More workers get help in building rainyday savings
Workers struggling to save for a rainy day are increasingly likely to get help from their employers as the economic slowdown in the pandemic has underscored Americans’ need for a financial cushion.
Large companies like UPS as well as banks, foundations and municipal governments have recently announced programs that encourage workers to set aside cash automatically, via payroll deductions, for unexpected expenses. In some cases, employers match the contributions up to a certain level.
“We’re all much more attuned to how financially fragile we are,” said Timothy Flacke, executive director and cofounder of Commonwealth, a nonprofit group that promotes effective saving solutions. Research from Commonwealth found that people with emergency savings were much less likely to spend their retirement savings during the pandemic.
And research published Friday by the AARP Public Policy Institute suggests that having an emergency fund can help not just with shortterm costs but also bolster longerterm financial health.
Separately, more than half of working adults surveyed by AARP said they would probably participate in a payroll deduction emergency savings program.
The programs signal that employers are taking seriously a longrecognized problem: Many Americans struggle to save. Repeated surveys by the Federal Reserve have found that many households would find it difficult to pay an unexpected $ 400 expense.
The pandemic put additional pressure on many families’ finances, highlighting the need for workplace interventions, said Matt Bahl, vice president and head of workplace at the Financial Health Network, a nonprofit organization. “Employer savings programs are ascendant,” Bahl said.
The network and Commonwealth are among several nonprofit groups working to promote savings with funding from investment manager BlackRock, which last year announced an emergency savings initiative.
It helps that regulators have made it easier for employers and companies that manage workplace benefits to seek permission to automatically enroll workers in emergency savings plans. Employers’ experience with retirement savings plans shows that enrolling workers, and giving them the choice to opt out, is more effective at promoting participation than leaving employees to enroll on their own.
“The hard part in changing behavior is reducing the friction,” said George Barany, director of America Saves, a campaign of the Consumer Federation of America. “The easier it is to start to save, the better.”
Workplace savings programs vary in their approach. Some employers, like UPS, let workers contribute aftertax money into a savings account as part of their 401( k) retirement plan. UPS’ program, developed with Commonwealth and managed by Voya Financial, is available to the company’s 90,000 nonunion employees in the United States. UPS declined to discuss details of the program.
Other programs work as standalone options. For instance, a program from SaverLife, a financial technology nonprofit group, offers employees at Alorica, a global customer service provider, a $ 20 signup bonus and then matches employee contributions up to $ 40 a month. So a worker who saves $ 240 over six months will end up with a balance of $ 500. The employee must save at least $ 10 a month to get the match.
Participants link the SaverLife program to their own savings account and choose how much they want to save, said Letisha Lamb, director of employee experience at Alorica. The program encourages seasonal goals, like saving refunds during tax time or saving for gifts during the holidays.
Here are some answers about savings:
Q: How much should I set aside in emergency savings?
A: The latest research suggests that, especially for lowerand moderateincome workers, setting modest goals — say, $ 500, or a few weeks of takehome pay — is more realistic than aiming for the traditional three to six months of takehome pay, which may be too daunting. Recent findings from the Urban Institute suggested that a reserve of just $ 250 could help families stave off highinterest debt and even eviction.
Also, the idea isn’t to set aside a sum and let it be. Rather, the goal is to have a cushion that can be drawn on as needed and then replenished repeatedly over time. A car may need to be fixed, so the money can be used to pay for the repair and then replaced gradually.
People often think of emergency savings as something to be used in a “break the glass” crisis that would drain the balance, Flacke said. But it’s more often that the cash can tide workers over during smaller, recurring financial challenges.
“It’s more like a shock absorber,” he said.
Q: Do I have to have a bank account to participate in emergency savings programs?
A: Many programs use bank accounts, but payroll cards — often used to pay retail and other hourly workers — appear promising, said Catherine Harvey, a senior policy adviser at the AARP Public Policy Institute.
An amount set aside for savings can be deposited onto a card, which can easily be used to pay for unexpected expenses. ( Separate cards could be used for savings, and even employers that don’t use the cards to pay workers could issue them as savings cards.) Many workers say they want to have emergency savings easily available, and the card meets that criteria, Harvey said.
Q: How can I automate savings if my employer doesn’t offer a formal program?
A: If your employer offers direct deposit of your paycheck, ask your payroll manager to split the deposit between your checking and savings accounts, Barany said. That way, you don’t have to decide how much to save each time you get paid.
Some banks and credit unions still offer “Christmas club” accounts, which let people deposit small amounts over time to save for holiday gifts.