In December 2020, SaverLife, a national nonprofit fintech with a mission to create prosperity for working families, published a new report in partnership with the FINRA Foundation examining how savings affects overall financial well-being and stability for lower-income households in the United States. We spoke with one of the authors of the new report, Tim Lucas of SaverLife, to learn more about the report’s key insights.
Why is it important to look at small-dollar savings on its own?
For low-income families, small-dollar savings is the bedrock of financial stability. Our data shows, as do numerous other studies, that low-income families live in a cycle of repeatedly building, spending, and replenishing their short-term savings as a way of smoothing income disruptions and unexpected expenses. For example, in 2020, no one could have imagined the disruption to income and expenses, and those with savings cushions were better prepared to deal with increased grocery expenses, and to cover lost income. But for this study, we wanted to understand how much money people needed in short-term savings to avoid traumatic negative consequences such as having to move, or having their utilities shut off.
Your research showed that even $100 in savings has a positive impact on households. How do these findings tell a counter-story to the narrative that households should have between six weeks and three months of living expenses in savings?
Saying someone should have multiple months of living expenses saved isn’t bad advice per se, but the reality is that building a savings cushion of that size is out of reach for millions of Americans. Presenting that goal as the demarcation of success versus failure can set these families up for failure before they start. What we want to do is get people on the path to reach that goal because every dollar saved along the way helps. This study clearly shows that even small amounts of savings can make a big difference.
A recommendation from your research asks policymakers to keep top of mind how even small amounts of savings can boost the overall well-being of individuals. What are some of the actions policymakers could take to do this in your view?
It’s a really timely question given the policies the incoming administration has proposed around student loan forgiveness, and the recent debate over $600 versus $2,000 stimulus payments. First and foremost, how incoming SaverLife members describe their debt load when we assess their Financial Health Score at onboarding is a top predictor of future savings activity; those who indicate their debt levels are manageable show far greater savings rates than those who indicate they have too much debt. Given how prevalent student loan debt is, even in low-income populations, any forgiveness measures will likely have the knock-on effect of keeping people in their homes, keeping the lights on, helping people avoid debt traps, and reducing anxiety.
Similarly, our data shows that stimulus measures, either those implemented by the government or the cash grants SaverLife distributed last spring, leads to a myriad positive of outcomes such as greater food security, debt reduction, and increased savings balances. This fall we discovered that the $500 cash grants we distributed in the spring lead to a 104% greater likelihood of someone increasing their savings balance by $100. And since $100 is correlated with so many positive outcomes, the logical conclusion is that every dollar of stimulus distributed leads to fewer negative societal outcomes.
Did your data tell you anything about the habits of households that were able to maintain a savings balance of $100 or more? Was there any behavior that stands out or that we can learn from that could help the other households achieve that level of savings?
We hear from our members that savings success boils down to two things: saving what they can, when they can, even if it is just a few dollars here and there, and taking pride in the activity of saving, not just in achieving some savings balance. In other words, people who view success in the act of saving tend to be more successful than people who view savings as a dollar amount. However, the data also shows that “saving when they can” is often out of families’ control due to external factors such as inconsistent incomes and wages that no longer cover the cost of living.
Thirty percent of people who earn under $25,000 a year said they “never” have money left over at the end of the month. This number drops to 10% for people earning $25k-$50k. And income volatility plays a huge role too: 22% of people who stated their income “varied quite often” from month to month said they “never” have money left at the end of the month. This number drops to 9% for people who say their income “occasionally varies” from month to month. We know that people want to save, and are trying to save, but the data demonstrates that there are too many structural barriers in the way for people to do so with the regularity needed to achieve financial stability.
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 its Social Impact team, BlackRock is partnering with innovative industry experts Common Cents Lab, Commonwealth, and the Financial Health Network to give the initiative a comprehensive and multilayered approach to address the savings crisis. Partners including UPS, Mastercard, MX, and Self Financial have joined BlackRock’s Emergency Savings Initiative to help their employees and customers take the essential first step toward long-term financial well-being.