Americans are under chronic financial stress. And far too many are lacking the most versatile, low-cost and responsive first line of defense: emergency savings.
The Federal Reserve reports that 36% of households wouldn’t be able to cover a $400 emergency through savings; a Commonwealth analysis of the same Federal Reserve data reveals the problem is much worse for households making less than $60,000 (58%), particularly when they are female-led (58%), Hispanic (70%) or Black (72%).
Employers have long understood the value of a financially secure workforce: 62% of employers feel “extremely responsible” for their employees’ financial wellness, and research has indicated that companies lose $250 billion in productivity each year due to employee stress, primarily financial.
For low- and moderate-income employees, a savings cushion is essential for both short- and long-term financial security. The good news is that employers have a number of tools at hand that can be leveraged to advance the financial security of their employees.
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An AARP study indicated that 71% of workers would utilize a rainy day fund if their employer had one. In a Commonwealth survey of 2,000 working Americans, 81% of people said they considered financial insecurity to be a major problem, and 65% thought employers should be doing more to help.
Commonwealth research supports the idea that straightforward tools can help foster worker financial security. Seventy-four percent of employees indicated that financial benefits — such as tools for saving (direct deposit into savings) or paying down debt (automatic bill-pay) — offered by their employer at the time of a raise would lead to less stress. Seventy-eight percent thought they would feel more confident about their finances.
Enabling financial security for low- and moderate-income workers needn’t be costly or complex. There are a number of tools that employers have at their disposal to help employees build savings, or to aid them in withstanding shocks to their income or expenses.
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Recordkeepers are increasingly aware of the pivotal role they play in emergency savings — and the role that short-term financial security plays in enabling long-term investing, like for retirement. Increasingly, recordkeepers offer savings pockets, specialized messaging and other support to engage and help employees build a savings cushion. Ask your recordkeeper what they offer that can help your employees with short-term savings.
When it comes to payroll, think of employers as the manager of the pipes that deliver employees’ income — and you can help direct where those pipes flow. For employees who already have a savings account, payroll systems offer “multiple direct deposit,” or the ability to deliver net pay to more than one account, automatically, every pay period. All workers should be invited to use this feature to send even a very modest amount to emergency savings each payday. Simply messaging this opportunity to employees properly can increase participation; in our research, 63% of employees expressed interest in using this feature.
For employees without a traditional bank account, many firms offer payroll cards, and many providers offer an option to add a savings pocket to the card, allowing employees to build liquid savings reserves. In many cases, this is a tool already available to employees, but they may need messaging to become aware of it.
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New policy guidance has opened the door for employers to set their employees up to contribute to emergency savings accounts automatically, by default, just as millions of employers have already used auto-enrollment to dramatically increase participation in 401k plans. Of course, any worker could opt out, but decades of behavioral research have shown that defaults matter, and can help us all to close the gap between our savings intentions and action.
A wide range of employers, from Fortune 100 firms to small businesses, have implemented emergency cash grant or loan programs for their employees, providing need-based infusions of cash in times of acute need. In a study by Commonwealth and the Aspen Institute Financial Security Program, 60% of employees who benefited from a hardship fund reported feeling less stressed and 72% expressed they were more likely to stay with their employer.
There’s also an opportunity to help workers leverage windfall moments for savings. Behavioral science has taught us that people view “windfalls” differently than other forms of income, and that it’s easier to commit today to hard behaviors in the future. These insights point to prime opportunities for savings, including such as times of wage increases and tax returns. With the advance notice, careful messaging and access to tools, employers can help workers maximize their savings in these moments.
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There’s been a recent movement by employers of all sizes to enable low- and moderate-income employees to build emergency savings. For example, Commonwealth, in partnership with BlackRock’s Emergency Savings Initiative, worked with UPS to launch an emergency savings initiative for 90,000 employees late last year. BlackRock’s Emergency Savings Initiative has since announced partnerships with companies including ADP, Best Buy, Self, Truist, Varo and Voya Financial to help advance emergency savings for American workers.
As workers navigate the financial fallout of the past year and a half, employers are with them side by side. There is a tremendous opportunity to take simple but effective steps towards enabling financial security, leveraging the platforms that employers already have in place.
