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Best Practices: How to Help Employees Navigate the Behavioral Pitfalls

Friday, April 24, 2020

Prior to the COVID-19 outbreak, six-out-of-ten employees in America were already living paycheck-to-paycheck. Now, the rapid economic fallout from the pandemic has put nearly a quarter of Americans out of work or has led to a reduction in regular working hours. This sudden and severe loss of income, as well as the overall looming fiscal uncertainty, has triggered widespread fear and panic for already vulnerable workers and created previously unimaginable financial strain for others.

Employers can play a role in helping workers through these trying times, providing guidance and tools to help those facing a prolonged financial hardship keep their heads above water. These three insights from behavioral science and financial decision-making research provide concrete and easy-to-adopt ways that employers can help employees overcome behavioral pitfalls and maximize available resources.

1. Help Workers Access and Optimize Available Benefits

Government stimulus payments sent in April 2020 are underway to the majority of Americans. But prior research suggests that people tend to struggle with optimizing windfall gains. Given that these payments will arrive amidst times of severe mental and emotional strain, they could even provoke a scarcity mindset. Even with the best of intentions, there is a danger that households stressed by financial insecurity could burn through this money quickly, or – in some cases – even overspend their cash assistance checks.

Employers are in a unique and trusted position to alleviate some of this pressure and help individuals maximize their stimulus checks. Employers can personally and proactively reach out to employees, encouraging them to set aside some time to plan now for how they will use their stimulus check when it arrives. For example, suggestions for how to identify which expenses need to be paid immediately and which can be paid later. Employers can also provide budgeting tools to cement these spending plans and further stretch their cash assistance. To make these decisions easier, employers can offer their employees the COVID-19 Stimulus Check Planning Tool.

Beyond helping workers make the most of their stimulus checks, employers can also help employees tap additional, existing benefit resources, such as SNAP and TANF. The dramatic income shifts over the past couple of weeks mean that many workers may now qualify for various welfare programs they never even knew existed. Even for those who are familiar or already eligible, daily hassles such as taking care of elderly family members or children may prevent them from applying for and utilizing these benefits. For both groups, employers can play a valuable role in highlighting support programs and providing tools and resources to guide or ease them through the process of completing applications.

2. Encourage Caution and Restraint When Making Hardship Withdrawals

The CARES Act has made it easier to tap into one’s retirement savings for a lifeline during this crisis. Specifically, the CARES Act allows those who have been affected by the pandemic to make early withdrawals from their retirement accounts without being subjected to the typical 10% penalty, so long as the withdrawn money is paid back within three years. While many employees may very well need to do so in order to stay afloat, growing financial uncertainty could also tempt them to take out more than they need.

Such withdrawals might prove to be extremely costly, particularly given the current market downturn, since the return on investment is low. Taking out money now also has a significant opportunity cost, even if the amount withdrawn is relatively small. For instance, $5000 today could grow to over $34,000 in 25 years, assuming an 8% rate of return. By withdrawing this amount right now, employees could lose out on significant gains in the long run. Given the complexity of the process and enormity of the decision, employers can be a valuable resource for employees, helping to explain the process and potentially guiding them to other sources of funds in order to delay making hardship withdrawals as long as possible.

For those employees who do need immediate access to their funds, employers should encourage them to only take out the minimum amount they need and to simultaneously make concrete plans for how and when they will replenish those savings.

3. Boost Savings via Seeded Accounts

For many employees, navigating the economic ramifications of the pandemic is likely going to be a marathon rather than a sprint. While it is certainly important to help workers address their current financial concerns, employers should also create mechanisms to help employees set aside part of their income, no matter how small, to build some financial slack in preparation for continued hardship.

In order to save effectively, employees should both mentally and physically partition their income into different accounts. This has been proven effective at minimizing spending and maximizing saving.

Since many employees lack savings vehicles of their own, employers can provide workers with a dedicated savings platform as well as means to earmark and divide their income. Furthermore, by seeding these accounts or offering other participation incentives, employers can motivate employees to start saving and create some much-needed mental and financial slack.

As the current crisis continues to unfold, it is difficult to fully anticipate what the financial landscape might look like in the near future. And while no single action will be sufficient, employers can take a number of small steps that will go a long way towards helping employees make ends meet and find some peace of mind during these trying times.

This is part of a “Best Practices” series exploring ways employers can help their workers with emergency savings.

Learn more about partnering with BlackRock’s Emergency Savings Initiative.


BlackRock’s Emergency Savings Initiative

BlackRock announced a $50 million commitment to help millions of people living on low- to moderate-incomes gain access to and increase usage of proven savings strategies and tools—ultimately helping them establish an important safety net. The size and scale of the savings problem requires the knowledge and expertise of established industry experts that are recognized leaders in savings research and interventions on an individual and corporate level. Led by their Social Impact team, BlackRock is partnering with innovative industry experts Common Cents LabCommonwealth, and the Financial Health Network to give the initiative a comprehensive and multi-layered approach to address the savings crisis. UPS, Uber, Mastercard, Etsy, Brightside, Arizona State University, and Acorns have joined BlackRock’s Emergency Savings Initiative to help their employees, customers, gig workers, and college students take the essential first step towards long-term financial well-being.