As concerns about the spread of COVID-19 continue, questions are also arising about the financial preparedness of Americans in the case of an unexpected emergency, such as needing to stay home from work for an extended period. In this case, workers that act in the public interest–staying home during an illness outbreak, for example–should not have to bear the outsized private cost of missed wages, undue financial stress or even loss of a job. Many Americans, particularly those in lower income households, face financial pressure among the constant threat of everyday disruptions–an illness, a loss of childcare, or a car breakdown, for example.
While these fears are magnified by the threat of a more extreme situation like the potential coronavirus outbreak, the truth is that generating emergency savings is a long-term strategy that can help people combat fear, pressure and intense stress, both in everyday disruptions and larger emergencies. It’s much like handwashing: while experts are recommending we are all vigilant about it during a potential viral outbreak, in truth it’s a simple practice to leverage for everyday health and protection.
Research shows that those with less than $400 in liquid savings were under significantly more financial stress than their counterparts with more than $400 in savings. In a Commonwealth’s 2019 survey of lower income workers employees reported (field test supported) that straightforward employer interventions like the opportunity to split a paycheck into both checking and savings automatically would help them save while also reducing their day-to-day stress. Aside from the personal implications for the worker, less stressed employees also provide benefits to the employers, such as better productivity. Additionally, employers that incentivize savings for employers actually balance what’s good for the individual and the community by helping employees be more prepared if the unexpected happens.
Short-term, liquid savings is the first important step to building financial resilience and addressing many of the challenges that low- and moderate-income Americans have around their cash flow. Even $250 to $750 in liquid savings can aid a family in a financial shock, reducing their likelihood of paying bills late, missing rent or needing public benefits.
Emergency savings can act as both a financial and psychological buffer for lower and moderate income employees, hourly employees and gig workers in a number of ways. One example is the ability to take a sick day without reverberations on a person’s ability to pay a bill or make rent. According to Bureau of Labor Statistics data, only around 30 percent of workers in the lowest 10 percent of earners have paid sick days. A financial cushion allows a worker the option to take care of him or herself by taking time off or visiting urgent care–an option that also helps the community at large in containing the illness from spreading. Building emergency savings can give employees a buffer, although ideally employers should consider more flexible PTO or work-from-home arrangements, or disability sick insurance to help employees manage through the unexpected.
A collaborative, multi-sector approach is key to producing a sustainable savings cushion–the foundation that is core to building wealth and other financial initiatives. As partners in the BlackRock Emergency Savings Initiative, we are working with major companies to build innovative savings solutions for customers, employees and other stakeholders. Building solutions that help Americans save is essential in ensuring that people are ready to handle both the large and small disruptions and uncertainties that life frequently presents.
BlackRock’s Emergency Savings Initiative
BlackRock announced a $50 million commitment to help millions of people living on low to moderate incomes gain access to and increase usage of proven savings strategies and tools – ultimately helping them establish an important safety net. The size and scale of the savings problem requires the knowledge and expertise of established industry experts that are recognized leaders in savings research and interventions on an individual and corporate level. Led by its Social Impact team, BlackRock is partnering with innovative industry experts Common Cents Lab, Commonwealth, and the Financial Health Network to give the initiative a comprehensive and multilayered approach to address the savings crisis. UPS, Uber, Mastercard, Etsy, Brightside, Arizona State University, and Acorns have joined BlackRock’s Emergency Savings Initiative to help their employees, customers, gig workers, and college students take the essential first step toward long-term financial well-being.