MAKE A DIFFERENCE | workplace culture / mental health / wellbeing

Income Disparity: Why Employers Should Be Aware Of The Gap And How To Plug It

Financial independence and stability can make a big difference to the wellbeing of individuals. Being financially healthy can improve physical health, mental health and overall resilience.

However, many employees are facing systemic inequalities that leave them stumbling when it comes to their finances.

Aon’s recent Rising Resilient report stated there are three key indicators to workforce resilience: a sense of security at work, belonging, and the adaptability and motivation to reach your full potential, all of which can be affected by financial stability – or instability.

For women in particular, there is a worrying level of disparity compared with men’s finances.

The gender pay gap, which has been widely reported, means that on average women earn less than men. Alongside this disparity comes other consequences for their financial status.

Women are also less likely to have money left over from their monthly pay check to save, according to Aon’s Diversity, Equity and Inclusion in the Workplace white paper. This lack of ability to save impacts all of those indicators of resilience – it can minimise that sense of security and adaptability that comes with feeling financially secure.

In terms of long-term savings and investments, women are more likely to remain at the default pension savings level, and are less likely to have a target for how much money they will need to retire. However, women also tend to live longer than men, which means they need more money to retire. They therefore are 60% more likely than men to expect to never be able to afford retirement.

Recent years have also seen the added pressure of the ‘sandwich generation’, where people have both aging parents and children to care for.

Around 2.6 million people gave up work altogether to provide care for a dependent last year, up 12% from 2013, according to Aon’s The Aging Population report.

While this is not solely a subject for females, women are more likely to take breaks in their careers than men due to family responsibilities, and therefore are more likely to face the brunt of this, especially. in financial terms.

The COVID-19 pandemic arguably heightened this disparity between men and women, with women losing 64 million jobs in 2020, which is 5% overall, compared to 3.9% of jobs lost for men.

With all these issues combined, financial wellbeing seems like a steep uphill climb for women.

But it’s not just women who face systemic financial disparities. Other groups face similar issues, including those from different cultures and religions, such as those following Islamic faith. Shariah law, which is followed by those practicing Islam, prohibits earning interest and investing in funds which derive a profit from the sale of alcohol, tobacco or gambling.

This often makes the standard pension investment funds inaccessible for anyone following this law. While there are some Shariah-compliant funds, many pension schemes do not offer any, meaning financial independence and planning for the future becomes that bit harder for these employees.

However, employers can help. They have an opportunity to help plug these gaps. To demand a solution which does not exclude those on the basis of faith, or to provide a pension outcome tool, for example, to help employees plan for their financial future.

Studies have shown that by maintaining strong inclusion and diversity practices, companies have around 2.3 times higher cash flow per employee, and they are better at attracting and retaining talent, with 80% of women, 80% of black, 75% of Asian and 80% of Latino employees stating that diversity is important to them when making employment decisions. This proves that, aside from being a positive thing to do for communities, there is also commercial value for the company in catering to diverse groups and not just focusing on the majority.

How to plug the gap

Many HR procedures, policies and systems were designed a long time ago to support the needs of a standard majority. But the workplace has changed so much over the past 100 years, and therefore employers need to update and adapt policies to reflect that.

The workforce today includes different generations, sexual orientations, religions, ethnicities and cultures. Each individual has their own needs in regards to financial wellbeing and in order to ensure resilience across the organisation, employers need to understand these needs and make sure they cater to them.

Employers should be looking at the composition of the current workforce, the diverse needs of individuals and try and spot any systemic biases or inhibitory processes. Can policies be changed to become more adaptable for the individual, or can financial education and prediction tools be used to accommodate all employees for planning their best financial future?

But beyond catering to the organisation and its employees now, teams also need to be looking towards the future, to pre-empt the longitudinal employee wellbeing needs – or in other words their long-term evolving needs.

The workforce is not the same now as it was 20 years ago, nor will it be the same in 20 years’ time. Employers should be pre-empting that change and trying to understand the needs of their employees in the future, whether that be caring responsibilities, or a need to change their pension investment now in order to be able to afford retirement later.

Starting to cater to the needs of individuals instead of the majority will build the resilience of both employees and the company, and will help more to thrive in the long term.