The Federal Reserve found in 2018 that as many as 39% of households would struggle to cover an unplanned $400 expense. The lack of household emergency savings and financial insecurity impacts not only families, friends, and the community, but employers as well. According to global consultant Mercer, employers have lost $250 billion each year due to employee stress, with personal finances ranking as the top source of stress. MetLife found that 1 in 3 employees admit to being less productive at work because of their financial stress.
Recognizing the savings challenge faced by their workforce and their city at large, the City of Boston’s Economic Mobility Lab and the Mayor’s Office of Financial Empowerment (OFE) ran a pilot in 2019 to support employee emergency savings through an incentivized campaign to encourage split direct deposits. Commonwealth partnered with the City to bring our thought leadership to the effort, the first major pilot by a U.S. city to support employee emergency savings.
The Power of Split Deposits
Commonwealth has conducted extensive research on both splitting direct deposits and incentivizing saving with prizes. Offering split deposits helps automate saving, making it easier for employees to set money aside without having to manually select an amount and transfer money into a savings account. In our Rise with the Raise research on employee benefits, we found that employees using split direct deposit were significantly more likely (59% probability versus 41%) to have $400 or more in a savings account than individuals who made manual deposits to savings.
We’ve also studied the effectiveness of prize-linked savings, where deposits into savings accounts enter account holders to win cash prizes, thereby encouraging saving. In our work with Walmart’s MoneyCard prepaid cardholders, we found that introducing a prize component to their savings pocket increased savings by 35% in the first year.
Emergency Savings Pilot at the City of Boston
The City’s pilot combined splitting direct deposits with prizes to encourage employees to adopt this practice. The option to split their paycheck has long been offered to all City employees; the goal of the Economic Mobility Lab’s pilot was to drive uptake of this option through a messaging campaign and by incentivizing the behavior. The Economic Mobility Lab and the OFE opened the pilot to two City departments, the Boston Public Library (BPL) and Boston Centers for Youth and Family (BCYF). Employees at these departments who signed up to split any amount of their direct deposit into a secondary account were eligible to win a prize of $100 or receive a guaranteed $50 incentive from the City, depending on their department and as funded by the Rockefeller Foundation. Through both digital and in-person outreach, the Economic Mobility Lab, OFE, and each department’s HR office introduced employees to the pilot and the idea of using the option to split their deposit as an easy tool for building an emergency savings fund. To help employees who didn’t already have a second account to split into, the City also worked with the departments to set up benefit fairs with local banks and credit unions where employees could open accounts.
Early Findings Show Promising Results
The pilot to actively promote and incentivize the split deposit option lasted several months during the summer and fall of 2019. At the end of the pilot, Commonwealth surveyed and spoke to participants to learn more about how it changed their savings behavior. Based on survey results, participants split an average of $67 into a second account each week, saving at a rate of $3,463 per year. By steadily contributing to this account, City employees are building a safety net to prevent their next unexpected expense from posing an overwhelming financial challenge. As one program manager at BCYF put it, “a lot of young families, if they had an emergency, they’d be sunk;” the pilot “gets people thinking about preparing long-term.”
Commonwealth is excited to continue supporting employers and municipal governments looking to offer similar programs to their employees. To learn more about how to set up your own split deposit pilot, contact Commonwealth at info@buildcommonwealth.org, or read our report outlining six key findings from our evaluation of the pilot.