What would your employees do if they had an accident or an unexpected medical bill? Would they be able to cover the cost?
Many people are just one emergency away from bankruptcy. When an expense arises and your employees aren’t prepared for it, an emergency fund adds a layer of protection against a financial crisis. That doesn’t just affect their bank accounts — employees’ financial stress actually also affects their productivity and their overall health.
Here’s how you as an employer can help your employees establish emergency savings that will give them security and peace of mind.
Why So Few People Have Emergency Funds
To many, emergency funds don’t seem important until an emergency actually occurs. Only 40% of Americans could cover a $1,000 emergency expense, and only 18% of Americans have three to five months of living expenses saved. This means that a single car problem, trip to the emergency room or surprise home repair could put someone without savings into debt. This kind of uncertainty hangs over employees’ heads, causing anxiety about the future. This stress can lead to other problems, as well, including difficulty sleeping, trouble concentrating and a short temper.
An emergency fund, even a small one, can make a big difference to an employee’s finances. On a smaller level, having a financial buffer in the bank can prevent overdraft fees from an urgent expense and free employees from reliance on credit cards. Accumulating a fund can also ease the temptation to spend money that’s just sitting in a checking account, since that money has already been earmarked for an emergency. In the long term, an emergency fund prevents employees from needing to withdraw money from their retirement funds, where they might face fees or taxes for early withdrawals. Typically, a fund should have at least three months of living expenses saved for an emergency fund to be effective.
How Emergency Savings Benefits Work
Your business can set up an emergency savings benefit in a variety of ways. Some companies create one to work alongside a retirement plan, where employees opt to automatically put after-tax money into a savings account tied to a stable investment, such as a money market fund. MGM Studios allows employees to contribute 1%-2% of their paychecks with this type of benefit, giving them an opportunity to earn more of a return on their investment than they would in a basic savings account.
Although some plans simply let employees opt to contribute money from their checks every month, others involve funds contributed by employers, too. Levi Strauss & Co., for example, will match employee contributions dollar-for-dollar up to $40 a month. Other companies put an initial investment in employees’ savings if the employees agree to contribute a percentage themselves every month, or if they participate in a financial wellness program.
Another plan, called a Cookie Jar, is a wellness program that rounds up employees’ purchases and automatically deposits the extra change into an emergency account. This kind of plan has the added benefit of feeling like less of a draw on a worker’s bank account. A little money here and there is easier to pay out than big chunks every month.
Others take a crowdfunded approach. The University of Illinois, for example, asks faculty and staff to contribute a small amount every year to a general fund and then lets employees apply for emergency help when they need it.
Pros and Cons of Emergency Funds
Generally, the benefits of offering emergency funds far outweigh any negatives. While there’s a cost associated with setting up and contributing to the funds, that investment tends to pay for itself in higher loyalty, productivity and retention from employees.
When possible, opt for automated contributions. Automatic withdrawals simply require that employees make an initial decision to make the withdrawal — and that’s it. The “set it and forget it” method may encourage more participation.
However, participation is still likely to be low if employers don’t contribute, too. Matching employee contributions is a way to “gamify” the experience by providing incentives to contribute. One study found that 71% of employees would participate in a savings program, but that figure increased to 87% if employers offered to match what they put in. Even small employer contributions of $100 to $250 can make a difference to your workforce.
In the end, the investment it takes to start a savings program tends to pay off in the form of employees who are less stressed and more loyal. If you’re on the fence about starting an emergency fund, ask your employees about their main sources of stress in an office-wide survey. If financial worries are keeping your employees from reaching their full potential at work and at home, then an emergency fund benefit could be more than what keeps your employees afloat — it could help keep your business a success, too.
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