Even as U.S. inflation figures improve, workers are showing their preference for emergency savings accounts—and even over 401(k)s.
A just-released report of 1,600 U.S. adults from emergency savings startup SecureSave finds that employees are still struggling to allocate towards unexpected short-term emergencies, as 63% say they’re unable to cover a $500 emergency expense.
As a result, more are asking their employers to incorporate rainy-day funds into their employee benefits, with four out of 10 employees saying they’d prefer an employee-matched emergency savings account over a 401(k) plan, and five out of 10 Millennials and Gen Zers agreeing. Additionally, another nine out of 10 employees expressed their want for employer-matched emergency savings accounts.
SecureSave’s study emphasizes the impact that a lack of short-term savings can have on employees’ overall wellbeing, and analyzes how it could extend to the workplace. The report reveals that one-third of respondents had faced financial emergencies in the past six months, leading to significant negative effects on their work performance and increased job dissatisfaction, as 64% of those earning over $100,000 say financial stress has disrupted their work productivity.
Without these benefits, 44% of all participants surveyed said they intend to seek alternative employment within the next six months. Specifically, 55% of Millennials and 63% of Gen Z workers are among those planning to search for new job opportunities within the same timeframe.
“If workers don’t have any savings, that’s when they become hopeless and decide, I’m going to take from my 401(k) plan, or I won’t put money into my 401(k),” said Suze Orman, the high-profile personal finance expert and co-founder behind SecureSave, in an interview with 401(k) Specialist. “You have to get people to understand that—and especially financial advisors. If you talk about the long without the short, you’ll never have either.”
Crises show demand for short-term savings
The significance behind emergency savings accounts emerged in 2008 during the Great Recession, when Gen Xers and Millennials—two of the largest working generation groups in the U.S. now—first faced financial insecurity that saw layoffs, house values go down, and losses in 401(k) and long-term savings.
“If workers don’t have any savings, that’s when they become hopeless and decide, I’m going to take from my 401(k) plan, or I won’t put money into my 401(k). You have to get people to understand that—and especially financial advisors.”
Suze Orman
While home values, jobs, and 401(k) funds eventually came back after the recession, another crisis just over a decade later shorted workers of any leftover savings. The COVID-19 pandemic in 2020 quickly cut jobs and livelihoods in such a sizable manner that the U.S. government provided additional pandemic unemployment compensation and government stimulus checks, all while halting student loan payments and bending 401(k) withdrawal penalties.
The measures were enacted to help workers pay for day-to-day needs and mortgages or rent, but according to recent findings from the Federal Reserve, many ended up growing their personal savings due to the influx of money coming in and a decline in spending on previous costs like gasoline, transportation, or even clothes.
Coming out of the pandemic and stay-at-home orders, workers began to increasingly spend on experiences that had been previously delayed, and thus impeded on their own savings. Now, in a post-pandemic world, workers are struggling again.
“We’ve come to the crunching point,” notes Orman. “They’ve spent all the money in their savings accounts to go do the things they weren’t able to do during the pandemic. The biggest priority for people now is an emergency savings account. The need will only get greater and greater as time goes on.”
Employees refuse to ask for help
According to SecureSave findings, among employees earning an annual household income of $100,000 or more, 35% admitted to living paycheck-to-paycheck. Another 76% of respondents say they currently lack sufficient savings to cover even a single month’s worth of expenses in case of an emergency, while 19% would have to ask their family or friends for financial assistance, 18% would have to put the cost on a credit card, and only 4% would ask their employer for help.
In fact, despite the impact of financial stress to work performance, employees do not want to talk to their employers about financial stress. Sixty-six percent of workers in the SecureSave study said they feel uncomfortable seeking help from their employers for unexpected expenses, which could further exacerbate financial challenges for these employees, the report adds.
Devin Miller, co-founder of SecureSave, observes that ramifications of the pandemic, from confusing work environments that switched employees from remote work to office returns, to overnight layoffs and shutdowns, have scoured the little confidence that was left in employers since before COVID-19.
“The last few years has done a lot to erode the trust between an employer and employee,” he said. “The employees don’t trust their employers nearly as much as the employer thinks they do. Employees are thinking, ‘I’m having problems with my money? I’m going to everyone I can think of besides my employer.’”
The solution
So, what, if anything, can employers and financial professionals do to help and possibly raise trust levels with their employees?
Well, that’s easy, says Orman. Show that you care—and add an emergency savings account to the employee benefit plan.
For example, Delta Air Lines already has more than 33,000 employees enrolled in its fledgling Emergency Savings Program, launched just this year. The company just announced enhancements making it easier for employees to access education and funds.
As more employers incorporate these features to their benefits package (thanks to recent provisions highlighting emergency savings under SECURE 2.0), plan sponsors may be even better equipped today to add rainy-day help for employees, SecureSave research shows.
Especially in a time when more employees are striking to demand wage increases and access to benefits throughout the U.S., implementing emergency savings can create a catch-all for workers. “People are starting to take to the streets—and not to say that they want a financial coaching package, but they need more money,” concludes Orman. “It’s not just about the money they are being paid, it’s about the benefits that really matter to them. This is something that they want—they’re asking for more money to save.”
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