Patching financial potholes

Una Morabito

By Una Morabito
Una Morabito is Head of Client Management for the Workplace Solutions unit of MassMutual.
Posted on Jan 22, 2020

The road to retirement is littered with financial potholes.

Those potholes are financial emergencies that can intrude on many people’s lives: repairing a busted transmission, visiting the emergency room for a broken arm, or fixing a faulty furnace. Sudden, unexpected expenses of several hundred dollars or more may cause significant financial stress for many people. And emergency expenses can discourage many workers from saving for retirement and attaining financial security over the long term.

That’s because three out of four American households lack sufficient savings to cover six months of expenses and one in four workers (26 percent) have less than a month’s savings or no savings, according to the 2019 MassMutual State of the American Family Study .1 The lack of short-term savings can mean even relatively small unanticipated expenses can disrupt a family budget, reducing available cash for longer-term objectives like funding retirement, paying for a child’s education, or even extinguishing debt.

Employers are taking notice.

The 2019 MassMutual Workplace Financial Wellness Study finds that 79 percent of employers say their workers are struggling financially.2 Although employer estimates vary about how many employees are plagued with financial problems, half of employers (51 percent) estimate that at least 25 percent or more of their workers struggle financially and 15 percent of employers say at least half of their workers are plagued by financial woes, the study found.

The signs are everywhere. Proof points for employees’ financial struggles include managers’ conversations with employees, employees’ lack of participation in retirement plans, working second jobs, taking loans from retirement plans, and asking for paycheck advances.

The most prevalent employee financial problems cited by employers include credit card or other consumer debt, day-to-day expenses for housing and childcare, the inability to save and prepare for retirement, a lack of emergency savings, and high medical costs, according to the study.

Those money worries commute with many Americans to work. Four in 10 (40 percent) middle-income workers – those with household incomes of between $35,000 and $150,000 – say they worry about money at least once a week while at work, according to the 2017 MassMutual Middle America Financial Security Study .3 Half (51 percent) of Americans who are less affluent – those earning less than $45,000 – report bringing their financial concerns to work at least once a week and 20 percent say daily.

Some employers have boosted pay for workers, especially as the job market has tightened and help has become harder to find. But just boosting salaries may not be enough. Many workers need education about managing money, including budgeting, debt repayment and building emergency savings.

Providing employees with a means to prepare for emergencies is another positive step towards financial security. It’s why at least some employers are making emergency savings accounts available to complement retirement savings plans.

MassMutual is making emergency savings accounts available automatically through its MapMyFinances financial wellness tool, which helps workers prioritize their personal finances and employee benefits based on their family needs and budget. The accounts require a minimum deposit of $25 per month, are FDIC-insured, taxable and pay a market competitive interest rate. There is no maximum on the amount workers can accumulate in their savings accounts.

Another benefit: the emergency savings accounts are separate from employees’ bank checking and savings accounts. Keeping emergency savings “out of sight, out of mind” discourages employees from tapping the funds for other needs such as shopping excursions, dinner out or other uses that could leave employees vulnerable when unexpected financial problems.

In some instances, workers may need to first build their emergency savings account before they can start deferring income for retirement. Or some may need to do a little of both. The goal is to help workers avoid pilfering their retirement savings through loans or withdrawals by providing them a solid source of emergency funds when the unexpected occurs.

By helping workers better manage financial emergencies and other short-term financial needs, MassMutual and the employers it serves aim to enable workers to achieve greater financial security. Once workers have their shorter-term financial needs under control, they are better able to focus on longer-term financial goals such as retirement.

By filling workers’ financial potholes with emergency savings, the hope is that they will better be able to get on the road to financial security.

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1 MassMutual, State of the American Family Study, August 2018.

2 MassMutual, MassMutual Workplace Financial Wellness Study, Dec. 3, 2019.

3 MassMutual, MassMutual Middle America Financial Security Study, Oct. 2, 2017.