Employer-sponsored savings programs could be the future of financial wellness

For 43% of hourly workers who report having less than $400 in savings set aside for emergencies, an accident or unexpected expense can be financially devastating.

But employer-sponsored savings programs could be a viable solution. Low- and middle-income employees who are more financially secure have been shown to be less stressed and more productive when they have an employer-sponsored savings program, which may lead to lower healthcare costs, better customer service and stronger attendance, a new survey from nonprofit organization Commonwealth finds.

The national survey of 1,309 employees earning less than $60,000 a year found that employers offering workers savings interventions at the time of raise, can positively impact their employees’ personal finances. Three-quarters of hourly employees surveyed believe that if their employer offered savings options at the time of a raise, they would be less stressed and more confident about their finances.

“There's a lot of talk about financial stress, but when you're really living paycheck-to-paycheck, that stress is about being able to pay your bills on time,” says Commonwealth’s executive director Timothy Flacke. “It's about cash flow, and that's a particularly acute form of anxiety.”

The report analyzes the potential effects of savings programs including split direct-deposit paychecks, low-interest loans and savings accounts — and compares how those programs alleviate employees’ financial stress. Workers surveyed believe if their employer provided savings tools they would be happier and more productive. Moreover, the survey found individuals with more in savings were less likely to have financial worries than those with little savings.

One of the companies partnered with Commonwealth to link raises with savings is Minnesota-based education company New Horizon Academy. In the beginning of the year, the company piloted a new savings program that gives its employees the option to have the raise diverted through the payroll system to a savings account each pay period, instead of having it go into their normal checking account.

“Through this, our employees are beginning to build up some financial reserves in case of an emergency, or life circumstances that requires them to dip into a savings account,” says Chad Dunkley, CEO of New Horizon Academy. Although it’s too early to state results from the pilot program, the company hopes it will have a positive long-term impact on the financial health of its employees, Dunkley says.

“This is just one of those additional ways [to] stabilize our employees, so they can come into the classroom without the financial stress that certain situations cause when you're not prepared for an emergency, whether it's new tires on your car or health issues,” he says.

Source: Evelina Nedlund of Employee Benefit News, 2019