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Today, more than ever, employees need emergency savings accounts
Key takeaways:
An increasing number of Americans have been living paycheck to paycheck since the pandemic hit and many say their emergency savings have run out. Figuring out how to save when you're already financially strapped can feel impossible but employers can help by offering Emergency Savings Accounts (ESAs) to their employees.
ESAs are a straightforward, liquid way to help your employees reduce their stress and improve their financial wellness, without forcing your business to incur a lot of costs. This guide looks at why ESAs are a critical component in employees’ financial wellness benefits, now more than ever.
Selecting benefits that meet the needs of different workers
Many national financial recoveries are K-shaped. In a K-shaped recovery, affluent people recover quicker and account for the upward motion of the K-shaped graph, while working-class people take longer to recover.
By extension, these two groups often have different financial goals and concerns. The more affluent are poised to focus on retirement. They have robust portfolios and long-term goals. In contrast, lower-income people in slow financial recoveries are more focused on short-term goals. They want to ensure they have the funds to pay their monthly bills and deal with emergencies as they occur.
Traditional benefits such as 401(k) retirement accounts appeal to the first group but the second group needs different solutions and ESAs can play a critical role. When developing their benefits plans, businesses need to think of their employees and develop benefits that appeal to their specific needs.
Implementing low-cost, high impact benefits
Compared to other benefits, ESAs are low cost and high impact. They are less complicated and easier to implement than traditional retirement savings plans and healthcare plans. On top of this, there is a lot of interest from employees: Approximately 90% of employees say they would utilize an ESA if it was offered by their employer.
When we launched SecureSave six months ago, many were eager to see if ESAs would work. Analyzing our data today, we can say they not only worked, they thrived. We hit adoption rates as high as 63% and the rates have stayed consistent. Employer matching has led to an annual saving of $734 for employees and 98% of overall savings are being retained by employees monthly. Workers understand the benefits and they want to take advantage of them.
Responding to true needs
Financial wellness programs can include a variety of elements and although the options are not mutually exclusive, businesses should focus on developing programs that meet the true needs of their workers. Employees who live paycheck to paycheck aren't necessarily thinking about retirement. Although they may want to get out of debt, they might not have the resources to think about paying down their credit cards or paying extra on their mortgage.
They do, however, know that they are going to face financial emergencies and they want the ability to handle them with minimal disruption to their lives. This reality means that there is a true need for ESAs, arguably an even more dramatic need than there is for other financial wellness programs.
Admitting that emergencies happen all the time
Financial emergencies happen regularly and an ESA helps to ensure that your employees are prepared. Unexpected costs are often in the $500 range but less than half of Americans have this amount in savings.
These types of emergencies include car breakdowns, appliances that stop working, or unexpected trips to the emergency room. They don't include predictable one-time expenses such as paying for annual vehicle registration or buying presents for the holidays.
To make the most of an ESA, your employees should be educated on the differences between recurring and emergency expenses. They should learn how to budget for predictable expenses, while also building up a separate savings account to deal with emergencies.
Facilitating saving for an emergency
Explaining to your employees why they need to save for an emergency, though, isn’t the only thing you should do. You need to help them save and an ESA facilitates this process. With an ESA, you don't just tell your employees about the importance of saving. Instead, you provide them with a savings account where they can automatically save from their paycheck and you often have the ability to provide a match.
Creating a safety net for big emergencies
Suze Orman recommends saving 8-12 months of funds in a savings account but this number is nearly inconceivable to people who are living paycheck to paycheck. However, as your employees build their ESAs, they will watch their accounts get closer and closer to this level.
By implementing an ESA, you can help your workers prepare for small emergencies in the $500 range and over time, you also give them the tools to create a safety net for bigger emergencies such as losing a job or being diagnosed with a chronic disease.
Building good habits
ESAs have great potential to help employees but they also help organizations. When employees have the financial resources to deal with emergencies, they are less stressed and distracted. They can focus on their jobs more effectively and be more productive. By extension, these accounts help a business's bottom line.
Employees are also more likely to stick with their savings goals if they are accountable at work with employer matching. They are less likely to dip into their emergency savings if they feel accountable for their goals. ESAs feature built-in accountability and this makes it easier for people to save and reach their objectives.
Contact Secure to set up ESAs for your team
At Secure, we understand the importance of helping your employees save money. That’s why we created SecureSave, the first purpose-built emergency savings program designed to help employees build and maintain an emergency savings account that will support them during unexpected financial hardships. Employers can implement SecureSave at any time during the year and we make it easy to get started with no complicated training or paperwork. To learn more about how to offer this affordable, high-impact benefit to your employees, contact our team.