In April 2020, millions of Americans began receiving one-time $1,200 economic impact payments (EIPs) as a provision of the CARES Act, the coronavirus relief bill passed in March. For the millions of Americans filing for unemployment, and the 31% who were unable to pay April’s rent on time, much of this cash relief is going directly to everyday expenses. However, for some portion of Americans—frontline workers (often hourly or lower-wage) or those in industries not yet affected by the pandemic—this cash assistance amounts to an opportunity to improve financial security, especially as people prepare for a potential recession or further economic impacts.
Commonwealth has done extensive research on innovative approaches to windfall moments, particularly tax refunds. For people who don’t need to use their CARES Act cash relief to pay bills or address other immediate needs, there are many parallels to more common windfalls. For example, Commonwealth’s tax time work demonstrates that the simple act of introducing savings as a goal at the time you receive a refund and making it easy, engaging, and rewarding to save is a powerful motivator.
How Financial Institutions and Fintechs Can Help
Financial institutions and fintechs can play a role in leveraging cash relief from the CARES Act to improve the financial security of Americans who are still able to meet their everyday expenses. At a moment of economic uncertainty, people know how important it is to use funds to improve their financial security, whether by increasing savings, as research shows they did during the 2008 financial crisis, or meeting other financial goals like paying down debt. Financial institutions and fintechs can help their customers translate these intentions into actions.
Financial institutions and fintechs gather tremendous amounts of data on their customers, including their transaction history, income, and often their financial goals, such as to save, invest, or pay down debt. These institutions can leverage this moment to open communication with their customers, providing them with the well-timed guidance, support, and behavioral nudges that will help them follow through with sound financial choices around what to do with the relief payment.
Some fintechs and financial institutions may need to build intelligence into their products that would enable these types of automatic savings nudges in the event of future income infusions. But there are many short-term solutions that banks, credit unions, and fintechs can undertake now to help their customers use this moment of time to improve their financial situation.
Open a Line of Communication
Because financial institutions and fintechs know these deposits are coming or are already in their customers’ accounts, they can begin talking to their customers now about how they might use the money to further their financial security, providing guidance and well-timed information.
Encourage Pre-commitment to Savings
Financial institutions can reach out to customers who are receiving cash relief to ask a few simple questions about their financial goals and current economic status—and use that information to suggest they commit to specific choices around using the money, such as directing a portion to savings.
Use Transaction Information for Behavioral Nudges
In this case, the deposit of cash relief would likely be easily identifiable by a financial institution or fintech, and they can use the event to remind customers of their savings or debt repayment goals. Our research on behavioral nudges in a windfall moment demonstrates that consumers responded well to getting information from trusted sources, like their banks, and to the idea of setting a goal.
Showcase Savings Products
For credit unions, banks, and fintechs with prize-linked savings accounts or high-yield savings options, this may be a good opportunity to remind customers who can save of the rewarding vehicles available to help them build savings. Because of future economic uncertainty, encouraging customers to keep their money in liquid accounts that won’t charge fees or penalties for withdrawals is a good idea.
Leverage Data to Help Customers Save
During economic shutdowns due to natural disasters, people typically see decreased spending on fuel, shopping, and even healthcare costs. Given the implications this pandemic has for personal travel, we’ve already seen the same patterns during COVID-19 for much of the country: spending in each of those categories has fallen in recent weeks. Because financial institutions and fintechs have data on spending habits, there is an opportunity to convert these cost savings into realizing financial goals.
Building Customer Financial Security and Trust
For financial institutions and fintechs, strong relationships built on trust are critical to ensuring customer loyalty. During this time of unprecedented economic uncertainty, banks, credit unions, and other financial service providers have a unique opportunity to nurture these relationships and support their customers right now. The institutions that are able to translate CARES Act economic impact payments (EIPs) into future financial security for customers who do not need immediate cash assistance can build greater customer confidence today and help those customers advance their financial goals in the future.
For customers who are in a position to build their financial security in this moment, sometimes all it takes is the smallest nudge to save. Through simple, well-timed, personalized strategies, financial institutions and fintechs can encourage saving that offers long-term benefits for customers and financial institutions alike.
Learn more about partnering with BlackRock’s Emergency Savings Initiative.
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 their 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 multi-layered 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 towards long-term financial well-being.