Rising Cost of Living: Employee Money Mindsets

Our coaches have shared some of the money mindsets they’re seeing – and what the cost of living crisis could mean for them. 

The rate of inflation has now reached a 40-year high. And while the Bank of England is committed to bringing inflation down, it’s forecast that costs of living will remain high throughout 2023 before easing up in 2024.

Helping your teams take positive steps to build their financial health will be an important way to support them. But the cost of living crisis is going to challenge many of us to reassess our mindsets and beliefs about money and how we prepare to weather the next year of increased costs. 

What is a mindset?

A mindset is the way of thinking about or framing yourself and the world around you, and it’s informed by your personal beliefs and values. For example, if you develop a mindset that says ‘I am bad with money’ you might avoid taking actions to improve your financial situation because of that belief. 

Our coaches have shared some of the money mindsets they’re seeing – and what the cost of living crisis could mean for them. 

The Powerless Pessimist

This person thinks the cost of living crisis is something out of their control, so feels disconnected from the need to take action. They believe the effects of rising interest rates and inflation are the responsibility of the government or their employer to solve. 

We asked our 2,600 LinkedIn followers how they felt about cost of living increases, and 42% confirmed that they felt pretty pessimistic. 

How they’ll be impacted: 

  • Without any investment in their financial health now, this person might struggle more later down the line. 
  • Most employers won’t be able to raise wages in line with inflation, and any government support will likely be focused on the lowest earners. 
  • They’ll need to lean into the situation more and start thinking now about how they’ll be impacted, and the small steps they could take to improve their financial health.

The Daily Budget Hustler

Someone who thrives on finding a discount and takes pride in never paying full price for anything. Knows where every penny goes month by month. They’re ready to take on the cost of living crisis with super restrictive approaches and excessive frugality. 

How they’ll be impacted: 

  • While balancing income and outgoings is a critical part of good budgeting as costs increase, there’s a risk that this person gets too focused on managing day-to-day costs and forgets to keep longer term money goals in mind. 
  • Our LinkedIn poll results told us that 38% of people feel positive about their budgets. But we know from coaching over 8000 employees that only 20% of people have an emergency savings fund to fall back on if unexpected costs come up. 
  • So, while this person may be more prepared than most to weather increasing costs based on their strong saving mentality, typically this approach isn’t sustainable in the longer term. 
  • Our coaches typically recommend avoiding an overly restrictive approach to budgeting. It’s important to focus on giving ourselves space in our budget for small luxuries and treats and stuff we enjoy, so we’re not solely focused on what we have to cut. This is especially true at the moment when larger life goals might be put on hold because of the impact of inflation or rising interest rates.

The Relatively Relaxed

Someone who feels fairly at ease despite the headlines. Already lives within their means, is a middle or high earner and is pretty confident they have good money habits, so doesn’t feel the need to change behaviour much. 

Eleven percent of people in our LinkedIn poll confirmed they were not thinking about how cost of living rises would impact them yet. 

How they’ll be impacted: 

  • Similar to the Powerless Pessimist, this person might get caught out given the length of time inflation and interest rates are predicted to last (the Bank of England estimates rates will remain high through to 2024). So simply maintaining good spending habits might not be enough. 
  • Speaking to someone could help this person put their current spending habits into context, and look further into the future to understand how they’ll be impacted and adjust accordingly.

The YOLO

An impulsive personality type who doesn’t think twice about spending on something they want. Act now, and ask questions later. May struggle to balance short-term desires with long term goals.

How they’ll be impacted: 

  • A cousin to the Powerless Pessimist (in that they don’t think they need to take action), this person’s downfall might instead be their optimism that things will work out somehow without them having to change their behaviour.
  • But sometimes it really is as simple as making sure people are aware of how to balance their income and outgoings. And most people will have access to simple tools to help them review their outgoings more regularly via a banking or savings app. 
  • Suzanne Wildblood, one of our financial coaches says “The accepted wisdom about budgeting tends to focus on cutting back – which can often turn people off. Coaches can help challenge this mindset and help people think more about spending better.”

The Doom-Scroller

Characterised by late night phone scrolling, consuming too much news, and constantly threat-scanning for what could go wrong. This person may struggle to sift through the headlines in order to know what advice to follow, or how to apply it to their own life.

How they’ll be impacted: 

  • The negative headlines are going to continue so this person will need help to cut through the complexity, so they can feel empowered to take action. 
  • Negative information overload might lead them to either inertia or fear based decision-making, both of which could mean poor outcomes for their financial health. 
  • There’s no one-size-fits-all when it comes to financial education or advice but we know that having someone to talk to about money is the number one way to help people feel better about their financial future. 
  • And providing financial education that’s tailored to lifestages can also be a great way to help make guidance relevant and relatable to your employees.

We’re curious…what’s your mindset about money at the moment?

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