Savings for Low-Earners
Commonwealth and the Defined Contribution Institutional Investment Association
Retirement Research Center have released new survey findings that show workers earning
a low or moderate income continue to face challenges in financial security, exacerbated by
the pandemic.
With the current economic environment, it has become even harder to build liquid savings for unexpected expenses. The two organizations’ report, “Emergency Savings Features That Work for Employees Earning Low to Moderate Incomes,” examines how employers and service providers can build and offer emergency savings solutions designed for these workers.
Individuals with lower financial well-being scores are more likely to want a workplace emergency savings program, the report says, also noting that those enrolled in one and who have emergency savings were less apt to have accumulated debt, to be prematurely tapping retirement savings or to have taken actions that jeopardize their financial future.
Lower-wage earners said they prefer that an emergency savings solution have no fees (34%), have no minimum balance requirements (17%), and be liquid (16%)—i.e., allow immediate access to funds. Over the nearly 1,000 respondents, these preferences stayed consistent regardless of race, gender or exact earnings.
The report suggests that these findings should demonstrate what features to prioritize when choosing or designing an emergency savings solution.
Participants are overwhelmingly interested in incentives: 91% said these can help motivate them to open a savings account. They gave employers multiple options for structuring the incentive, including giving rewards for opening an account (98%), for saving consistently (93%) and for reaching a target savings amount (92%).
Workers with no emergency savings were significantly less likely to contribute to a defined contribution plan, the report says. Offering an emergency savings solution could help boost retirement plan participation, it observes.
Those eligible but not participating in a DC plan tended to be younger, to earn less and to be Black or Latino, the report says. Overall, lower-wage earners had less preference for an emergency savings account linked to a workplace retirement account than did workers who earned more, which could portend a challenge for the solutions.
The study also asked questions to gain insight into effective employee benefit communication strategies, as emergency savings solutions lack automatic enrollment or payroll integration. Most employees deemed email (55%) their primary source of news about benefits. Many supported having their employer increase communications (35%), hold workshops (35%) or have a human resources representative present updates (35%).