Despite the very real negative economic impacts of the COVID-19 pandemic, data from BlackRock®’s Emergency Savings Initiative shows that savings activity is on the rise. While more than half of Americans have dipped into their emergency savings, nearly the same percentage of people report adding to their savings during this time. While the reasons for this might seem simple — Americans who shelter in place have less opportunity to spend, and more to save — there are some other surprisingly interesting elements at play.
To explore this phenomenon further, and help employers understand how they can encourage employees to continue saving to build foundations of financial security, Blackrock recently held a webinar titled How Financial Institutions and Employers Can Leverage Renewed Interest in Savings. The webinar panel included Brian Gilmore, Director at Commonwealth, as well as Emory Nelms, Senior Behavioral Researcher at the Center for Advanced Hindsight’s Common Cents Lab. Even’s Co-founder and President Quinten Farmer also participated on the panel. The webinar was moderated by Chandni Ohri, Director at the Financial Health Network. Below, we’ve covered the key takeaways from the webinar that you can enact to help your employees build savings.
There are mountains of research showing that having short-term savings is the bedrock of longer-term financial security. This concept is why the BlackRock Emergency Savings Initiative exists in the first place, and is the focus of much of the work done by Commonwealth and Common Cents Lab. Other bodies such as the Financial Solutions Lab and Aspen Institute echo this theme: Helping Americans weather financial shocks will enable them to avoid debt traps like short-term credit and payday loans, manage emergencies using their own resources, and make progress towards long-term goals like housing, education, and retirement.
As the American workforce scales back from COVID-19, employees’ lives are going to look significantly different from the way they used to. Millions of workers’ lives have been disrupted with new childcare expenses, changes in household income and budget, and finding new jobs. At the same time, many people have received government stimulus checks, which have — perhaps surprisingly — become strong vehicles for people in and out of work to build up their savings. Now is a good time for companies to help brand new as well as long-standing employees build financial cushions.
If you’re reading this and wondering whether encouraging saving money at a time of economic downturn is tone deaf, you’d be experiencing a very valid concern. But the science behind how and when people save supports the experts’ shared opinions: Now is as good a time as any to encourage saving.
At Even specifically, we’ve seen a 25% increase in people participating in our Automatic Savings feature, and an overall 80% increase in savings balances. Part of this is due to decreased spending, but workers are also having small influxes of money in the form of government payments, hazard pay, and bonuses.
The key to encouraging savings in this moment is in the timing and targeting of the message. As Quinten pointed out in the webinar, at Even we “have an advantage because we have insight into someone’s earning situation, scheduled hours, as well as their budget.” This allows for nuanced messaging: If an employer knows someone’s hours are stable and their income has increased, it might be a good time to send a prompt. That kind of “nudge” would never go out to someone presenting a picture of increased financial struggle — and since we’re talking about employee-employer relationships, it also wouldn’t be sent to someone who is unemployed and not earning an income.
Small “nudges,” along with pre-commitment strategies, are tactics to encourage savings drawn straight from behavioral science. “If people pre-commit to saving funds, it’s easier for them to act on the commitment” said Brian Gilmore. This strategy has proven to be effective when helping people save tax refunds, and some employers have also seen success with the pandemic-related stimulus checks. Solutions that have the ability to programmatically know which employees to focus on, and effectively send the message, will be the most effective here.
Emory Nelms from Common Cents Lab also discussed the different ways people think about savings in the webinar. Often, people think of savings as something to be squirreled away for years and years. But for people living paycheck to paycheck, especially during a nascent economic recovery, the timeframe is much shorter. In his words, “it’s not savings for two years or two months, it’s for two weeks.”
So in this sense, “saving money” is really preparing for expenses that are just around the bend — perhaps putting away $100 to add on to the next paycheck that’s dedicated to rent. In a lot of cases, it’s about making ends meet, not saving for retirement. This line of thinking is why Even designed its savings feature not to optimize for building a big balance then leaving it there; instead, the intention is to give people flexibility, so they can plan for things that are one or two weeks out.
In the webinar, moderator Chandni Ohri asked the panel how they viewed short-term credit as an alternative to short-term savings. The consensus was that it’s better than nothing, but can’t compare to having an emergency savings cushion. Emory noted that if the terms or rates are wrong — which they often are, for lower-income people — credit and loans “can become cyclical and deepen the negative financial circumstances.”
Quinten echoed this point, noting that credit cards can solve concrete problems, but over the long term, they don’t give employees autonomy and ownership over their financial lives. The panel agreed that this is another place where technological innovation can make a difference; specifically, as noted by Emory, by marrying different types of financial products, people can address short-term needs while also building their savings. He noted that “Credit by itself is not living up to the opportunity — you could be helping people secure their own financial future and put them back in a place where they have ownership.”
Even is committed to building products that are in line with what leading experts know will help American workers build economic prosperity for years to come. To learn more about how you can help your employees, visit the resources and information BlackRock has put together on its Emergency Savings Initiative website, and view the full recording of the recent webinar. To learn how Even can help your workforce build savings and financial wellness, just get in touch.