Recently, Commonwealth partnered with Professor Howell Jackson’s Fintech HLS class to explore new pathways to dramatically increase access to emergency savings for lower- and moderate-income families. The collaboration led to the development of an HLS case study, which is used to expose students to real-world legal and regulatory questions and encourage hands-on learning and problem solving.
COVID-19 has fundamentally changed the way private and public sector actors alike think about and approach financial security. The response has generated action across the economy, most notably the federal stimulus package, that would have previously been unthinkable. With these cataclysmic changes, it is more important than ever to bring diverse partners to the table to address both pressing and longer-term, structural barriers to financial security.
Over nearly two decades, Commonwealth’s work and that of others has repeatedly shown that short-term, liquid savings is the first important step to building financial security. Yet, nearly 40% cannot muster $400 to manage an emergency. As an industry expert in BlackRock’s Emergency Savings Initiative, we – alongside industry experts and corporate partners – have generated tremendous momentum to address the emergency savings crisis. As we continue to build practical, systemic solutions, particularly in light of the urgency that COVID-19 brings for people living on low to moderate incomes (LMI), we are developing innovative collaborations with new sectors and partners, and sparking ideas for new methods and channels.
Commonwealth’s Partnership with a Fintech Harvard Law (HLS) Class
In the spirit of creative, cross-sector collaboration, Commonwealth recently partnered with Professor Howell Jackson’s Fintech HLS class to explore new pathways to dramatically increase access to emergency savings for LMI families. The class was designed by Jackson and Margaret Tahyar, law partners at Davis Polk, to introduce future lawyers to how emerging financial technologies can impact the financial sector.
The collaboration led to the development of an HLS case study, which is used to expose students to real-world legal and regulatory questions and encourage hands-on learning and problem solving.
Commonwealth’s team worked with the course organizers to develop the case around the potential legal questions faced by innovative employer-sponsored emergency savings solutions at scale. The emergency savings case study can now be used in law schools across the country. These solutions include working in a variety of models, especially with fintech partners, and center around the legal and regulatory implications of a variety of strategies.
The case study explores solutions such as highly-integrated fintech, in which payroll systems would allow employees to automatically deduct money for savings from each paycheck, and retirement sidecar savings accounts, where retirement plan recordkeepers allow employees to fund a liquid savings account through after-tax pay as part of their 401(k) program. It sheds new light on the topic from both a legal and fintech perspective.
The Role of the Legal Industry in Emergency Savings
The class’s work demonstrated the role that the legal industry can play in developing emergency savings solutions. As we work to innovate across sectors, lawyers can use their expertise and insight into helping businesses be comfortable with legal and regulatory compliance related to emergency savings as an employee benefit. In addition, lawyers working with the fintech industry have the opportunity to push for innovative features and tools that build financial security.
The work also demonstrated the importance of the connection between fintech and social impact. Fintechs have an important role to play in developing a system that supports short-term financial security– benefitting both the users and the fintechs themselves. The sector has only really begun to explore how it can better serve and deliver products to the LMI community, but early results suggest that companies can effectively develop a double bottom line of profit and social impact.
Working with Partners to Change the Financial Landscape for Millions
These perspectives are vital to our work, particularly as we engage with retirement plan recordkeepers and payroll providers in developing emergency savings solutions. In the recordkeeping field and with partners across different industries, we need collaborative, innovative solutions to address barriers both big and small.
As Commonwealth continues to move forward its vision to make financial security and opportunity possible for all, our work with partners is critical to building momentum for our larger goal of changing the financial landscape for millions of people living on LMI. This work begins with discussions like the one we had with Professor Jackson’s class: bringing in new stakeholders, mapping out new ideas, and figuring out how to take those ideas and turn them into real-world solutions as quickly as we can.
To learn more about partnering with Commonwealth to improve financial security and opportunity through emergency savings and other practical solutions, contact Jason Ewas at info@buildcommonwealth.org.