The cost of living is rising and households are feeling the pinch. For many employees, the solution is to expect a pay rise that will help them keep up with rising prices – but how can businesses afford to reduce financial stress when they’re doing it tough themselves?

Across the country and across pay scales, financial strain is becoming harder to ignore. As of April, nearly 58,000 Kiwi households were more than 30 days behind on their power bills, while 24,000 mortgages are in arrears and close to half a million people are behind on debt repayments.

It’s no surprise, then, that 57 per cent of employees expect a salary increase this year, according to the latest Robert Walters Salary Survey. At the same time, 63 per cent are open to moving jobs – a potential headache for employers already grappling with retention and resourcing pressures.

These are some of the challenges facing New Zealand as we ride out one of the toughest economic periods in recent memory, says Justin Gauci, a financial adviser at enable.me, the business that helped launch moneyfit.me to address financial wellbeing in the workplace. 

His work with businesses and individuals aiming to reduce financial stress means he sees the impact from both sides of the aisle, and everyone is finding it tough right now.

“Costs have gone up, and employees are going cap in hand to their employer, asking them to bridge the gap between their pay and their expenses,” Gauci says. “But the economic reality is that the business might not be able to afford that.” 

Will a pay rise put jobs at risk? 

Employers are likely to face tricky conversations this year as they weigh up resourcing needs against financial realities. Staff may be vocal about wanting pay rises, but what if that means a restructure is required to manage total payroll costs? 

“I’ve heard from business owners saying, ‘If I give out five percent pay rises, I will have to lay off 10 or 20 percent of my staff’,” says Gauci. “You might have to explain to your team that if they want a pay rise, four of them will be off to the job market – and that’s where financial disaster really hits for someone who’s been living paycheck to paycheck. They’re forced into panic mode and that’s tough to see.” 

Each business will need to find the right balance. If it’s paying well below market rates for its industry, Gauci adds, then the team is probably due a decent pay rise. Valuable team members might be paid a little above market rates because their experience would be hard to replace. 

“But if you’re where the market rates should be, and your business can’t sustain pay rises, you can’t just give out that money. You might be able to help out in other ways, but that can just be band-aids on bullet wounds if people are spending every extra bit of income because they don’t have good money practices.” 

Justin Gauci

 

Better financial knowledge can support workers to stop living payday to payday

Many Kiwis spend everything they earn – and sometimes more. And it’s not only low earners, but also a surprising number of executives on six figures. Gauci says ‘lifestyle creep’ affects those who are on higher salaries but lack essential money management skills. 

Fewer than 30 per cent of Kiwis could last for more than a month without an income, and only 44 per cent say they are financially literate, according to a 2022 report by the Financial Services Council. 

“People generally think, ‘Give me more money and I’ll work it out,’ but we know that’s not the case,” says Gauci. “We’ve found that a high percentage of people fritter away 10 to 15 per cent of their income, and when they earn more, their spending rises to absorb the pay rise so they’re no further ahead.” 

Low financial literacy often means no emergency fund or retirement plan, a default KiwiSaver fund that isn’t maximising savings, and no additional savings or investments. Someone in that position is then reliant on an annual pay rise that keeps up with inflation – which may not be possible for businesses in a struggling economy. 

“One of the things businesses can do is help people better understand how to make their money work,” Gauci says. “If the business can’t afford that pay rise, maybe it can support its employees to improve their mortgage structures, avoid buy now pay later, review their utilities and insurance costs. All these typically add up to 10 to 15 per cent in savings.” 

Start with simple steps, he advises: “Put information up in the lunchroom, telling people about the tools out there like Sorted. Maybe they could look at some retirement calculators, thinking about what they need in 30 years’ time and how they might get there. Or look at a basic budget. When they have enough information to know it’s important, they can then go on to get more tailored advice.” 

Clear communication and stronger financial literacy can boost staff retention and productivity

Better financial literacy provides long-term benefits, not just one-off savings. While education can improve financial outcomes for the individual, it can also boost retention and productivity for employers – when staff are better at managing their money, they’re less likely to attach their stress or worry to their salary.

Employees who live payday to payday may look to change jobs for just a small pay increase. This can mean they spend their working hours searching for new jobs and going to interviews, resulting in costly staff turnover and reduced productivity. Businesses need to communicate to workers why large pay rises are not affordable this year – and ideally, support them with improved financial knowledge.

By combining transparent conversations around finances with better money management skills, employees can get the tools they need to create lasting change and get ahead financially, even in tough times. 

“Money stresses people out more than anything else,” says Gauci. “We would love to see workplaces normalise talking about money, and helping find ways to get people thinking about how to make long-lasting improvements to their situation.” 

Are your employees feeling stressed about money? Visit moneyfit.me to learn how to support your staff’s financial wellbeing.