Amid an unexpected economic downturn, many Americans have found themselves grappling with the financial insecurity that accompanies massive layoffs and a widespread loss of income. At Financial Health Network’s EMERGE Live 2020, industry leaders gathered to share the solutions that employers, policymakers, and other institutions are developing to help consumers recover and rebuild in these unprecedented times. On Day 4: Rebuilding Resilience, Commonwealth’s Executive Director Timothy Flacke participated in the session Reflections on Emergency Savings: Before, During, and After a Crisis (56:42 – 1:42:12) alongside panelists Karen Andres, Director at Aspen Institute; Mariel Beasley, Principal at Common Cents Lab; and Jo Phillips, Director at Nest Insight.
Moderated by Deborah Winshel, Managing Director and Global Head of Social Impact at BlackRock, the panel reflected on how COVID-19 has underscored the need for short-term savings and the crucial role it plays in both establishing and maintaining financial security. Among the many topics of discussion, the panel touched on the behavioral effects of COVID-19, the prevailing issue of accessibility to finance tools, and the intersection of identity and financial security.
Three Key Takeaways
1. The lack of access to what Deborah Winshel referred to as “attractive savings vehicles” has negatively impacted how individuals interact with, think about, and understand emergency savings.
Timothy Flacke noted that the phrase “emergency savings” is often linked to the concept of long-term accumulation rather than short-term gains even though for the majority of families, emergency savings accounts function as a “shock absorber” or an account whose balance fluctuates regularly. However, most financial tools are designed to support a version of savings based purely on rising balances over time. As Mariel Beasley noted, a product’s design is inherently indicative of its use and the available products have “informed the mental model that we have about savings which really prohibits people [from] accessing and using them in ways that are actually incredibly beneficial to their financial health and well being.”
Often, individuals are reluctant to withdraw from their savings accounts in times of need because of the overwhelming feeling of defeat that accompanies it. Both Flacke and Beasley advocated for a new way to brand savings that could serve to promote savings accounts as a cushion to be used for everyday emergencies.
2. COVID-19 has altered the behavioral habits of Americans when it comes to emergency savings.
The financial implications of COVID-19 have brought the concept of emergency savings to the forefront of many American’s minds which, according to Jo Phillips, makes this an ideal time to alter the way people think about savings. According to Mariel Beasley and research conducted by the Common Cents Lab, despite the economic fallout of the pandemic, the majority of Americans have either increased or maintained the amount of money that they save. While there have been fewer opportunities to spend money on expenses such as travel and entertainment, there has also been a notable increase in intentional savings.
According to Beasley, the average American planned to save at least 50% of their stimulus check for potential future needs. Both Beasly and Phillips noted that an ongoing crisis tends to motivate people to take action to ensure future security. In the case of COVID-19, individuals have begun to prioritize emergency savings when using online banking tools. However, Phillips reminded the panel that historically, this motivation dwindles when individuals believe the crisis has ended. As such, now is the time for financial institutions and fintechs to experiment with new ways of encouraging their customers to save.
3. The history of racial discrimination in the financial sector highlights how institutions and systems have contributed to the issue of financial insecurity.
In light of the current social and political landscape, Timothy Flacke took the time to highlight how “the banking system and financial services…[have] a history of discrimination, particularly against Black households.” According to Karen Andres, Black individuals represent the most unbanked population in the United States and, as Deborah Winshel noted, structural and systematic racism has led to additional economic burdens for Black and Latinx communities that have further exacerbated the issue of financial insecurity. The intersection of race and financial vulnerability is made clear when considering the percentage of households that can finance a $400 emergency. While 66% of average American households indicated that they could handle a $400 expense, the same could be said for only 30% of Black households making under sixty thousand dollars. While several factors play a role in this decrease, Flacke believes it is evidence that financial insecurity is not an individual issue; rather, we must recognize and address the role that institutions and systems play in perpetuating a cycle of financial vulnerability in communities of color.
Learn more about BlackRock’s Emergency Savings Initiative at savingsproject.org and join us for our webinar on 7/16, How Recordkeepers Can Address Emergency Savings.