By: Nashalin Portrag, Head of FundsAtWork, Momentum Corporate
Millennials’ (25 to 34 year olds) representation in the workplace is growing rapidly and this group is expected to make up almost a quarter of the global workforce by 2020. Momentum Corporate is already seeing the generational shift in the profile of the retirement fund membership – with 52% of members being Millennials, up from 39% in 2013.
The Momentum/UNISA Consumer Financial Vulnerability Index shows that Millennials are the most financially vulnerable age group. Poor financial literacy is seen as a key driver of their continued financial vulnerability. Millennials’ tendency to have low savings and high levels of debt is further exacerbated by the weak local economic environment.
Therefore, South African employers have a vested interest in helping Millennials to make better financial decisions. Employees who are financially unwell are more stressed at work, which negatively impacts their productivity. This is referred to as ‘presenteeism’ – when employees are at work, but are not productive because they are distracted. From an employer’s perspective, an employee benefits solution that enables improved employee financial wellness makes sense. By boosting the financial stability of employees, productivity is improved, which ultimately supports the business’ bottom line.
Momentum Corporate’s Effective Employee Index™ shows that presenteeism could be costing South African companies an additional R89 billion or 5% of Gross Operating Profits in lost employee productivity. Financial struggles, such as over-indebtedness and a lack of savings for unplanned expenses, make up 22% of all the drivers of presenteeism.
It is paramount for the future of South Africa’s economy that employers do their utmost to encourage Millennials to save better for expected and unexpected expenses that they may incur. This begins with understanding the common money mistakes that South African Millennials are making by ‘living in the now’ and failing to prepare financially.
Based on Momentum Corporate’s membership analytics, only a handful of Millennials save enough for retirement. However, the rest have time to change this behaviour by making sure their retirement contribution is appropriate and that they keep their retirement savings invested when they change jobs instead of taking it in cash.
Millennials’ lack of financial provision is not limited to their retirement savings only. It also includes their lack of provision for insurance cover for unexpected incidents like disability based on the analytics. Millennials are generally underinsured for death and disability.
Given Millennials’ low propensity to save for retirement and unexpected life events, employee benefits should ideally be integrated and flexible to assist them in making better financial decisions and to adopt healthy saving habits.
Financial advisers should consider Millennials’ poor financial habits when providing their clients with ‘best-of-advice’ solutions. An ideal employee benefits solution could change Millennials’ poor spending habits and therefore financially enhance South Africa’s young workforce.