By Corey Carlisle
“The year 2020: zero stars. Would not recommend.” But the year did not begin with this kind of customer review. Unemployment at the beginning of the year was a mere 3.5 percent, the lowest since the 1960s, and household incomes had generally rebounded since the Great Recession in 2009. Even with the wind at our backs, however, most households were skating on thin financial ice, with a startling 39 percent of Americans saying they lacked enough cash or savings to cover a $400 unexpected expense.
Then came COVID-19, a global health crisis that has become a financial one with profound impacts on our economy and our individual lives.
Saving, in general, takes planning and discipline in the best of times. For people living paycheck to paycheck, the thought of creating a rainy-day fund sounds like an impossibility. Nobody knows how long this pandemic will last, or its long-term financial impact. Even a little bit of savings makes recovery from this or a future unexpected event much easier. That is because people who lack sufficient savings often rely on credit cards or loans or may even pull from retirement funds to recover from a financial shock, often leading to further financial instability.
As the term implies, an emergency savings fund is a cash reserve used to pay for big or small unexpected bills not associated with routine spending. Home repairs, car breakdowns, medical emergencies or even job losses occur at any time. Experts generally recommend that Americans set aside three to six months’ worth of living expenses in the bank for emergencies. That can seem like a daunting amount, but we know that small changes in behavior can go a long way. Campaigns such as the Consumer Financial Protection Bureau’s “Start Small, Save Up” initiative aim to reinforce that a savings journey can start with small goals and the right tools.
Taking part in ABA Foundation programs such as Teach Children to Save and Get Smart About Credit, the banking industry continues to lead and support many initiatives working to help people build a foundation of basic savings. That includes encouraging consumers to open, maintain and grow emergency savings accounts that will contribute to their overall financial well-being. Many banks are introducing bank accounts that include automatic savings transfers, which makes it less of a hassle to save money and keep it saved.
Capital One offers a free online savings account, Capital One 360, that includes an option for automatic transfers and the ability to create up to 25 separate accounts for various savings goals. Additionally, the account can be linked to an interest-bearing checking account that includes mobile check deposit, making it easy to send unexpected windfalls, such as tax refunds, directly to a savings account.
Bank of America offers its customers an automatic savings option though its Keep the Change program. Customer need only enroll their debit card and the bank will automatically round up your purchases to the next dollar and transfer the difference to your BofA savings account. For example, if you fill up your gas tank for $19.25, your total would round up to $20, and the additional 75 cents is added to your Keep the Change account.
In addition to promoting healthy savings habits among customers, some banks are also promoting financial security among employees. Truist Bank has stepped up its efforts by offering employees $1,000 if they complete a financial education course and take certain actions, including making automatic contributions of at least $20 per pay period to emergency savings. The program has found tremendous success, boasting a participation rate of around 80 percent of eligible employees. Truist has since begun working with several other companies, including Home Depot, to address the financial competencies of their employees and incentivize emergency savings.
There is no debate that we are living through difficult times. While some might argue that saving is a luxury reserved for times of excess, a stronger case can be made that now is a time when people are hyper-aware of their finances and are willing to rethink their financial behaviors. These banks are playing a critical role in helping people understand that they have the power now to adopt small changes that can add up to a more secure future.