The Surprising Boost to Economic Recovery: People’s Savings Accounts

  • The surprising COVID side effect: bigger savings accounts

By: Radha Seshagiri, Director, Public Policy and Systems Change, SaverLife
Tim Shaw, Associate Director of Policy, Financial Security Program, Aspen Institute

When Christina, who lives in Ohio with her one-year-old daughter, was laid off from her job at a call center due to the COVID-19 pandemic, she faced more than the loss of her income: she suddenly had to care for her daughter full-time. The federal government made historic efforts with unemployment insurance expansion and direct cash payments to help people like Christina, but those did not come fast enough to pay the bills. Instead, she had to use the $700 she had saved from her tax refund to cover groceries and other expenses. “It was truly a blessing,” said Christina. Christina’s personal savings kept her afloat. But that is not the case for everyone. Policy solutions are on the table to address household financial security, but they are missing this one, critical element: helping people save for emergencies.

The COVID-19 pandemic widened prevailing gaps along socioeconomic, gender, and racial lines — while also increasing anxiety and stress across the board. Thankfully, for Christina, she had the savings to weather the storm. However, that wasn’t true for millions of Americans. A recent survey found that 43% of adults in households with incomes less than $50,000 a year report having no money set aside for emergencies, and another found that low-wage households have only eight cents in emergency savings for every dollar saved by higher-wage counterparts. These gaps have real-life consequences: short-term savings was the most powerful indicator of whether people were able to put food on the table and keep the lights on during the pandemic.

Bold policy is needed to bring emergency savings solutions to millions more workers and their families. The government has a role here to ensure access and equity, and begin to close racial and gender wealth gaps, especially for those who were hardest hit. With a bold social safety net agenda in Congress right now, federal policymakers must ensure that short-term savings are a priority through policy change, such as the following:

  • Remove barriers to workplace savings plans. State and federal regulations prevent automatic enrollment in short-term savings plans, discouraging both employers and employees.
  • Eliminate red tape that punishes people who save. Asset limits can cut people off from critical safety net programs for having just $1000 in savings. Policy should promote, not penalize savings.
  • Finally, ensure access to an affordable and secure bank account in which to build and replenish savings.

The other wealth-building policies proposed in Washington DC are also critical: the expanded Child Tax Credit and Earned Income Tax Credit, for instance, boost incomes and help households save.

While Congress debates, we are beginning to see large companies recognize that offering access to a savings account can provide their workers with financial stability that other benefits don’t provide. Even before COVID, one out of three workers had difficulty making ends meet, and would run out of money before payday. KFC restaurant employees now have access to a savings tool through SaverLife, for instance, which gives them the opportunity to develop a savings habit by participating in incentivized savings challenges, accessing financial education content, and engaging with their peers in a community forum. To truly scale up these tools to the millions of workers who need them, however, policymakers need to step up to support emergency savings.

Some may argue that unemployment benefits and stimulus checks have already helped people build up savings. While progress has been made, analysts at the JP Morgan Chase Institute found that even $1000 isn’t nearly enough to build the savings buffer that low-income, Black, and Latinx households need. In addition, a recent Morning Consult poll found that in January the percentage of households without the savings needed to pay for basic expenses for a month reached 29%, the highest level since they began tracking the question in June 2020.

We can and must do better, and there is a golden opportunity for action. Federal policymakers are already taking important steps to ensure families have the resources they need to afford basic expenses. It is time for them to add emergency savings to their list of priorities in support of low- and moderate-income households, so that Christina — and millions like her — can build back better a future for herself and her family.

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Our mission is to create prosperity for working families by helping them save and invest in their futures. about.saverlife.org