Why Should You Include an Emergency Savings Program in Your Employee Financial Wellness Strategy?
By now, financial wellness has become a watchword for employers. Helping your workforce achieve financial independence helps you attract and retain talent and create a loyal, productive workforce.
But for a long time, financial wellness has focused mostly on long-term goals like retirement and tuition savings. While these are important (indeed invaluable) benefits, COVID-19 has cast a spotlight on a basic but often missing element among many financial wellness programs: emergency savings.
According to a recent survey from Visa, 44% of employees have less than $500 saved for an emergency fund. That means an engine breakdown, a leaky roof, or an unexpected medical bill, could essentially wipe out an employee’s finances. And that was in the before-times.
The pandemic made what was already a precarious situation for many absolutely critical. Halfway into the first year of COVID-19, 14% of Americans had wiped out their emergency funds just to keep up with living expenses. Another 11% had to borrow to make ends meet.
You might imagine that this kind of financial stress can’t help but bleed into the workplace. And indeed it does. The Visa survey shows that 84% of employees worry about finances while at work. That’s a huge percentage of your workforce distracted by money problems.
How Emergency Savings Account Programs Work
There is a way that employers can help employees with a seemingly overwhelming situation.
Emergency Savings Account (ESA) programs can be an important component to add to your existing financial wellness program. This low-cost benefit allows employees to contribute after-tax payroll deductions automatically into a customized savings account. Funds are available anytime, for any reason, without the employer’s knowing when or why withdrawals are made.
What’s more, ESAs are portable, meaning that employees can take the emergency funds they’ve saved with them if they lose or leave a job.
Why Are ESAs Important Now?
Employer-sponsored Emergency Savings Accounts have been gaining in popularity in the past three years. But now, with the additional financial worries the pandemic has created for employees, human resources and benefits experts predict that ESAs will be the next major category of benefits.
In fact, ESAs may be the new 401(k)s as more companies contemplate offering matching contributions. Consider that 71% of employees surveyed in a 2018 AARP Public Policy Institutes said they would participate in an emergency savings program if offered–but that number jumped to 87% if an employer match was available.
Finally, and perhaps most important, living under the constant threat of financial stress is no way to live–or work. Supporting employees in their efforts to save directly for emergency expenditures is quite simply, in the midst of a pandemic, the right thing to do.
And the potential payoff is huge. A study from Northwestern Mutual found that 92% of Americans said “nothing makes them happier than having their finances in order.”
Happier makes for a more focused, more productive, and more loyal workforce.
The Cost of Doing Nothing
Emergency savings is a key element of financial well-being, and one that few employers can afford to ignore. Think of financial wellness as a pyramid with three critical layers. The base is managing day-to-day finances. The middle level is working toward achieving long-term financial goals, such as retirement, saving for a home, and paying for children’s college. And the top level is the protection, such as insurance policies and other vehicles, necessary to guard against financial risk.
An emergency savings benefit is vital to maintaining all levels of the pyramid when there’s a crisis. As such, it’s at the very foundation of financial wellness. And without a sound foundation, there may be consequences at every level:
• Day-to-day deprivation. Even the employed can suffer from food insecurity and potential eviction if they don’t have the savings to tide them through during emergencies.
• Retirement savings leakage. After all those years of providing retirement planning, education, and services, the last thing you want to see is employees raiding their 401(k)s for emergency expenses or discontinuing their retirement contributions because they can’t make ends meet.
• A lack of protection. Not having enough short-term savings can make it hard for employees to pay the premiums on the insurance they need to protect them against unexpected expenses in the future. That can be the start of a bad spiral. But an emergency savings foundation can prevent that spiral before it starts.
Emergency Savings Accounts are a low-cost, easy-to-implement, and vital tool to help your workforce overcome financial stress so you can build a productive and loyal workforce. They’re a great example of how doing what’s right for your workforce and its financial well-being may also be one of the best things you can do for your company as a whole.
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