Employee financial wellbeing is becoming increasingly difficult to separate from mental wellbeing, productivity and the wider employee experience. That was one of the key messages from Discovery Corporate employee benefits expert Jay Babshet during a recent CHRO webinar, where he unpacked Discovery’s Debt Reset Benefit and how it aims to help employees manage short-term debt without sacrificing their long-term retirement savings.
The idea, Jay explained, came from listening to employers about the challenges they were seeing among their people, rather than from looking for a solution to debt itself.
“When we think about debt, we don't start with a debt issue. We thought about what our employers are going through. We engaged with many of our existing employers to understand the concerns they were seeing within their populations, and two issues consistently came up. One was mental wellbeing and the other was financial wellbeing.”
Those two issues are increasingly difficult to separate as Jay pointed to Discovery’s data showing a significant increase in chronic depression rates over the past decade, while financial stress is affecting a large proportion of South Africans.
For employers, the effects can show up in ways that HR teams already have to manage, from sick leave and attrition to employees struggling to bring their best selves to work.
“We were seeing the impact on businesses. It wasn’t just at an employee level. Employers were also seeing the impact on attrition rates and things like sick leave. These things are not independent. There’s a high correlation between mental wellbeing and financial wellbeing,” he said.
Debt gets personal
Jay further said members experiencing high emotional stress were four times more likely to make poor financial decisions, including taking payday loans, while financial stress increased the likelihood of depression, anxiety and sleep-related problems, and debt can then deepen the problem.
“When you have unmanageable debt, your mental health significantly worsens and equally it then creates a vicious cycle for the member. You can't actually get into savings mode. You can't cater for the investments you need to make. You can't cater for your long-term future,” he said.
According to Jay, that is where Debt Reset comes in. Jay said Discovery wanted to create a solution that tackled immediate financial pressure without simply sacrificing an employee’s retirement future to deal with today's debt.
“We want to be the only retirement fund to essentially do two things simultaneously. One is to help members pay off their debt but then also help them preserve their financial future. So we don't want to just trade off your long-term outcomes for your short-term outcomes. We actually want to solve all of this together.”
The benefit works through three stages: realign, repay and restore.
First, employees receive financial education, budgeting support and access to personalised financial coaching through Discovery’s partners. Once they have demonstrated that their short-term debt has stabilised for around three months, they can unlock up to R25,000 in future retirement fund contributions to help repay that debt.
The final step is what makes the model different from simply allowing employees to access retirement savings to settle their bills.
Breaking the cycle
“Through Discovery Boosts, the contributions used to address the debt can be restored, provided the member remains invested until the relevant retirement age.”
Jay illustrated this through the example of Jane, who has R50,000 in short-term debt at an interest rate of 20 percent while contributing R5,000 a month to her retirement fund.
Under the example, Jane could reduce the time it takes to repay her debt from around 50 months to fewer than 23 months and cut the interest paid from roughly R24,000 to R10,000.
Her R25,000 in retirement contributions would then be restored through the boost mechanism. Jay said that amount could grow to more than R700,000 by retirement, but that the intention is not simply to move money from one pocket to another. The intervention is designed around changing behaviour.
“We want to change the financial behaviour. We want her to have helped pay off her debt and ensure that her retirement is still on track,” he said.
He noted how that behavioural element is particularly relevant to HR leaders explaining why financial education is not necessarily ineffective, but getting employees to engage with it can be difficult when they are already overwhelmed by competing financial and personal pressures.
“The issue is that people just don't start it. You can understand why, like there are 100 different priorities on your list and so to go and do a financial education course when there's no real clear incentive for you to do so is flat,” Jay said.
He said Discovery saw 10 percent of its staff sign up for the benefit within the first month, with half of those employees taking up the financial education content. He contrasted this with financial education courses where uptake can be closer to one or two percent.
Jay said HR also plays a practical role in making the process work behind the scenes, particularly when contribution changes need to flow through payroll.
“HR is a critical partner in all of this. It’s in a few different dimensions actually. One is obviously in ensuring the solution’s in place. The second is even once the solution’s in place, what we’ve seen is that you still need to drive change within the organisation. And so what we did as an example is that we took the solution out to all our HR managers and execs. We ensured that they were essentially champions for the solution so that if members do have questions and queries, they can come to us but they can also go to their HR managers to answer any of these problems.”
