In times of crisis, having an emergency fund can be a lifesaver. Unfortunately, many Americans are not prepared for unexpected expenses. According to the 2023 Wellness Barometer Survey, 35% of employees have no emergency savings or only enough to cover up to two months of expenses. This lack of financial preparedness can lead to high levels of stress and anxiety, impacting employees' well-being and productivity.
An emergency fund is a cash reserve that individuals can tap into to cover unexpected expenses, such as a medical bill, car repair, or job loss. It's recommended that individuals have three to six months' worth of living expenses saved in an emergency fund. This can be a daunting goal, especially for those who are living paycheck to paycheck, but it is essential for providing a safety net that can help employees avoid debt and financial stress during times of crisis.
As an employer, there are steps you can take to help your employees build an emergency fund and improve their financial well-being. Here’s how.
An employer-sponsored emergency savings account (ESA) can help employees save for emergencies by automatically deducting a predetermined amount from an employee’s paycheck each pay period and depositing it into a separate savings account. These types of accounts make contributing to emergency savings automatic and eliminate the self-discipline and time needed to manually move money to a separate savings account.
The SECURE 2.0 Act of 2022 makes it easier for employees to build an emergency reserve. Beginning January 1, 2024, employees or employers can establish an ESA tied to and managed by their retirement fund provider. The accounts provide liquidity in times of crisis and allow for up to $2,500 in contributions per year. No fees are charged for the first four withdrawals per plan year.
Consider matching employees' contributions to their emergency savings accounts. This can be a powerful motivator for employees to save more and build a stronger safety net. Even a small matching contribution can make a significant difference in employees' savings habits.
One of the most effective ways to help employees build an emergency fund is to offer financial education. This can include workshops, articles, videos, or one-on-one counseling sessions that provide employees with the tools and resources they need to manage their finances effectively. Not only does financial education help employees understand the importance of having an emergency fund, but it can also help employees identify areas where they may be overspending. This awareness can lead employees to make adjustments to their spending habits and free up more money to put towards an emergency fund. By improving their financial literacy, employees will be better equipped to build an emergency fund and make smart financial decisions.
Digital led solutions provide real-time feedback on employees’ financial well-being progress and encourage them to take action consistent with their savings goals and objectives. These tools can track and categorize spending, identify areas of overspending, and suggest ways to save money and reallocate funds to an emergency savings account. Additionally, Certified Financial Planner™ professionals and financial wellness coaches can advise employees on how to build their emergency savings and help employees understand their overall financial health.
Having an emergency fund can help prevent employees from going into debt when unexpected expenses arise, provide peace of mind, and encourage smart financial habits. By offering support and resources to help employees build an emergency fund, employers can demonstrate their commitment to their employees' financial health and well-being, ultimately leading to a more engaged and motivated workforce.
BrightPlan Total Financial Wellness supports healthy financial habits. Our users have a two times higher emergency savings rate compared to the national median.1 Contact us to learn more.
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1. Savings rate is defined as national median retirement savings and national median emergency savings divided by the national median annual income.