One Way to Help Employees Build Emergency Savings

Intentional cooperation between two organizations — BlackRock, a major asset management firm, and national non-profit, Commonwealth — created the conditions for the nation’s largest payroll processor, multiple U.S. employers, retirement record keepers, and others to work together to help address systemic U.S. household financial insecurity through a workplace-based savings plans. This was not the typical retirement-savings programs, but rather an emergency-savings programs, designed to reduce the financial fragility that often affects those living on low to moderate or volatile incomes with little ability to cope with a financial emergency.

Tackling systemic issues such as inequality, public health crises, and climate challenges might sound like an aspiration of governments and social enterprises — but businesses have untapped potential to also make a huge difference. In a recent Edelman survey, over 70% of people in 14 countries said that business could have a positive impact on issues like health outcomes, inequality, and climate change if it devoted resources to addressing them, and up to 30% were confident that business could have a “game changing” impact.

We believe they’re right and have a case study to offer as evidence. Intentional cooperation between two organizations — BlackRock, a major asset management firm, and our national nonprofit, Commonwealth, which is focused on building financial security for all — created conditions for several entities including the nation’s largest payroll processor, multiple U.S. employers, retirement record keepers, and others to work together to help address systemic U.S. household financial insecurity through workplace-based savings plans. The twist is that these programs were not typical retirement-savings programs, but rather emergency-savings programs.

Our results illustrate that businesses can address pervasive social issues with careful planning, partnerships, and back-end plumbing. The last part might sound the least glamorous, but addressing technical infrastructure is a key part of the systems change puzzle. In our case, employers have access to people, financial firms have savings products — but plumbing and pipes in the form of payroll systems were essential to doing something new and different. With this in mind, we see an updated path to addressing systemic challenges that starts with a familiar playbook: Identify critical challenges, apply ambition and creativity, and commit to a long-term strategy that taps each organization’s assets. The new parts? Collaboration and plumbing.

While our organizations have now worked with dozens of big firms to enable $2 billion in savings for millions of households, we also believe the approach and mindset can be applied by the millions of small businesses that employ nearly half of all U.S. workers.

The Problem: Americans Need Emergency Savings

Emergencies are not rare, but most American families can’t financially cope with them. Four in ten Americans can’t cover an unexpected $400 expense without borrowing or selling assets, nor cover a larger expense ($2,000) by any means. This financial fragility most often affects those living on low to moderate or volatile incomes who have little or no access to short-term savings. They are far more likely to miss housing payments, fall short on medical bills, and compound debt — and less likely to save successfully for retirement. The consequences can be dire.

To start addressing this issue, we had to frame the challenge correctly. Savings typically comes from putting some income aside, and for most people, “income” means employment income. Historically, employers have supported savings plans as a long-term, retirement-oriented goal. But for many, retirement feels too far out of reach, and savings earmarked for decades in the future can be difficult to prioritize.

We asked: How can we make it easier for employers to help workers put money aside for emergencies and more easily set up rainy day funds? Rather than frame this as the worker’s problem, we reframed it as a workplace problem and an opportunity to be facilitated by employer, policy, and “plumbing” (or infrastructure) action.

Reframing this from a worker to workplace issue was possible in part because firms lose an estimated $250 billion in productivity each year to worker financial stress. Employers, benefits providers, and infrastructure players have sound business reasons to focus on worker financial security. While not very sexy, surveys have found that rainy day funds are the top savings priority for most Americans. We wanted to make it easy for employers and employees to direct a portion of their payroll to a simple emergency savings vehicle.

The Partners

Our partners in this endeavor started with a small team, but rapidly expanded. At the heart was BlackRock, whose Social Impact team launched the Emergency Savings Initiative (ESI) in 2019 as the flagship of an expanded firm commitment to social impact. Understanding that protective liquid savings was a precondition to long-term financial security, BlackRock committed $50 million in philanthropic capital in early 2019 to drive systems-level change and achieve tangible impact at scale. Their first step was to select subject matter experts — national financial health nonprofit organizations — to work with employers, benefit providers, policymakers and workers themselves. With a track record of enabling large scale change in financial systems to benefit vulnerable households, Commonwealth was among the three partners BlackRock selected.

The Playbook

Together we implemented a multi-sectoral, multi-level, systemic approach to make emergency savings easier. We knew we would need to understand the needs of workers and employers, as well as the complex financial plumbing that connected them together. We’d have to do more than understand this web — we would need to get the various parties involved working together in new and significant ways.

The resulting approach used four key levers:

The “Ah-ha” Moment

To build a permanent solution, our big “a-ha” was that success laid squarely within the infrastructure of the financial ecosystem (for example, payroll providers and retirement recordkeepers). For example, an enhanced emergency savings feature in ADP’s pay card solution — a debit card issued to workers who don’t have, or prefer not to use, a bank account to receive their pay — lifted an infrastructure barrier for multiple employers. And unexpectedly, the momentum of this ambitious project was amplified by the onset of the Covid-19 pandemic, which surfaced both the stark need for emergency savings funds as well as the challenges of making sure offering new savings tools remained a priority on our partners’ overloaded to-do lists.

The Outcome

In the last few years, we have helped over 10 million workers collectively put away $2 billion in emergency savings and set the stage, we hope, for a permanent tool to aid workers facing financial insecurity.

Our impact extends beyond the organizations and individuals we have been able to touch directly. We’ve worked to set up a durable, systems solution. It’s one that works for both employers we’ve worked directly with and results in larger changes that many other firms will use over time. We identified four meaningful changes that we hope other organizations can learn from, which build on the levers we used to get the program running:

The one group needing the least convincing were workers — they knew the value of rainy-day savings. Too often we cast systemic challenges as simply about individual action; while individual agency and behavior are critical, it’s activated when we also redesign the systems that can influence the individual action needed to be a catalyst of change.

Taken together, we know these changes aren’t an easy lift. But they are feasible. Working across organizational and sectoral boundaries, we have the power to address issues that are often hiding in plain sight. We hope that social sector leaders don’t overlook the enormous leverage of market actors, and that business leaders don’t underestimate the full range of tools at their disposal — beyond just their philanthropic checkbooks — to put an actionable issue on the national agenda and produce outsized social impact and long-term value for our firms.

And while mutual purpose may keep us aligned, we can never overlook the importance of unglamorous plumbing. Without it, we have no water, no electricity, no internet — and unrealized potential to help everyday Americans build critical financial security.

Corporate social responsibility, Public-private partnerships, Income inequality, Nonprofit organizations, Social enterprise, Personnel policies, Digital Article

Timothy Flacke
Timothy Flacke is the Co-Founder and Executive Director of Commonwealth.

Peter Tufano
Peter Tufano is a Baker Foundation Professor at Harvard Business School, senior advisor to Harvard’s Salata Institue for Climate and Sustainability, and a former dean of Said Business School at the University of Oxford. He is Co-Founder and Chair of of the non-profit Commonwealth.

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