'Rainy day funds': A top priority for 70% of employees
Thirty percent of employees have tapped into their 401(k)s to cover an emergency expense, which is why employers and emergency savings funds can help address financial needs, says a new Inspira survey.
Employees have started to expect more financial well-being support from their employers, according to a new Inspira Financial survey, “Empowering employees to be financially resilient,” The survey uncovers why employees need support for their financial wellness and how employers and emergency savings funds can help address those needs. And, despite strong U.S. economic performance and sustained consumer spending, consumer savings tell a different story. The personal savings rate declined to 3.6% in April 2024 (compared to 8.1% in August 2019) and accumulated savings have dwindled, especially among lower-income Americans.
With employees expecting increased support from employers when it comes to these financial challenges, one potential solution that organizations can implement is an emergency savings fund — a workplace benefit that allows employees to set aside money for unexpected expenses and emergencies. Unlike a typical savings account, an emergency savings fund allows for automatic payroll deductions and potentially employer-matching contributions to help promote savings.
We talked to Becky Seefeldt, Vice President of Strategy for Inspira Financial (formerly Benefit Resource) about the Inspira survey results, what they mean for HR teams and benefits administration and how organizations can implement an emergency savings fund.
Q: Why do employees need support for their financial wellness?
A: An estimated 4 in 10 Americans report they are unprepared to cover a $400 emergency expense. When employees are not feeling financially secure, it leads to financial stress and can have a profound impact on productivity, absenteeism, engagement, and retention.
Q: Are rainy day funds a top priority now for employees? Why?
A: Many employees received some unexpected financial relief in recent years which in many ways served as their rainy-day fund. You had employees receiving stimulus payments through the CARES Act and Consolidated Appropriations Act of 2021. Student loan payments were paused (and in some cases forgiven). Work-from-home allowed some employees to save on commuting costs, childcare, and even wardrobe expenses. But, with many of those avenues ending and life expected to ‘return to normal,’ employees are once again feeling the financial pinch and recognize the need to plan for the unexpected.
Q: How can employers and emergency savings funds help address those needs?
A: There are two main ways employers can help. First, offering an emergency savings fund is a first step. It creates awareness that there is an issue, and the employer is invested in helping their employees feel more financially secure. Second, employers can provide incentive or matching contributions to encourage participation in an emergency savings fund and demonstrate their commitment to employee’s financial wellbeing.
Q: Can employees expect increased support from employers when it comes to these financial challenges?
A: Employers are just starting to recognize the role they play in overall financial wellbeing. Over the last decade or so, we have seen the definition of benefits expand. For many years, employers could focus on offering competitive wages, health benefits and a retirement plan.
Employers recognize this is no longer the case and we have a much broader definition of benefits. Employers are also becoming more motivated as we continue to see more and more evidence linking financial stress to things like productivity, absenteeism and retention. According to a 2023 Morgan Stanley study, 66% of employees acknowledge that financial stress negatively affects both their work and personal lives.
Q: Why should employers implement an emergency savings fund?
A: An emergency saving fund is a financial tool to save for unexpected expenses. It also demonstrates a partnership and commitment to financial wellbeing between employers and employees.
Related: Many employees drastically unprepared for financial emergency
Q: What are the advantages for an employee of enrolling through an employer for emergency funds?
A: Employees likely know they should be saving, but often need a little nudge to take action. An [emergency saving fund (ESF)] is that nudge to save for the unexpected. The funds are conveniently taken out of payroll and set aside for that rainy day. Funds contributed through an ESF are not comingled with the funds they use for everyday expenses which helps employees maintain their commitment to save. Employers can further increase the value of ESF by offering incentives or matching contributions to employees.