Support is needed from employers to address the lack of financial education among their youngest employees, as a new study reveals the extent of its impact on the mental wellbeing of young adults in the UK.
New research published in the Mental Health Project from digital financial coaching app Claro has found that there is a direct link between levels of financial confidence and mental wellbeing. Average mental wellbeing scores drop by over 37% from those with high financial confidence compared to those with the lowest.
More than a third (39%) do not keep a budget to track their incomings and outgoings, and 41% reported to be living beyond their means at some point over the last 12 months. This is leaving almost millions in a precarious financial position each month.
Those in younger age groups (34 years old and below) in particular appear to be lacking in financial literacy. The average financial literacy score among this group is 16.5% below the UK average score, meaning a large proportion of those starting work are doing so without the basic skills required to manage their finances.
As a result, thousands of people taking their first step onto the career ladder will experience a detrimental impact on their mental health. Employers, as well as employees, would benefit from improving their youngest recruits’ personal finance skills in order to avoid aggravating mental health issues in their workforce.
The majority of UK adults do not have a good understanding of basic financial concepts. For example, 64% do not understand the impact of inflation on their money and 52% do not understand how compound interest works. Whilst changes can be made in the education system, this alone will not tackle the low levels of financial literacy in adults across the UK.
Stacey Lowman, financial coach at Claro, comments: “The lack of financial knowledge among young adults of the UK is worrying. While it is important to improve the financial education provided to children in schools, there are millions of young adults beginning employment without the necessary knowledge to manage the income they earn. This is creating a troublesome situation that can impact both mental and physical health.
“Employers should be encouraged to include coaching and training in their employee wellbeing initiatives to avoid these kinds of situations. Poor mental health costs employers due to staff absences and productivity, so investing in this serves both the employees’ and employer’s needs.”
Addressing financial education and mental wellbeing is even more important coming out of the pandemic. In the last 12 months, 29% of UK households reported that their income did not cover their outgoings. In addition, those who witnessed a negative financial change reported mental wellbeing scores to be 15.5% lower than the national average.
Stacey Lowman, continued: “The pandemic has fuelled the ‘advice gap’ with the financial industry predominantly concerned with high-net-worth individuals or people in financial crisis. The vast majority of people who want to make wiser choices with their money, ensure it goes further and invest for the future are overlooked. This is leading them to make less informed decisions which risk the savings they do have. This, coupled with mercenary finance offers like buy now pay later, makes money management among young adults especially challenging.
“Boosting the financial knowledge of young employees would also enable them to make better commercial decisions while in their role, leading to an all-round better and more profitable situation.”