How employers can help solve the savings crisis

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As a result of the COVID-19 pandemic and its reflected economic impact, even your employees, who are still receiving a stable income, may have experienced changes in their personal circumstances over the past year, which significantly affected their financial well-being. Lack of extreme savings is one area that summarizes our recent research. our report “Inside the Wallets of Working Americans”, made it clear. And we believe it’s time for employers the best tools to help employees build and maintain a savings buffer – not only in the long term, but also in the event of unforeseen expenses or income disruptions, which are all too common in today’s unstable world.

Current state of savings

Good news? Some people have actually managed to save more money in the last year, less opportunity to spend disposable income on things like travel and other leisure activities; and on favorable interest rates and living conditions from lenders. But a significant part of the population was forced to completely or completely exhaust their savings in order to make ends meet.

Comparing the results of our annual survey from 2020 to 2021 reveals this alarming gap. In our late 2019 study, just under half (48%) of working Americans said they did not have emergency funding. This year this figure has increased to 67%. Likewise, the number of employees who consistently do not save money increased from 14% to 28%. Unsurprisingly, people who don’t save money are more likely to face financial stress, even those who save a little money but do it inconsistently (that is, don’t save a certain amount from every paycheck). And as we learned through our researchFinancially stressed employees are at best a distraction and, at worst, interfere with work.

Even among those with deferred money, 46% of employees said that if they lost their income, they could live a maximum of two months without borrowing money. This number increases when looking at only women (51%), black or African American (55%), Hispanic or Latino (57%), people who identify as LGBTQ + (55%), and people with disabilities (57 %). ).

Lack of savings often leads people to rely on costly borrowing options such as payday loans or high-interest credit cards, which can lead to endless debt payments. It can also leak retirement plans: Recent poll from the Defined Contribution Institutional Investment Association (DCIIA) and Commonwealth, a not-for-profit organization dedicated to the financial safety of vulnerable groups, found that people with liquid savings of less than $ 2,000 were about twice as likely to take or turn down a 401 (k) loan in difficult circumstances. as a result of the COVID-19 pandemic.

The Power of Automatic Savings … and Getting Rewarded

Once employees start saving even a small amount of each paycheck into a dedicated savings account, they develop a powerful habit. While it is psychologically important for employees to feel comfortable using these savings when needed (especially to avoid incurring costly debt), it is beneficial that the money saved is harder to access than if it was in their main expense account. Having a linked but separate savings account allows them to be confident that they can easily transfer funds in an emergency, but not mix the same funds with money spent on regular accounts or daily purchases.

Monetary incentives to start saving can also increase the likelihood of actually maintaining a saving habit in the long run. Research of both Commonwealth as well as Financial Health Network has shown that offering cash incentives or linking the amount of money saved to a cash prize can be an effective means of encouraging people to save money. When people have a goal to strive for and the potential to benefit from a reward, they are more likely to keep the habit they started. Most importantly, employees want this benefit: 61% of employees expressed an interest in making emergency savings. in another recent poll

Taking into account this need of the employer and the desire of the employees, Payroll financing running savings It helps employees to easily set up direct deposit and receive rewards for savings without additional costs or administrative management for HR on the inside. Our goal is to help working Americans accumulate at least $ 500 in emergency savings, knowing that even this amount of buffer can help them cope with unexpected income shocks and avoid some of the financial hardships people faced during the pandemic.

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