GDP shockwaves set to put employee productivity under increasing pressure

Times are tough. The decline in South Africa’s Gross Domestic Product (GDP) of 51% for the second quarter of 2020 underlines just how tough. Added to this, the latest results from the Momentum Unisa Consumer Financial Vulnerability Index (CFVI) show South Africans are in a very vulnerable state across all four sub-components of the CFVI – income, expenditure, savings and debt servicing capabilities - and simply unable to cope financially. This has a far-reaching impact for employers as employee productivity is affected – but there are practical steps that can minimise the fallout.

The highly vulnerable state of South Africans’ financial psyche is further reflected in the CFVI finding that a larger number of consumers appeared more worried about their finances than staying safe from the virus. The largest quarterly decline of 13.1 points (from 47.7 points to 34.6 points) was recorded in the income category, which was to be expected given that the lockdown contributed to company closures and millions of consumers were unable to earn an income or the same income.

Ronelle Kind, General Manager, Member Engagement at Momentum Corporate, says that the severe financial pressures employees are experiencing have serious implications for businesses, as financial worries and distractions impact on productivity. However, Kind says that there are some practical actions individuals can take to get on top of their financial situations. While the CFVI results reinforce this by highlighting the need for financial discipline and financial literacy, the question is whether it is realistic to expect companies reeling from the impact of the pandemic to focus on employee financial literacy drives at this point.

The silver lining of built-in retirement fund financial literacy benefits

It’s not all doom and gloom, says Kind, who believes that businesses may find help from an unusual source – their retirement fund partner.

Kind says that companies which are part of a progressive retirement umbrella fund may find that their retirement fund is already addressing a big part of the need to uplift financial literacy levels and help employees to make smarter financial choices, particularly critical in these challenging times when emotion and panic quickly overcome rationality.

“While the default retirement regulations require all retirement funds to offer benefit counselling, some umbrella funds have taken the service a step further by expanding the offering to include financial coaching, proactively reaching out to members and, where appropriate, actively linking members to financial advisers,” says Kind. “Proactivity is important as many members tend to be apathetic when it comes to retirement planning and their group benefits,” she adds.

Stats show increase in use of retirement fund financial counselling and literacy related services

One of South Africa’s largest umbrella funds, FundsAtWork from Momentum Corporate, has started to host regular member webinars designed to improve members’ financial literacy. During August this year, over 400 members attended webinars designed to give them more information on their benefits and help them make better financial decisions.

“We are also currently rolling out a series of webinars called Be inspired by nature on your journey to success across a number of employers,” says Kind. She explains that the objective of this series is to improve employees’ financial literacy skills and encourage them to use the resources they can access by virtue of their retirement fund membership, such as benefit counselling, financial coaching and the services of financial advisers. Close to 800 members have already attended this webinar over the past 3 weeks and it will reach a lot more in the coming months.

Kind adds that the benefit counselling service available to Momentum FundsAtWork members has seen a distinct increase in utilisation during 2020. “Telephonic, email and face-to-face interactions increased by over 80% year on year, up to the end of June. Inbound, member-initiated interactions increased nearly fourfold while outbound interactions more than doubled,” she says.

“Some of the popular topics that members require guidance and counselling on include a general understanding of their benefits, retirement planning such as choice of annuity, general support in areas such as budgeting, managing debt and savings, and options when leaving an employer.”

COVID-19 related financial pressure increasing need for quality financial counselling and professional financial advice, especially as retrenchments rise

Kind says their data clearly highlights how the financial pressures created by COVID-19 and lockdown have increased the need for quality financial counselling and professional financial advice. With the increase in retrenchments, there is also a growing need for counselling around what to do with retirement savings when leaving one’s employer.

“Even the top sportspersons need coaching to improve their performance. Employees are no different. Financial literacy levels across the country are notoriously low. While many employees simply don’t have the financial know-how or discipline to manage the financial challenges of 2020, even those with greater financial knowledge may react emotionally when faced with declining investment values or challenging financial issues. Your retirement fund partner can help empower your employees in overcoming these challenges,” says Kind.

ENDS

Sources:

*Statistics SA

**The Momentum Unisa Consumer Financial Vulnerability Index, Quarter 2, 2020