On this episode of the millennial finance podcast Financially Well, I’ll discuss why companies increasingly offer emergency savings accounts to their Millennial employees. In particular, I’ll discuss how to incorporate this new employee financial wellness benefit into your financial decisions.
Anne Tergesen writes about retirement for the Wall Street Journal. And on August 27, she wrote an article entitled, “The New Employer Benefit: Matching Emergency Savings.” The article begins:
“More employers are adding emergency savings accounts to employee benefit programs, reflecting a desire to attract and retain workers and help them better prepare for unexpected expenses.”
This is a positive step for employee financial wellness, right? Based on Tergesen’s reporting, I’ll summarize recent data that may indicate why employers have started to offer this employee benefit. I’ll also detail a few specific examples of how these emergency savings accounts work in practice. And I’ll close first with a discussion about what the article may have missed. Then I’ll suggest what steps you may want to take based on this information.
First, though, I want to put her reporting and data into context. I regularly discuss money with other Millennials, either as their financial advisor or through a financial wellness program. And almost across the board, our generation struggles with how to grow, manage, and even define “emergency savings account.” How much money should you aim to keep in an emergency fund? When should you feel comfortable pulling money from an emergency fund? How should your emergency fund balance change over time?
In almost all aspects of personal finance — including here — when people feel uncertain or confused about a decision, they hesitate. Or they procrastinate. For them, the fear of making a mistake outweighs the potential benefits of taking action. A strong financial wellness program at work can help Millennial employees make progress with their finances. But ultimately, we also need to understand the “why” and “how” of emergency savings accounts.
Here’s the aspect of Tergesen’s article that I value most: she ties this new financial wellness benefit directly to data.
She writes, “Employers say workers who are stressed about money are often less productive. Among 464 employers surveyed, 34% said financial stress is creating workforce challenges such as absenteeism, up from 26% in 2017.”
She then adds that, as a result, “26% [of employers now] offer an emergency account in their retirement plan and 19% said they are likely to add them.”
We don’t talk openly about our money often enough in this country. For this reason alone, I support this new financial wellness benefit. Emergency savings account incentives are a productive way to get Millennial employees to focus more often on a different aspect of their finances.
This is especially true at a time when government-provided support coming out of Washington, D.C. — such as pensions — have decreased steadily in recent decades. Any additional nudges or financial wellness benefits at work may help us all make progress, if only due to these two societal factors.
With that in mind, let’s review a few specific employee financial wellness benefits that Tergesen highlights in her article:
On Nov. 1, Ascent plans to introduce an emergency savings account from Sunny Day Fund Solutions Inc. with a company-funded interest rate of 17% to 36%, capped at $300 a year. “The longer you are tenured with us, the higher” the interest rate will be, he said.
And in a program through Social Finance Inc., employers generally pay the fees on the [emergency savings] accounts and contribute an average of $50 per month through matching or incentive programs.
These two emergency savings accounts offer an example of the employee financial wellness benefits for which you may want to advocate at work. But a strong financial wellness program reflects the specific needs and wants of the Millennial employees within that company. So before you ask for new or different benefits, look at your own personal finances. Think about any shortcomings or challenges that you’re facing. Then, when you have conversations with colleagues at work, combine the above examples with what you need as individuals. And you can use this unique perspective as a starting point for what you ask for from your employer.
What aspects of emergency savings and employee financial wellness does Tergesen’s article downplay? What might you want to keep in mind when you think about your work benefits?
First, from my perspective, the article reflects pretty favorably on employers. The article focuses heavily on the employer’s new benefit or new incentives that they’re offering to employees. And executives are quoted on the seemingly well intentioned reasons why they’re doing so.
But it’s also worth asking: what might the cost of this new benefit be, especially over the long term to Millennial employees? Does adding an emergency savings account and including an employer match reduce the company’s 401(k) match at some point down the road? If so, this benefit may not look quite as appealing as we may think right now. I want to point out that I haven’t seen any evidence yet to suggest that this may happen.
But I want Millennial employees to be aware of this possibility. When we give credit to companies for trying to help with another aspect of personal finance, we need to hold their feet to the fire. We need to say, “We would love for you to offer an incentive for us to contribute more to savings, but let’s also make sure that we’re dialing back our long-term investing benefits, either.”
On a more individual level, also keep in mind that you may not want to open an account that doesn’t necessarily fit your finances or your life. This is especially true if opening and maintaining the account includes fees. The emergency savings benefit is great in theory. But if the actual impact on your finances is limited, you may not want to have an extra account somewhere else. Or you may not want to commit dollars to an account that differs from where you normally manage your finances.
I hope that Tergesen’s article and my employee financial wellness discussion here inspires you to revisit your emergency fund strategy.
It’s not easy to read an article about what you should be doing with your money and feel good about your circumstances. You may still be fairly far away from what that article suggests you may want to do. So I want to emphasize that, with emergency savings, you don’t need to have six months’ worth of expenses in that account next week. We all have a variety of financial goals that we’re pursuing. They come with trade-offs, including repaying student loans, buying a house, and investing for retirement. All of these goals compete in some form with each other and building an emergency savings account.
As a result, you can only control making consistent progress. That progress doesn’t have to be in very large dollar amounts, either. Rather, pick an amount that is reasonable for you. Pick an amount that you feel like you can sustain for years, not just months. If you can stick with that habit, and potentially increase the amounts incrementally over time, you will reach your destination. Whether it’s with your emergency savings account or some other financial goal, you’ll eventually get to where you want to be. But you need to have patience and focus on what you can control. Don’t allow an article intended for a general audience to make you feel badly about your individual circumstances right now.
Check out Anne Tergesen’s article at the Wall Street Journal. Again, it’s called “The New Employer Benefit: Matching Emergency Savings.” I encourage you to subscribe to her writing and support her on social media. And, as always, feel free to reach out to me with any questions that her reporting raises for you.
[Editor’s note: this article reflects the transcript (which I’ve edited for clarity) of a recent Financially Well podcast episode.]
Kevin Mahoney, CFP® is the founder & CEO of Illumint, a Washington, D.C.-based company that offers financial planning for Millennials. He specializes in navigating the new financial decisions that arise during our late 20s and 30s, such as repaying student loans, buying a house, & investing savings. In addition, Kevin also works as a financial wellness program provider to millennial employees around the country, including group speaking engagements.
Visit Kevin's YouTube channel for guidance on young couples' most common financial discussions, including student loans, housing, and preparing for kids.