to be synonymous with stress and financial worry. By taking proactive measures to support employees’ financial wellbeing, organisations can achieve tangible business benefits, such as improved employee morale, retention, and productivity.
Part of this struggle is due to an empathy gap where higher earners underestimate the financial savviness of their less fortunate colleagues. Employers hold a pivotal role in supporting their employees' financial wellbeing through practical, action-driven interventions.
The Current Landscape
Some challenging statistics have surfaced from recent research, indicating a pressing need for employer intervention. The data shows:
Higher earners spend twice as much as lower earners on groceries and housing.
The median savings balance for lower earners sits at a modest £3,000, compared to higher earners who have a robust savings of £25,000.
Pay instability is a prevalent issue for nearly 30% of lower earners, who report their pay fluctuates month-to-month.
There's a notable disparity in financial satisfaction levels as 36% of individuals are unsatisfied with their financial situation, while 53% are content.
Anxiety about finances is a common concern with 35% of respondents worry weekly or more often, whereas 50% rarely or never worry about money.
An encouraging note: 7 in 10 employees begin to save when an automatic payroll savings option is offered.
Recommendations for Employers
Given this scenario, employers have a significant role in addressing these issues and aiding their colleagues. Here are three practical recommendations:
Promote a living wage: Aim to meet the Living Wage Foundation's standard for living hours. This will help ensure all employees have a fair, stable income, reducing financial instability and promoting a healthier financial environment.
Establish a payroll savings programme: Implementing a payroll savings programme with an opt-out structure can be a game changer. It aids in systematically building up savings by default, providing a safety net for those unexpected life events. This approach was shown to encourage up to 70% of employees to start saving.
Re-evaluate workplace financial wellbeing programmes: Ensure they are action-oriented and provide financial security benefits that are useful and accessible for all employees. Prioritising such a review will bridge the gap between knowledge and action, helping to alleviate financial stress and increasing employee wellbeing and productivity.
The responsibility employers hold in shaping their employees' financial wellbeing is significant. By instituting these changes, they can make a real impact - and potentially change lives for the better. Download the full research.
Imagine that you're wherever you would normally have lunch. How would you go about deciding what to have?
Would it look something like this?
Gather all available information about all available lunch options
Calculate the benefits and costs associated with each option
Choose the option that maximises your benefits and minimises costs
Or, would you go about it in one of these ways?
Choose exactly the same as what you had yesterday
Choose something that seems ‘good enough’
Choose what your friend or partner suggests
Let’s face it, the type of person in the first list doesn’t really exist - our decisions are almost always swayed by factors or influences from the outside world. This is the core of what behavioural science is used for - it is the design of systems and processes that speak to the reality of how humans make decisions.
One interesting example of behavioural economics at work in society, was shared by Owain Service, CEO of CogCo and former Deputy Director of the Prime Minister's Strategy Unit, at our most recent Financial Wellbeing Forum.
In 2017, Service and his team looked at messages sent by HMRC in regards to tax payments - specifically towards those who had outstanding payments. Historically, one standard letter, written in dense and complicated ‘legalese’, was sent to individuals who needed to pay taxes - which had roughly a 33% success rate. With the help of the behavioural insights team, four additional letters were tested among trial groups:
“Nine out of ten people pay their tax on time. You are in the minority that does not pay their tax on time.”
“Nine out of ten people in your local area pay their tax on time. You are in the minority...”
“Nine out of ten people with a debt like yours pay their tax on time. You are in the minority...”
“Nine out of ten people with a debt like yours, in your area, pay their tax on time. You are in the minority...”
The last letter was most effective - and overall the experiment increased the percentage of recipients who go on to pay their outstanding taxes by 6% (from 33% to 39%) - in context, in the 3 weeks in which this experiment ran, it drove roughly a £3 million increase in tax payments.
The success of these letters comes from introducing a social dimension to the way people pay their taxes, letter one creates a comparison with other tax-payers, letter two introduces the ‘neighbour effect’, letter three creates a sense of community, and so on. Much like the first example of how you choose your lunch each day - by introducing the actions of other people into the decision-making process, individuals are influenced into making certain decisions, whether they’re acutely aware of it or not.
How does behavioral science impact how we manage our money?
‘Mental accounting’ was a term coined by Richard Thaler (Nobel-prize winning economist), to broadly explain the way in which people value money in their minds, based on subjective criteria; according to Thaler’s work - every ‘dollar’ should be valued equally. A couple of examples:
Take an individual who is saving cash in a jar for a dream holiday, but who is also carrying credit card debt; they don’t use the holiday money to pay down their debt, because they have mentally deposited it elsewhere in their budget, and have attached importance to it. This is an example of mental-accounting bias.
Similarly, imagine someone unexpectedly receives a tax refund. They might decide to spend it on non-essential items like a luxury purchase. This behaviour occurs because they mentally label the windfall as ‘extra’ or ‘free’ money, separating it from their regular budget - this is another example of mental-accounting bias.
This concept calls back to the idea that no human makes entirely rational decisions, and demonstrates why it is essential to grasp an understanding of how behavioural science helps us optimise systems and mechanisms to mimic decision-making processes more closely.
Behavioural science can play a significant role in building effective financial wellbeing strategies by understanding and influencing the behavioral factors that impact financial decisions.
We’re exploring the intrinsic link between money and mental health. Recent research has found that in the past three months:
60% of employees have worried about money at least once a week
21% worry about their finances every day
54% say their mental health has declined due to money stress
Clearly, financial stress is widespread. But a new report from financial wellbeing experts at Wagestream, Mind over Money, reveals new and profound ways money can interact with our minds.
The research explores a concept known as ‘scarcity mindset’, which suggests that when people have an unmet need, be it food, work or money, they spend time and effort thinking about worrying about that problem, taking away their ability to think about other things.
This bandwidth tax can cost someone up to 13 IQ points, enough to take someone with an ‘average’ IQ score to ‘borderline deficient’. It’s equivalent to losing a night's sleep or being chronically alcoholic.
Mind Over Money delves into the scarcity mindset and the groups of the UK workforce most likely to be affected by this.
The good news is, there are three things which help to lift the impact of financial stress on the scarcity mindset: visibility, predictability and flexibility.
The report explains how financial tools which give people this financial oversight can have incredibly positive effects on their behaviour.
Fears of financial scarcity have become rife, which is unsurprising in the current environment where people’s incomes are struggling to keep up with their outgoings. These worries can often generate a knock-on effect on mental health and wellbeing, as well as workplace performance.
But how can a scarcity mindset hold employees back from giving their best performance at work? Here are some of the ways in which this manifests itself in the professional environment.
Mind Over Money delves into the scarcity mindset and the groups of the UK workforce most likely to be affected by this.
Absenteeism
An increasing amount of external research confirms a correlation between absenteeism and financial stress.
In a recent piece of research into how Wagestream’s members use flexible pay to support their budgeting and manage their finances, we discovered that 22.1% of people use it to cover the cost of their commutes.
This finding highlights a universal expense that is often overlooked. Internal policies and benefits are usually built to support colleagues in the workplace; however, do those policies support your colleagues to reach the workplace in the first place?
Physical and mental health
All forms of wellbeing are linked, the mental, the physical, the financial, and so on. One of the more concerning statistics on this subject is from a study by Harvard University which concluded that financial stress can impact an individual by up to 13 IQ points when facing money worries. The significance of this is obvious when you note that 13 IQ points can take someone upwards from 'average' to 'superior' intelligence, or downwards to 'borderline deficient'.
Anxieties and concerns that burden the mind also naturally creep their way into the physical body, to the point that it can directly detract from physical wellbeing. Think increased stress hormones, higher heart rates, weakened immunity, insomnia and so on. It circles us back to issues of presenteeism and absenteeism, labouring the point that happy and supported employees make for present and productive teams.
Limiting scarcity fears as an employer
There is no perfect solution to supporting staff with their finances, and often it is the multi-pronged approaches, those which promote choice and flexibility, that are most valued by teams. Education obviously plays a huge role in building financial confidence in your workforce, as well as transparent and accessible money-adjacent policies (pensions, parental leave, sick leave, etc), to establish clarity and peace of mind for staff.
However, education and policies are not enough to create a winning financial wellbeing strategy; practical and interactive solutions are often more highly valued by teams, as these allow the creation of bespoke financial wellbeing toolkits which suit their needs. Flexible pay specifically is an essential tool when it comes to managing fears of financial scarcity, as it allows employees to choose when they get paid and manage budgeting and outgoings more simply. By providing flexible access to pay - the fear of a ‘lack’ that often drives the scarcity mindset can be mitigated.
The lack of savings among the UK population is a growing cause of concern, with surveys suggesting that a quarter of adults having less than £100 tucked away. This isn’t just a personal finance issue, it’s a pressing responsibility for employers too.
The cost of living crisis has put a heightened focus on financial wellbeing, prompting an increase in the number of businesses offering financial wellbeing support; 90% now have some form of support in place, up from 50% in 2021.
This rise in support is encouraging, but with UK savings levels lower than ever it raises the question: are employers approaching this challenge in the right way, and introducing the most effective forms of support?
Empathy gap
Since 2021, Wagestream’s State of Financial Wellbeing research programme has explored how financial wellbeing is experienced and understood within the context of the workplace. In our latest research, we sought to answer the questions: do higher earners understand the financial lives of lower earners and, when you extrapolate that to the workplace, what are the implications for the policy decisions that higher earners make on behalf of others?
To explore this, we asked participants who we classify as higher earners and lower earners ten questions about spending, saving, using financial products and how their money impacted their lives. We then asked each group to predict answers for the other group.
The most striking finding is the existence of an “empathy gap” between high and low earners – specifically higher earners persistently underestimating the financial savviness of lower earners.
The gap is particularly stark when we look at savings. Lower earners have a median savings balance of £3,000; for higher earners it’s £25,000.
When questioned about the savings of the other group, a perception gap emerges. Higher earners substantially underestimate the median savings for lower earners, predicting just £1,000.
Lower earners also underestimate the median savings for higher earners, although relatively their prediction is much closer at £10,000 vs actual savings of £25,000.
Lower earners accurately predict that higher earners spend more, accurately predict that they have more money at the end of the month and also that higher earners have over three times as much in savings.
So, while low earners made broadly accurate predictions as to how higher earners might spend and save, higher earners cannot fathom how lower earners are capable of logically managing tight budgets.
These findings should be taken as a call to action; to remember that your lived experience, your financial wellbeing, your experience of saving is likely to not be representative of the majority of workers if you are in the minority of earners. So how can employers create real action around savings? By taking the time to understand the financial exclusion faced by your people, by delivering financial products and tools that everyone can use, and by making them as easy to use as possible.
Read the full research.
In response to our recent research and data surrounding financial exclusion, who is most impacted in work and society, and the challenges they're facing; we make four key recommendations for employers.
ONE
Review your workplace policies and benefits through the lens of DE&I and prioritise providing financial benefits that are useful and accessible for the whole workforce.
Reviewing policies and practices, particularly those financially-adjacent, through a DE&I lens, is essential for employers to ensure equitable access, address systemic biases, and promote employee engagement and retention. As a starting point, employers can promote DE&I in financial policies by ensuring diverse representation in decision-making, regularly reviewing policies for biases, and offering benefits which are holistic and beneficial to large amounts of your workforce - particularly those in the financially-excluded category. Measurement and accountability are crucial for progress here - the best answer you can get to the question: 'What do my workforce need?', is to actually ask them.
TWO
Provide support for your workforce to discover and apply for state assistance they’re entitled to receive.
There can be a level of self-consciousness and stigma around state support, which in turn breeds misinformation on what is available, and who is entitled to it. Many individuals may be unaware of the aid they are entitled to, characterised by the £19 billion that is left on the table each year - which could be helping families ease financial burdens around childcare, utilities, and groceries. Tackling this subject is twofold, any and all conversations that can be facilitated around money (Mental Health Awareness Week in May or Talk Money Week in November are good initiatives) can help de-stigmatise the subject; and also utilising services which allow colleagues to quickly and easily calculate entitlement (such as Inbest's online calculator) can help them unlock their entitlement.
THREE
Implement a payroll savings programme and ideally structure it on an opt-out basis so that employees build up savings by default.
Opt-out savings models are by no means a recent innovation. Looking at the majority of pension schemes, it's a long-established fact that helping employees save by switching the default from 'opt-in' to 'opt-out' can make a huge different to savings levels, one of the pillars of financial wellbeing, and arguably the greatest provider of financial security. Applying this concept to short-term and liquid savings, is something that is a less-explored concept. Wagestream has worked with Nest Insight to trial opt-out savings with some key UK employers, and results show that the percentage of the workforce saving when in an opt-in vs. opt-out model jumps from 16% to 71% - no small difference.
FOUR
Aim to meet the standard for living hours, as provided by the Living Wage foundation.
By ensuring that employees earn a wage that covers the basic cost of living, you centralise financial wellbeing as the bedrock of your organisation - and have a solid foundation to build out your strategy from. As previous research has shown, financial worries can have an extreme impact on cognitive capacity, up to 13 IQ points; if you can alleviate some of this stress from your workforce - you can foster a more motivated and loyal colleague community, who can ultimately provide a better service to your customers.
Talk to us about the positive impact we can have on your teams and your business.
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