This post was written for the Even blog by Brian Gilmore. Brian is a Director at Commonwealth, where he concentrates on scaling effective emergency savings interventions including prize-linked savings, gamification and tax-time savings, and supporting policy priorities and strategies to support financially vulnerable consumers.
The COVID-19 pandemic is a defining moment for employers — an opportunity to double down on their employees’ well-being and that of their organizations. Some have already begun to enhance their health, wellness, and leave benefits, but there are other simple solutions employers can implement to support their employees’ financial security. At Commonwealth, we’ve designed, tested and scaled these solutions with employers, financial institutions, policymakers, and others for nearly two decades. We’ve learned that it takes a holistic approach to improve financial security and ultimately establish pathways to wealth building for financially vulnerable people. In this post, I’ll explain four ways employers can take action now to address the widespread financial insecurity that has been highlighted and exacerbated by the economic fallout of the last several months.
Well before the pandemic, millions of workers in the US struggled with emergency savings and spent an average of 13 hours a month worrying about their finances. These challenges have only been compounded by potential loss of income to households, higher employee stress and anxiety, and an uncertain economic future. Employers need to take the time to assess where their employees are, financially and otherwise. From a business perspective, it’s critical that employers take action to support their employees’ financial security, given that 1 in 3 employees admit to being less productive at work due to financial stress.
We also know that employees value employer support for financial issues. According to Commonwealth’s 2019 national survey of lower-wage workers, 76% said they were confident that employer-offered financial security benefits would promote company loyalty. Employers are in a good position to get this type of data from their workforce, as well. Through anonymous surveys or other financial wellness assessments, employers can gain insight into what support their employees may need. Bottom line: A deep understanding of your workforce will help you determine what suite of tools will be most beneficial.
No single tool or approach can address all employee financial needs. For example, many employees struggle with volatile income or expenses due to a variety of reasons, including fluctuating hours or unanticipated bills. For these employers, earned wage access programs that allow employees to access a portion of their pay early can help them align the timing of their income with an expected or unexpected expense to avoid late fees or penalties.
Other employees may face an unexpected expense that they simply don’t have the liquid resources to cover. A majority of households experience a significant expense shock every year. Employers can provide multiple solutions to support employees who experience these shocks, like an employee hardship fund or employer-sponsored loan. Our analysis of a financial institution’s employee emergency loan program found that two-thirds of the employees agreed the loan set the bank apart from other employers in its workforce’s eyes. These options help employees manage unexpected expenses and inspire loyalty to their employer.
A lack of emergency savings is likely to increase reliance on solutions such as overdraft fees, credit cards, and loans, all of which increase debt or carry additional costs.
Early wage access programs, emergency loans, and hardship funds all address liquidity challenges or fund shortfalls. But one of the most powerful things employers can do to support employee financial security is to help them build emergency savings, so employees can manage their own financial shocks without outside intervention. We know this is a significant challenge for many households: Commonwealth’s analysis of the Federal Reserve’s Survey of Household Financial Decisionmaking (SHED) found that nearly 60% of households making less than $60,000 would not be able cover an unexpected $400 expense with funds from a checking or savings account. This lack of emergency savings is likely to increase reliance on solutions such as overdraft fees, credit cards, and loans, all of which increase debt or carry additional costs. Employers should consider strategies that prioritize emergency savings as part of their approach to financial security.
For financial tools to be most effective, employees must be able to easily access and use them. For example, our research on employer hardship funds found that the ease of the application process for funds to cover an emergency expense and the quick delivery of cash was essential to employee satisfaction. This is particularly true for employers who want to encourage emergency savings. Many employers already offer the opportunity for employees to split their direct deposit into multiple accounts.
However, this option is not always well known or easily accessible. Employers can review how they communicate with employees about the option to set up split deposits and how to do so, ensure it is a part of new employee onboarding, and consider incentives for employees. For example, Commonwealth collaborated with the City of Boston to pilot the active promotion of split deposit to employees and provide incentives, which led to a 24% increase in splitting in one city department alone.
There are times when employees are likely to be more receptive to or in need of financial support. COVID-19 is an extreme example of a negative financial shock that employers can respond to by promoting hardship funds or loan programs they already offer. Positive financial moments present opportunities as well.
Research by Commonwealth and others has demonstrated the value of tying savings messaging to “windfall moments,” times when households receive an atypical influx of income, such as a refund at tax time. We have found that the moment of a raise is a meaningful financial moment for employers to support their employees’ desire to contribute to an emergency savings fund. By aligning messaging and interventions that make it easy for employees to respond at key financial moments, employers can help employees turn intentions into actions.
Financial insecurity is a complex, multi-layered challenge and each business, industry, and individual will face their own unique set of circumstances. As a result, there is no one tool or solution that can meet the diverse needs of individual employees. Instead, employers can build a well-balanced, holistic approach that takes into consideration the financial challenges their employees face, both in midst of COVID-19 and as businesses return to normal. By choosing a suite of complementary tools that are accessible, easy to use, and paired with strong communication, employers can meet employees where they are and continue to support their financial security — and more than that, their path to wealth building.
Brian Gilmore is a Director at Commonwealth where he concentrates on scaling effective emergency savings interventions, including prize-linked savings, gamification and tax-time savings, and supporting policy priorities and strategies to support financially vulnerable consumers. Prior to joining Commonwealth, Brian spent over six years working with non-profit organizations managing and supporting innovative projects and partnerships to expand access to various federal, state and local benefit programs. He holds a Masters in Public Policy from Drexel University and Bachelors in both Psychology and Philosophy from the University of Pittsburgh
If you’re interested in learning more, reach out to Brian Gilmore at firstname.lastname@example.org, and visit Commonwealth’s website for resources on how employers can take action to support worker financial security.
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