Workplace savings programs can significantly impact employee financial wellbeing.
Having money saved for a rainy day means being able to handle financial shocks and bounce back quickly when the unexpected happens. Unfortunately, more than two million Australian adults have low financial resilience, experiencing severe to high financial vulnerability.
Before the pandemic, three in 10 Australians had less than one month’s worth of income in savings and one in eight said they wouldn’t be able to come up with $2,000 in a financial emergency. This was made clear when almost three million Australians withdrew a total of $36bn from their super accounts, showing that many simply don’t have the financial resilience they need.
Seven in 10 workers say they experience financial stress regularly and for half of these individuals, this is due to falling short on expenses between pay periods. While providing workers access to their earned wages can help them bridge shortfalls for free or at fixed low cost, enabling them to grow their money from their pay can help them build the resilience they need to make forward progress.
Employment and income are known as key drivers of financial wellbeing, as they directly impact an individual’s ability to meet current and future expenses. Researchers agree employment and income are areas where interventions can have the most leverage in improving financial wellbeing outcomes within our system.
Employers can use different methods to help build workplace savings, such as enabling employees to ‘split their salary’ into different accounts, nudging workers to commit future pay rises to savings or by providing the option to salary sacrifice some of their earnings into their retirement savings.
Research has found that defaults, or automatic opt-ins, are the most powerful remedies for low participation in savings programs. This means those employees who are too busy, unmotivated or distracted to opt in – even though they had expressed interest when surveyed – could participate.
What’s more, when deposits are framed in smaller amounts (for example, as daily instead of monthly deposits) the participation gap between lower and higher income consumers is eliminated.
One workplace saving program that has resulted in more than 15 million Americans effortlessly setting money aside for their retirement is Richard Thaler’s famous Save More Tomorrow (SMarT) program. This program asks employees to commit to saving more today, links future pay rises to increased savings and enrols employees into the program automatically, giving them the choice to opt out.
A more recent experiment is Nest Insight’s workplace sidecar saving program, which helps workers build rainy day buffers by allocating a portion of the earnings directly from their pay. The program had wide appeal, particularly among those with lower financial health who have found it harder to ‘start saving’. These employees cited the ‘ease of use’ as a key reason to why they’ve started saving.
Wagestream’s new Grow tool is an Australian-based workplace intervention aimed at building savings through pre-commitments and a link to payroll. Grow allows employees to set a goal and pre-commit a portion of their pay to Grow. Employees can set up an automated plan to reach their goals, meaning they don’t have to remember to save each pay cycle.