- May 3, 2018
- by commonwealth
The pressures of financial insecurity make it challenging for financially vulnerable workers to do their best work. In our last post and in our recent publication, Financial Security in the Workplace: Making it work for Financially Vulnerable Workers, we discussed the impact of financial insecurity on the workplace. We think innovative yet straightforward and inexpensive employer strategies can be designed—leveraging existing HR infrastructure in many cases—to build financial security.
These strategies would tackle financial insecurity’s core challenges: a lack of access to liquid savings, affordable credit, and tools to manage the mismatch between income and expenses. Our research has found that workers want these tools. In focus groups with financially vulnerable New Yorkers, we asked attendees to rank on a scale of 1 (“Not Interested”) to 5 (“Very Interested”) their interest in employer benefits regarding several financial topics. Attendees rated a benefit facilitating short-term savings an average rating of 4, and a debt management benefit a 3.75. The following sections highlights some examples of these types of tools:
- Connecting Workers to Savings Resources: A survey Commonwealth conducted of minimum wage workers indicated that about half lack savings accounts. Finding a low-fee or free savings vehicle can represent a substantial time investment for workers; a firm identifying several accessible savings products in the community can make savings easier.
- Split Deposit: Research shows that directing a fixed income stream into multiple accounts helps build savings balances. By encouraging workers to automatically direct a portion of their paychecks into savings accounts, firms can promote financial resilience. Savings could begin at onboarding: new workers could bring in both a blank check and a savings deposit slip, so they could start building a financial cushion with their first paycheck.
- Payroll Cards with Savings Pockets: Some payroll card providers offer cards with savings subaccounts. For workers without access to savings vehicles, these products can enable and support savings. In a Commonwealth pilot in which workers were prompted to open and use the savings pockets, there was a 133% increase in opens and 240% increase in savings activity.
- Raise-Linked Savings: Raises are a compelling opportunity to promote savings since workers can direct new income toward savings while sidestepping the tradeoff of reducing funds available for everyday spending. In a Commonwealth survey of New York workers, 70% of workers who had received raises said the raise made them “rethink” their finances. 62% of workers in a national survey indicated that they would like “somewhat” or “a great deal” an employer-offered benefit to help them use extra money from a raise or bonus to improve their finances. 42% of workers said a raise-linked benefit would increase their job satisfaction and 27% said it would increase their productivity.
Financial Management Resources
- Health Insurance Deductible Tools: High deductibles pose considerable financial risk to lower wage workers. As our research has indicated, incentives to help workers save for medical expenses, or personalized data to support worker decision-making about savings for medical expenses, would help mitigate these risks.
- Access to Earned Wages: Some companies offer tools that allow workers to access wages they have already earned in between regular paychecks. These tools help workers absorb emergency expenses without turning to credit cards or payday loans.
- Employer-Sponsored Loans: Innovative benefit providers and financial institutions offer small, inexpensive, responsible loans to employees. Loans are repaid with payroll deductions, and loan providers—not employers—take on employees’ credit risk.
Each of these strategies is responsive to the specific needs of financially vulnerable workers. With these tools in place, workers are likely to be more financially secure and feel their employer is invested in their success. For example, Commonwealth research found that 91% of a group of lower wage New York workers said an employer benefit to help them strengthen their financial position would make them at least somewhat more likely to stay at their job. Worker financial security can lead to a more productive and engaged workforce.
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