Too many people have inadequate short-term savings in addition to saving for retirement. Earlier this year, GOBankingRates conducted a national survey that asked people whether they had enough savings to cover three common types of financial emergencies: a car repair, a medical emergency, or six months’ worth of living expenses if they lost their job. More than half of respondents answered no: 55% couldn’t cover six months of living expenses, 54% couldn’t handle a medical emergency, and 42% would have to borrow money or sell something to pay for an unexpected car repair. In fact, about half of respondents have less than $1,000 saved. And people struggling to manage financial emergencies aren’t likely to be saving for retirement.
Even a small amount of non-retirement savings can make a big difference. According to the same study, families with just $250 to $749 in savings are less likely to be evicted, miss a housing or utility payment, or receive public benefits. In fact, according to the Urban Institute, savings are as important as income: low-income families with savings of $2,000 to $4,999 are more financially resilient than middle-income families without savings.
Last week, Questis co-hosted a webinar introducing our new outreach partner, EARN.org. EARN is a nonprofit organization, founded in 2001, that promotes innovative strategies which can help employees build their emergency savings while also building the habit of saving.
EARN uses both small and large cash incentives in creative ways to help motivate their program participants to save. A contest such as #WhatImSavingFor is designed to promote the inspiring stories within communities of savers by inviting participants to post a picture of their savings goal on social media, and in return, being entered into a weekly cash prize drawing. Their successful SaverLife Tax Pledge campaign encouraged people to save their tax refunds by taking a pledge and consequently being entered into a drawing for a cash prize. The result: 9,000 new savers pledging to save over $2.4M in tax refunds.
Behavioral research supports the concept of making a pledge as a way to strengthen motivation that can encourage future follow through. Multiple studies have found that ‘pre-commitment’ actions such as signing a public pledge make it more likely that we’ll actually do whatever it is that we’ve pledged to do. Pledges are a way that we can hold ourselves accountable, and take advantage of our inherent desire for a positive identity, both in terms how others see us and our own self-image. EARN’s SaverLife programs are innovative, based on research, and appear to be making a difference for participants.
Having an adequate emergency fund means that people can then afford to save for retirement, and may be able to avoid borrowing against a 401(k). Incorporating these types of behavioral insights into financial wellness programs can improve financial security for millions of Americans.
View the webinar recording here.