People struggle to pay for essentials
Before the crisis experts were warning that many people were only a paycheque away from falling into debt and this has certainly proved to be the case.
Debt charity StepChange report that “44% of those affected with an income of less than £30,000 have fallen behind or borrowed to make ends meet” and the effect is most pronounced in those who have an income below £30,000 and are paid weekly or are on zero-hour contracts.
With people being furloughed on 80% of their pay and many self-employed people falling through the support net, it has undoubtedly been a difficult time for many. Before COVID many workers found it difficult to cope with unforeseen expenses but the epidemic has meant that the problem has been very much exacerbated.
Cash is no longer king
For many years people have been predicting the death of cash as a payment method and yet it has stubbornly refused to be sidelined even with the advent of contactless technology, however, a recent global survey by YouGov shows that COVID has accelerated the demise of hard currency in favour of the more biosecure contactless methods.
In Thailand for example, 57% of the population say that they use less cash as a result of the pandemic which is echoed in Australia (51%) and the UK at 50%.
People also say that they find managing their money much more difficult if they don’t use cash and so the push towards a cashless system will no doubt be a concern to many and this has been highlighted by several organisations in the past.
Source: YouGov
The Credit card market tightens
The credit card market has always been an incredibly competitive sector and before COVID there were a plethora of 0% deals. This meant that customers with good credit ratings could have their pick of very low rate finance.
Since the start of the crisis, lenders have tightened their criteria and as finance website Moneycomms reports, both the number and the length of 0% deals has reduced markedly. This means that people who were transferring balances from card to card as a way of managing debt will likely find fewer deals and those who need a credit card to manage their short-term finance may find that it becomes a much more expensive tool.
Sources of short-term funding reducing
Traditionally people would fall back on a mixture of sources to enable them to weather the storm of an economic shock, however, due to the nature of the epidemic the number of sources for help has reduced whilst the demand has skyrocketed.
Due to changes made to the banking sector over the past year, personal overdrafts have become more expensive with many banks charging up to 49% for arranged deals and some short-term lenders such as payday loans companies and guarantor lender Amigo have stopped taking new business altogether meaning that people with poor credit histories don’t have the opportunity to realign their debts.
Practical things employers can do to help
With employees facing increased financial pressure it is important that employers are mindful and provide practical help wherever they can.
There is no doubt that stress affects performance greatly and so employers should look at ways that they can reduce the impact of COVID related financial pressure. Providing practical help for people in times of stress makes good business sense as it reduces absence rates and shows that the business is mindful of the situation its people find themselves in.
Understanding that staff may find it more difficult and expensive getting to work during lockdowns due to the reduction in public transport and providing the opportunity to work from home, developing car share schemes or even arranging transport can all go a long way to reducing the stress they feel.
Employees needing help can also be signposted to sources of assistance whether that may be debt charities such as StepChange or an employer-funded counselling service like Calm or Talkspace.
When times are tough people may need quick access to income that they have already earned but not feel comfortable asking for an advance. By implementing a method that allows employees to access payment for work they have already done employers can help immeasurably.
It has to be borne in mind that many businesses are also facing cash flow strain and so a scheme such as the Access Earlypay system which is available at no charge to employer is an excellent option.
COVID has changed the finance landscape for years to come
COVID has caused a great deal of upheaval to the personal finance landscape and it is fair to say that some of the changes such as the acceleration towards a cashless society will be far-reaching.
What is clear is that employees will need more flexibility for some time to come as we seek to cope with successive lockdowns and new ways of working. In our view, the employers that are the most supportive and look for ways to help their staff will come out of the crisis in the best shape and with the most loyal employees.
Access EarlyPay - giving your employees more options
Access EarlyPay is a method of allowing your employees to access income that they have already earned without having to wait until the end of the month.
With no charge to the employer, it’s a great way to help your people with their personal finances.
If you’d like to find out more about EarlyPay then click below to find out more.