The concept of the American Dream is rooted in the belief that with hard work and dedication, the opportunity for prosperity exists for everyone. Unfortunately, achieving financial stability requires a lot more than a strong work ethic — it takes a solid foundation of savings. Unfortunately, most Americans can’t build enough savings to secure their futures, which puts the American Dream out of reach for too many. This is where employers can play a pivotal role in employees’ lives: by supporting their workers with financial wellness initiatives that help build savings.
Saving for a successful future can be frustrating — or even impossible — when short-term financial setbacks are constantly derailing the effort. As wages have remained stagnant over recent years, the costs of basic necessities like food, housing, and healthcare have soared. The result is that while people would love to save for their first home, or their childrens’ college education, they’re continually sidelined by financial shocks.
The Financial Solutions Lab has found that these setbacks are surprisingly common; over half of Americans surveyed said they experienced either an increase in expenses or a decrease in income recently that left them struggling. Since 40% of Americans don’t have $400 set aside for this kind of setback, they’re faced with grim options: payday loans which carry APRs of over 400%, overdraft fees that top $33, other small-dollar loans, and expensive lines of credit.
According to the Aspen Institute’s consumer insights report, the key to avoiding these detrimental, quick-fix solutions is building sufficient liquid savings. With enough buffer to absorb financial shocks, people are better prepared to embark on the path from financial instability to long-term security. This is exactly where employers can play a role.
One of the most common employer-sponsored financial programs is the 401(k). While these are a great option to help workers set aside money for retirement, 401(k) plans aren’t ideal for employees who are struggling to make ends meet in the moment. And even those who have been able to participate eventually need to withdraw from their accounts because they don’t have emergency savings.
In addition to retirement savings, employers should consider providing programs and tools that better equip employees to handle a financial emergency. Both Commonweath and the BlackRock Emergency Savings Initiative encourage employers to help employees build their emergency savings. Employers can achieve this by rolling out ways for employees to divert part of their paychecks into savings accounts. Commonwealth advises employers should insist that any product or service to help employees build savings be “highly liquid, have low or no fees, and have no minimum balance requirements.”
Employers might be wondering what the business benefit is for helping employees build their savings. The truth is, when employees are trying to make ends meet without a savings buffer, they’re at high risk for severe financial stress. And that stress doesn’t stay at home — it comes to work with your employees.
Worrying about money can cause employees to be distracted or less productive while on the job. It can also contribute to tardiness, or missing work altogether. In fact, since 1995 there has been a 300% increase in absenteeism due to stress.
PricewaterhouseCoopers estimates that the employee financial stress can cost companies with 10k workers up to $3.3 million per year. So, reducing financial stress is not just good for employees, it’s good for business, too.
The path to financial wellness begins with the ability to build savings, break free from financial stress, and make progress towards financial security. Employers have the opportunity to play a part in this critical transition. It’s the right thing to do for employees, and the right thing to do for businesses.
If your company is interested in learning more about the impact financial wellness benefits can have, organizations such as the Financial Health Network and Black Rock’s Emergency Savings Initiative are great places to start. Both offer a wealth of public-facing resources, or you can join their networks to access deeper information on this topic. You can also download our e-book, A Guide to Financial Wellness: The Employer’s Handbook for Understanding On-Demand Pay and Financial Wellness Benefits.
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