Earned Wage Access & Financial Wellness

On-demand pay: What’s savings got to do with it? — Part 2

This is the second post in a series that explores why any tool to improve employee financial resilience must include proven ways to save.
various pie charts making a pattern

Saving money is an uphill battle

In the 1980s, the savings rate for the bottom 90% of earners was over 10%. After 2011, that dropped to about 2%. A 2018 study found that 58% of Americans had less than $1,000 in savings; 32% had nothing saved at all. And while it might be easy to dismiss these numbers as evidence of poor discipline or frivolous spending, research shows that this simply isn’t the case.

Costs are soaring but wages have stayed the same

The U.S. Financial Diaries’ Savings Horizons research shows that people are saving money — but it gets wiped out over and over again by income fluctuations and unforeseen expenses. Only 47% of Americans say their monthly income and bills are “consistent and predictable.” That’s over half of the country that regularly experiences volatile income — the exact situation that the Aspen Institute says causes people to dip into their savings, deplete what’s there, and have to start all over again. This is why savings account balances don’t reflect how hard Americans are trying to save. At the end of the year, those savings accounts look more like checking accounts: They’re used frequently, with multiple deposits and withdrawals per month. Clearly, there is a need for short-term savings to take care of expenses between paychecks.

The picture is even more discouraging for people of color. The net worth of a typical white family is almost 10 times greater than that of a Black family, and eight times that of Latino households. Black Americans have been subjected to many forms of discrimintion that have affected their earning potential and generational wealth over the years — including practices like employment and housing discrimination and inequal education opportunities. For example, during the Great Recession during 2007 and 2009, wealth inequality among middle-income Black and Hispanic families took a substantial hit, and never recovered.

Our brains are working against us

Lower wages, skyrocketing expenses, and systemic racial barriers make the environment in which people are trying to save nearly impossible. To make matters worse, aspects of human psychology are holding people back, too. We asked a senior behavioral researcher from Duke University why people say they want to save money, but can’t seem to make any progress. Here’s what he told us.

Immediate spending needs win out over hypotheticals

Most of the time, people are saving for needs that are vague, abstract, or purely hypothetical. For example, a “rainy day,” or a down payment on a house that’s over a decade away. This abstract way of thinking causes people to struggle to stay motivated, especially when life gets in the way. As people navigate their day-to-day lives, they face many immediate and concrete needs that require their attention. People forget, or they feel much more motivated to focus their attention and prioritize immediate needs while putting off others that may materialize in the future. This “present-bias” makes it difficult to continually save, even when we have the motivation to do so.

Mental accounting can de-prioritize saving

Not only do people often find it difficult to sustain their motivation to save, people also tend to overlook savings in the first place. When people mentally organize their finances, they categorize their money into “buckets” that match their needs, like housing, food, car payment, and so forth. These “mental accounts” simplify decision-making and guide behavior. For example, someone may feel more reticent to buy a new shirt with money they have earmarked for their student loans.

Mental accounts provide soft guardrails that make people more aware of the trade offs they are making with their purchases. But since general savings isn’t a pressing need, it doesn’t always get its own bucket. Saving is relegated to whatever’s left over at the end of the month — and often, that amounts to nothing. Without that guardrail, people don’t have the small nudge that could keep savings top of mind, prompting them to reduce their spending throughout the month.


Check out our savings guide to learn the fundamental challenges behind building savings and outline how you as an employer can help. Here are the key takeaways you’ll learn:

  • Why savings is the bedrock of long term financial stability
  • Research-based strategies that work to increase savings
  • Why employers are uniquely positioned to influence savings behaviour
  • Three steps employers can take to help employees build savings

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