The UK 'protection gap"'is well documented but family lending is reportedly helping Britons to plug the gap in household finances to the tune of £31 billion. GRiD's Katharine Moxham ponders the role of employers in financial education.
Basic financial planning theory dictates that the primary building block for financial resilience is protecting income but, increasingly, money is so tight that household costs come first.
Some 28% of UK adults borrow money from family to meet household costs, one in ten families are skipping meals and selling valuables because of higher household and living costs and one in three grandparents providing childcare to their families has spent their savings.
Even without financial pressures, people naturally avoid thinking about the worst. Pension auto-enrolment has largely been accepted as most people expect to reach retirement.
However, lack of funding or planning for the future doesn't just impact on pensions, it affects areas far more financially devastating, because occurrence and timing cannot be predicted. Loss of household earnings through death, serious illness, accident or disability is catastrophic for the family concerned.
Yet only a quarter (24%) of adults in the UK with children under 16 have any financial protection (down from 31% in 2013) and over half of that group (54%) admit that their savings would only last a couple of months if they were unable to work. Tellingly, almost half of households (46%) with children under 16 are now also reliant on two incomes and a further 14% of this group state that parents or grandparents are also dependent on their income.
In 2002, Swiss Re first identified the scale of the life assurance and income protection gaps in the UK.
At the end of 2013, the Life Assurance Protection Gap stood at £2.4 trillion. To put this into perspective, roughly half the UK adult population has a life assurance shortfall averaging £100,000 per person (4 times average earnings). The Income Protection Gap at the end of 2013 was £190 billion annual benefit .
So, if employees won't - or can't - take action, perhaps employers should. They are, after all, in a unique position to facilitate financial education, together with affordable and accessible protection cover for their staff.
On top of this, it's hugely beneficial for employers to help their staff to understand their finances since there's no point in providing benefits that are not appreciated.
Employers' potential for facilitating financial resilience has been acknowledged by government through its auto-enrolment and simple financial products initiatives and the introduction of the new Fit for Work service.
Interestingly, employees no longer expect their employer to pay the entire cost - 81% of employees see a role for the employer in benefit provision but only 39% of these expect their employer to pay for benefits or to contribute towards the cost.
Although, financial education has now been introduced onto the national curriculum for schools, government and the Money Advice Service still have a role to play in encouraging employers to facilitate financial education and to build on the success auto-enrolment has had in raising awareness of the need to plan and save for future income.
When money is tight, people question the need to pay for insurance they might never use. Financial education should foster the understanding that having protection and not needing to use it is a far better outcome than being entirely without a safety net.
Three key reasons why
At 99 City Road conference centre
Benefits being used to support employees
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Open letter to industry