Benefits and Compensation, Coronavirus (COVID-19)

4 Ways to Help Workers Build Emergency Savings, and How Much Is Enough?

As employers reevaluate employee benefits following the labor shock of 2020’s COVID-19 pandemic, they must look at ways to both shore up financial health and help reduce potential future stressors.


Evidence shows that having enough savings on hand is one of the largest predictors of financial well-being, making employee financial health programs focused on building short-term savings critical priorities. But how much savings is optimal, and how is it best to encourage employees to save?

The Case for Emergency Savings

Research regarding low- to moderate-income Americans shows that every $100 in savings helps reduce a household’s probability of rent or mortgage delinquency by nearly 5% and regular bill delinquency by over 6%. And yet, for the seventh consecutive year, the Federal Reserve indicated that more than 1 in 3 Americans (37%) are unable to easily cover a $400 emergency. Even worse, in 2019, AARP found that more than half of households in the United States have no emergency savings account at all.

Savings accounts are also important tools for helping people avoid tapping any retirement savings when confronted with an emergency. In fact, another 2019 survey showed that over 20% of loans from retirement accounts are taken to cover unexpected expenses. This option of last resort is a very expensive option with potentially long-term negative consequences.

To be sure, it’s important to distinguish between emergency savings and longer-term savings goals—emergency savings are liquid savings that are designated to be used in an emergency; longer-term goals might range from money for a new car to retirement.

This article is focused on the concept of emergency savings. But just how much emergency savings is enough, and what behaviors will help your employees become successful savers?

What’s the Magic Number?

While a lack of emergency savings is often the result of insufficient income or sudden, unexpected expenses, there are also many individuals who have the ability to save but just don’t get around to it. There are others who are simply confused or stopped from saving by sometimes conflicting advice on how much is enough. Both scenarios highlight the importance of employer-directed financial health programs that can help stimulate savings behavior.

Of course, it’s no surprise that there are myriad suggestions for optimal emergency savings. Diverse household demographics—size, location, income, and expenses—mean there is no one-size-fits-all savings goal. However, there are some important benchmarks to keep in mind that can help create basic savings targets:

  • The U.S. Federal Reserve considers a $400 sudden expense to be a “modest” financial setback.
  • The Pew Charitable Trusts found that the typical household’s most expensive sudden expense is $2,000.
  • Recent research shows that a savings of $2,467 is protective against financial shocks and the subsequent debt or borrowing traps that may ensue.
  • JPMorgan Chase & Co Institute identified that approximately 6 weeks of take-home income is the minimum amount in savings to buffer against income and spending shocks.

Common Cents Lab’s view as part of BlackRock’s Emergency Savings Initiative is that while the specific dollar figure or the number of weeks’ worth of savings is a fluid number, the underlying habit of developing a savings system targeting a consistent amount in savings is what is most important.

How to Jump-Start Employee Savings

So how do you, as an employer, help bridge this gap so your employees can begin saving? These best practices are drawn from our behavioral economics research at Common Cents Lab and can be deployed as part of your financial health programming. Keep in mind that this list is not comprehensive, but we believe it’s a great starting point!

1. Start with small goals. While an ultimate savings goal like those listed above may seem daunting for people at first, it is important that employees set and celebrate smaller, achievable goals. Indeed, research shows that people are more likely to forgo small purchases in favor of savings goals when they are working toward smaller, weekly subgoals.

For example, instead of having people work toward a goal of 6 weeks’ income in their savings, financial health programs can break those ultimate goals into subgoals, working toward 1 week’s worth of income at a time. Seeing progress toward these subgoals is not only less daunting but also more motivating.

2. Earmark savings. Earmarking, or denoting a specific savings account for a specific purpose, can be instrumental in building and maintaining savings. When individuals place money in specified accounts, such as “College Fund” or “Car Repair,” they are less likely to spend that money on discretionary purchases.

To assist in this, employees should be encouraged to have specific “Rainy Day Savings” or “Emergency Savings” accounts. This will help discourage them from tapping into those funds for a fun but nonemergency expense and provide the freedom to use that money when they need it most.

3. Set up routine savings. Whether done by hand each month or set up through a financial institution, income should be routinely moved into those earmarked savings accounts—ideally automatically! The best way to assist with this is to allow for, and encourage, employees to split their direct deposit into checking and savings accounts.

By providing employees with the ability to automatically move a portion of their income into their savings account in each pay period, they are given the opportunity to build savings in the background and have a cushion for a financial shock. While direct deposit is not always available, you can still encourage individuals to set up automatic transfers into their savings accounts on a regular basis.

4.Replenish used savings. Emergency savings accounts are meant to be used for an emergency—a flat tire, a surprise dentist bill, or a sudden decrease in income. But that emergency fund should start to be replenished as soon as possible to help cushion a future sudden expense. Remind employees through prompts or triggers so that emergency savings does not become a one-and-done effort.

So, no matter the target number, these suggestions can help set up your employees for success in using—and continuing to build—their savings.

Amanda Utevsky, PhD, is a Senior Behavioral Researcher at the Center for Advanced Hindsight at Duke University and Common Cents Lab, funded by MetLife Foundation and BlackRock’s Emergency Savings Initiative.