Companies look to expand access to emergency savings solutions

Timothy Flacke, Executive Director and Co-Founder of Commonwealth, joins Yahoo Finance to discuss tackling the widespread financial insecurity in the U.S. and how companies can aid in those efforts.

Video Transcript

ALEXIS CHRISTOFOROUS: In today's "Funding Our Future" segment, we focus on financial insecurity. And we know that many people cannot afford to pay for a surprise expense with cash. It's a situation that's only been made worse by the COVID-19 pandemic. And now the investment firm BlackRock is teaming up with some other companies to find ways to help Americans build their emergency savings.

Joining us to talk about it is Timothy Flacke. He is Executive Director and Co-founder of Commonwealth. Timothy, thanks for being with us. Let's start with this BlackRock initiative. I know they brought on five corporate partners-- this was a philanthropic fund that was already in existence. Tell us how this is going to work and who those partners are.

TIMOTHY FLACKE: Yeah. So super excited to have a chance to talk about this. Some of the partners that have joined this BlackRock emergency savings initiative include ADP, who you may know pays one in six workers in the country, Best Buy, obviously, a well-known retailer, fintech, self, and VARO, and one of the nation's largest banks, Truist.

And we think this is really significant, because that's a remarkable cross-section of really powerful institutions saying that we need to pay attention to regular Americans' financial security, and more specifically, what we really believe is the foundation of financial security, which is having some liquid savings-- the sort of Swiss army knife to manage through a range of financial challenges. So BlackRock's philanthropy has made possible my organization and some of our colleagues to work with some of the partners you've just seen there to figure out how they can bring high quality, well-designed emergency savings solutions to their stakeholders, their workers, their customers, their members.

KRISTIN MYERS: You know, Timothy, I think we've all heard that statistic that a lot of Americans can't even afford a $400 emergency because of the lack of emergency savings. I hope you can just make clear for everyone what the reality is right now for the majority of Americans. Either-- do most Americans have any money saved for an emergency? If so, how much is it truly?

TIMOTHY FLACKE: Yeah, that's a really important point. And many of us have heard the Federal Reserve has been studying this question-- particularly, can you handle a $400 emergency essentially by drawing on savings? And the most recent data that I've seen suggests 37% of the country says they can. But what's even more startling is that when you disaggregate that by income, and gender, and race, those figures rise dramatically.

58% of households under $60,000-- so just a little below the median income-- say they couldn't handle the $400 emergency by drawing on savings. With and under $60,000, that pops to 61%, and Black households under that $60,000 income, a staggering 71% wouldn't have that $400. And people are under enormous financial pressure, but one thing we find consistently is that people want to and value having a little bit in reserve.

And to be clear, this isn't always socking away money for some distant date when some bad thing will happen. This is sometimes saying, this month, I had some extra hours, maybe there was a government pandemic relief payment, maybe I'm getting the advanced child tax credit that will start to come into households in July-- I want a place to set that aside so that next month, my first line of defense is my own savings.

And that may seem really basic, but it's remarkable how many people don't have access to those kinds of tools. And it's through action by the stakeholders we've seen really leading employers, financial technology companies, record-keepers and benefits providers, that we can make sure everybody has a good way to store up and draw down their own earnings and their own income so that they have that first line of defense.

ALEXIS CHRISTOFOROUS: What are some real, practical ways, Timothy, that corporations can help people do that? I mean, there's been talk that maybe they take a little bit out of your paycheck every month, sort of in the same way you pay into social security. That's why social security started so many years ago-- to make sure and to, in essence, force people to have a nest egg in retirement. Do we need something like that when it comes to an emergency savings nest egg?

TIMOTHY FLACKE: Yeah, I really appreciate the question. I would stop one click short of saying we need to force people to do things. What we've seen over and over again is that people really want to have savings. And I think the right frame is it's on institutions who have the ability to shape the environment around us all to make it easier for us to do what we already want to do and what we know is in our best interest.

And I think the beginning of that is just really easy access to high quality tools. One additional step that we're very interested in is to automatically enroll, for example, workers into emergency savings tools, always with the ability to opt out if a worker doesn't feel that that's right for their circumstances. But we've seen that that's a very, very, very powerful tool in retirement savings to increase participation. We think that would be a really sensible step to explore for the more near-term emergency savings, because the reality is more and more of us live our lives in the financial present.

It's always important to have that long-term plan, but it's really hard to focus on something decades away when your mind is asking the question, how am I going to get through the next pay cycle? How am I going to get through next month? What am I going to do when it's back to school and I have expenses that I don't have anything set aside for. So by addressing those short-term needs, including through this automatic enrollment, we think there's even more possibility that more of us will be able to think about the longer term as well.

KRISTIN MYERS: So you're highlighting what companies are doing to help Americans really boost their emergency savings. Is there anything more that can be done, at least on the part of the federal government as well, to really help many Americans be able to meet some of those emergencies that might cost $400 or more?

TIMOTHY FLACKE: Yeah, what a great question. I guess a couple of things-- we've all been through so much in the past year-plus that it's easy to miss that the federal government has actually taken really extraordinary steps. And the one I would encourage all of us, both as individuals and households, but also as leaders of large institutions, we should really be paying attention to this dramatic expansion of the child tax credit.

The federal government is going to start sending hundreds of dollars-- up to $300 per child to every household that has kids under 17-- virtually every household-- beginning July 15 and then every month till the end of the year. So government has already handed us a really important opportunity and it's on, particularly, the financial services industry, employers, and other institutions to help all of us seize that moment and ensure some of those funds might go into savings.

So that's enormously important. Other flows of money from the government are also opportunities. Tax refunds, for example, are a wonderful opportunity to build up some savings-- for many of us, the best and most realistic chance to get started. And because of some of the changes that have passed-- Congress has passed this year, all indications are federal tax refunds are going to be much larger next year for many, many, many households.

So it's an opportunity now for us to begin preparing for that. And again, the frame here is, let's allow us to meet our longstanding aspirations to build up that cushion. What can we do to make that possible for people who really want to have the peace of mind of having even a few hundred dollars aside and readily available when the need arises?

ALEXIS CHRISTOFOROUS: All right, Timothy Flacke, Executive Director and Co-founder of Commonwealth. Thanks for being with us today. And a reminder that "Funding Our Future" is an alliance of organizations dedicated to making a secure retirement possible for all Americans.