Financial education must be rethought post-Covid

And we will be living with the consequences of both long after our face masks and protective screens have been discarded.

As entire economies shut down to contain the virus, millions of workers have been unable to return to their jobs – some temporarily, some permanently.

Entire industries and sectors have been affected. Younger workers have been hit particularly hard by the shutdown, becoming unemployed or unable to get on the career ladder.

So much feels ‘broken’ now, but we must reflect on the fact that the world of work was far from perfect before the pandemic

The pandemic has accelerated many of the structural changes already taking place in the economy, including those from digitalisation and artificial intelligence. It has also laid bare weaknesses in public health and welfare systems.

Millions of vulnerable workers have not received adequate financial education to understand the possibility of protecting themselves against unemployment, insufficient income in retirement or to cover health needs.

Key points

• The world has changed dramatically over the past six months
• The state will no longer be the insurer of last resort
• There might be a phased withdrawal from the workforce

People who are self-employed, work part-time or are part of the gig economy have been affected disproportionately.

In the months and years ahead, people will need appropriate financial advice, education and support to adapt and respond to unprecedented challenges while learning to take advantage of new opportunities, and employers have a critical role to play.

So much feels ‘broken’ now, but we must reflect on the fact that the world of work was far from perfect before the pandemic. ‘Build back better’ is already something of a cliché, but it is certainly true that we now must put sustainability and fairness at the centre of our post-pandemic world.

The pandemic has not yet run its course and we do not have all the answers. But our new report – Shaping a brighter world of work: The case for a new social contract – proposes sustainable actions with benefits for workers, employers and government.

It draws on insights from the Zurich Insurance Group’s five-year research collaboration with the Smith School at University of Oxford. These are based on responses from thousands of workers across 17 countries, business and consumer surveys, and in-depth interviews with Zurich B2B customers on the future of work amid a pandemic. 

It seems inevitable that the state will no longer be the insurer of last resort, particularly due to rising government debt levels.

Our research supports the case for building new public-private partnerships between governments, employers, insurers, and benefits providers to protect workers against the enhanced risks of a post-pandemic economy.

Financial security

At the same time, after experiencing the dramatic upheaval of the pandemic, a more risk-averse workforce will have greater need of, and appetite for, protection guidance.  

Redistribution will be a necessary feature of compulsory insurance schemes as a means of reducing inequality and shoring up intergenerational solidarity.

We know from our research that many working men and women are aware that they must maintain their long-term employability and financial security.

Women and young people are particularly vulnerable to being without work and having no protection. Not surprisingly, many more people would like to access retraining opportunities.

They are looking for ways of insuring against the future, whether that be in training programmes, income protection insurance, or related forms of workplace insurance that may provide a bridge between the short term and the long term.

Training

In a world where workers are more hesitant to switch jobs, both they and their organisations may have more incentive than ever to undertaking up-skilling and re-skilling courses.

We must rethink the training opportunities available to young people to help them succeed at work and in their careers. Governments and employers should work together to provide high-quality apprenticeships as a realistic alternative to going to university.

Given changes in the wider economy, more modular education, on-the-job training, and vocational qualifications should all be part of the mix.

Some workers need financial education to be more aware of their options.

Highlighting options

Our research shows that people do not always have an accurate perception of risk to themselves. In fact, the survey showed that often there is a mismatch between an individual’s self-perceived personal level of risk and their willingness to take steps to address it.

Governments and employers alike could play a role in informing workers not just about the risks to their jobs, but also about how they can prepare for advances in technology.

Retirement debate

There will be further debate about the retirement age. In many countries, the official retirement age is still around 65 although in some countries it has been increased to 67.

Meanwhile, a recent poll by the Institute of Fiscal Studies suggests that one in eight older employees will wait longer to stop working because of the impact of Covid-19 on pensions and jobs.

Rather than simply being extended, retirement ages could be staggered, with a multi-year, phased withdrawal from the workforce. This would recalibrate what pensions do: rather than replacing earnings completely, they would supplement reduced earnings.

Education and advice around retirement must begin earlier. Our research shows that workers want to be equipped with knowledge and understanding of the implications of their choices. And this is where the financial advice community can help.

Ambition to action

The Covid-19 crisis has shown how quickly governments and employers, including insurers, can act to protect working people. In the past few months, there has been an unprecedented response to the challenges of economic lockdowns and sudden mass unemployment.

Policies to address such huge and complex issues were previously assumed to take years, if not decades, to design and implement. Yet many governments acted quickly, and measures were drawn up and put in place within a matter of weeks, including support packages for individuals and for businesses.

This same determination and degree of co-operation across all stakeholders must be sustained through the next few years to improve protection for people in work. Covid-19 has made the case for a new social contract stronger than ever.

It is up to us now to move from ambition to action. We must work together, as custodians of people protection, insurers, governments and communities to ensure that the future of social protection is more flexible, secure and fair to support people throughout their working lives, regardless of where and how they chose to work.

Alison Martin is chief executive EMEA and bank distribution at Zurich Insurance Group