In 2022, saving has taken on renewed importance, as American families face high inflation and ongoing disruption from the pandemic with no additional government support since the child tax credit and economic impact payments. These conditions could create a perfect storm for the growing communities of vulnerable people living paycheck to paycheck. An Axios report found that in January 2022, nearly 40% of adults earning less than $50,000 annually had less than one month of savings. Just two months earlier, only 28% reported less than a month of savings, an increase of more than 10%.
Research has shown that access to emergency savings reduces the likelihood of turning to expensive debt, or enduring hardships like hunger and housing insecurity. Still, despite all the protections emergency savings can offer, more than one-third of Americans struggle to cover a $400 emergency expense with cash savings, according to Federal Reserve data.
We also know significant inequities exist and persist in accessing, building, and using savings. For example, our research has shown that frontline workers are more stressed about having to tap savings; women have significantly less in total savings compared with men; and Black individuals had to tap emergency savings at much higher rates in 2021.
Over the last several years, the Financial Health Network has worked with partners in BlackRock’s Emergency Savings Initiative (ESI) to find new ways to support organizations developing accessible, rewarding savings programs for consumers and employees. The critical research and exploration continues, but take a look at our latest findings for employers and institutions that want to help employees save.
1. Build savings into the onboarding process.
Research has shown that offering an “active choice” to sign up for savings leads to increased uptake of automatic savings. Presenting this choice early on is more effective than leaving participants to opt in to savings programs on their own.
Example: Even, an employer-based earned-wage access platform, partnered with the FinHealth Impact Lab to test the impact of presenting savings as an active choice during onboarding to its app. Asking users whether they wanted to enroll in automatic savings during onboarding was successful in building continuous savings. The number of users who saved via automatic paycheck withdrawals was 31% higher when users were presented with a savings message after eight months compared with those who received no message.
For employers: Providing an option to enroll in automated savings early in the employee life cycle results in greater adoption and better outcomes than leaving people to self-select into savings programs.
2. Reinforce savings habits with financial incentives.
For the growing pool of companies offering short-term or emergency savings benefits to their workers, financial incentives (like matched or prize-linked savings programs) reinforce ongoing savings habits and help people save more. In the field, ESI is collaborating with both employers and financial institutions to work with different forms of financial incentives.
Example: ESI partner Red Tab Foundation offers a matched savings program to qualified Levi Strauss & Co. employees, who can save up to $500 in a year in the savings program. Another ESI pilot program with Truist uses prize-linked savings to encourage those without adequate savings to start building an emergency fund.
For employers: Crafting a program with financial incentives (e.g., matches or prizes) can spur employees to save more – and create additional excitement around using corporate benefits.
3. Add social accountability to savings.
Financial Health Pulse™ analysis shows that in the absence of emergency savings, people earning low and moderate incomes rely on friends and family for help navigating hardship. But what if a community group could also be a critical factor in building savings?
Example: In a year-long pilot program, ESI partnered with Esusu to examine the impact of saving as a group (groups included friends, family, acquaintances, and strangers) and how access to pooled funds influenced a sense of emergency preparedness. The pilot’s key findings were that:
- Users saved more money more regularly when saving as a group.
- Users felt more prepared for emergencies with access to a larger pool of capital.
For employers: Creating savings programs around affiliation groups or selecting savings vendors that offer functionality to create group savings goals could be effective.
4. Link personal savings with social impact.
Research from 2021 suggests that volunteering and building financial resilience are mutually reinforcing activities.
Example: ESI partnered with Shared Harvest Fund of Los Angeles to provide a $500 emergency savings stipend to 100 individuals who spent at least eight hours volunteering in their communities, finding that even a small incentive had a positive impact on savings. Additional findings from the initial pilot program included:
- 74% of volunteers saved additional funds beyond their stipend.
- 83% of these volunteers earmarked these additional funds specifically for emergencies.
For employers: When engaging employees through corporate volunteer programs, HR leaders might consider linking emergency savings and volunteering to provide an innovative way to improve outcomes in both areas.
5. Create a friendly savings competition.
Example: A 2020 study from the FinHealth Impact Lab and SaverLife examined the impact of a competition with prize-linked savings, motivational text messaging, and peer comparisons. In a friendly, competitive race to save $500, 6% more people saved funds, and average deposits increased by 31% ($451) over six months. Motivational text messages also increased savings deposits by 53% and savings balances by an additional $950 over six months. The experiment didn’t demonstrate any increase in savings when participants were shown peer comparisons.
For employers: Use savings competitions to motivate participants to set and achieve financial goals. Include ongoing engagement throughout the competition to encourage employees to keep building their funds.
While creating a sound emergency savings safety net is a broad social issue that extends beyond workplace savings interventions, employers and other institutions can offer a first line of access and reward for their workers to set and/or automate savings habits. Find more research and case studies in the ESI report Building Momentum for Emergency Savings: Lessons Learned in 2021.