1. Research reveals 59% of young workers don’t understand their pay deductions and are unable to budget effectively
2. 29% of 18–24-year-olds say understanding their pay would help them make better financial decisions
3. Employee confusion over pay is costing businesses an estimated £960m annually.
Younger workers are left in the dark when it comes to understanding their statutory financial contributions and how their pay is broken down with 59% of 18-24 year olds confused by adjustments to their pay according to new research.
The findings highlight a growing crisis of financial literacy with nearly one in three (29%) believing that greater financial understanding would enable them to make better financial decisions and save more effectively.
With the backdrop of an ongoing cost of living crisis, the new survey* of over 2,000 working adults in the UK reveals that 89% of employees admit their current pay is not enough for their needs with one in four worrying their pay won’t keep up with continuing rising costs. However, employers are unlikely to hand out pay rises this year following the budget and other rising costs** – signalling a need for better understanding on how to make the most of current earnings.
The research exposes a generational knowledge gap that is leaving younger employees with questions around basic financial concepts like pensions, salary sacrifice schemes and holiday pay. The research, conducted by payroll provider PayFit, reveals that just 9% of 18-24 year olds feel confident they could explain what a salary sacrifice is, as opposed to 24% for everyone else. Only 16% are confident in their understanding of personal pension contributions, compared to 56% for those aged over 55.
When it comes to National Insurance contributions, this disconnect is even sharper with just 27% of young people confident they could explain them, a stark contrast to the 70% of over 55s. When it comes to holiday pay, 44% of 18-24 year olds say they could confidently explain how their holiday pay is calculated compared to 55% of older workers.
This lack of financial understanding doesn’t just affect employees however. The research also reveals it is a drain on businesses with 41% of those 18-24 year olds surveyed saying they need to seek explanations from their employer as to why their pay has changed, creating a time-wasting trap that is estimated to cost UK businesses £960m annually***.
Firmin Zocchetto, CEO and Co-Founder of PayFit, comments: “Employers that are slow to educate their staff about pay are setting themselves up for a fall. When employees are uncertain about why their pay changes, it not only costs businesses time and money but also breeds mistrust, erodes motivation, and weakens loyalty. But here’s the good news: by being transparent on how pay is calculated and providing their team with financial education, employers can turn this around, creating a more informed and committed workforce.”
With financial literacy not taught as part of the standard curriculum in schools, young people risk overspending and it is falling to employers to educate their workforce on financial planning and budgeting. Although a whopping 86% of 18-24 year olds do not fully trust their employer, 42% would feel more favourable toward them if they were educated on how to increase take-home pay and save money, according to the same research.
Employers have the opportunity to empower their employees to take control of their finances with many workers saying they would be more motivated to contribute to their pensions and savings if their employer provided resources like financial planning tools (28%), reminders about pension contributions (25%), and tax savings insights (22%).
A separate report from Step Change, Britain’s largest debt advice service, backs up the urgent need for better financial planning and support, as more people struggle to manage negative budgets. Its findings show a steady increase in the proportion of full-time employees seeking help, up from 38% in 2021 to 44% by the end of 2023.
For more information on how workers can manage their finances, visit:
1. Step Change: https://www.stepchange.org/
2. The Money Charity: https://themoneycharity.org.uk/
3. Turn2us: https://www.turn2us.org.uk/
4. Money Helper: https://www.moneyhelper.org.uk/
5. Money A + E: https://www.moneyaande.co.uk/
6. FT FLIC: https://ftflic.com/
