Employee debt: whose responsibility is it?

Amongst the fun and games of political party conference season, I was struck the other week by an interesting and inspiring new Labour party proposal.  You may have heard, the idea is to bring credit card companies in line with payday loan providers, in terms of the overall amount of interest they can charge. The premise; no one should ever pay more in interest than they originally borrowed. Good. Fantastic. Hallelujah! Although, I should probably calm down because it’s just a proposal, and Labour aren’t even in power. Perhaps we’ll get lucky and the current government will ‘borrow’ the idea!

I speak to many people during our financial wellbeing sessions that this would affect hugely. To give you some idea of how prominent personal debt levels now are, here are some recent stats:

• £200bn of personal unsecured consumer credit is currently in existence in Britain (FCA)
• 8.3 million people in the UK have a problem with debt (Money Advice Service)
• 86% of cars are now bought on PCP (personal contract purchase) credit deals (Guardian)
• one in six people with debt on credit cards, personal lending and car loans (which amounts to 2.2 million people) are in financial distress (FCA)

So, it is highly likely that you have employees who are struggling with debt, and possibly to a level that causes them significant stress.

To me, there are three main categories of debt:

• good debt – mortgages or ‘sensible’ credit card use – paying off your full balance each month and/or benefiting from 0% interest deals
• bad debt – excessive use of store cards, credit cards and unsecured loans with high interest rates (20-30% APR)
• mad debt – spiralling debts and the use of payday lending and the like, with excessive interest rates sometimes breaking the 1,000% mark

The key is to keep borrowing under control. If you’re in debt, be in ‘good debt’; move away from ‘bad debt’, and always stay well clear of ‘mad debt’!

Of course, it’s easy to simply say that we must all take personal responsibility for managing our finances and keeping borrowing within sensible limits. In reality, we live in a society of high living and studying costs, and low / stagnated wage inflation, so it is no surprise that the population as a whole is struggling with debt. It therefore naturally follows that both the government and employers have a role to play in helping to stabilise this situation.

It’s great news that politicians want to keep financial credit companies under a tighter leash, but employers can also take steps to help their workforce. A good financial wellbeing session can help employees understand how to:

• assess their current financial position
• get debt under control
• budget effectively
• target financial goals and attain them
• seek advice if they’re out of their depth (in terms of debt resolution or financial planning)

By providing your people with access to good quality financial education, you may help them to get out of a bad (or mad!) debt situation – or keep them out of such circumstances altogether.

This article was first published with REBA on 17 October 2017.