How to Help Your Employees Build Resilience for the Next Downturn

Every one of us has been affected by the events of 2020. But the silver lining is that, through market volatility and record unemployment, we have been able to endure and are coming out the other side tougher and more resilient.

When unemployment rates spiked to 14.7% in April, many Americans were left worrying about how they would make ends meet, especially employees who felt significant financial pressure before the current crisis.

A recent study found that 27% of Americans said they were not confident that they would have enough money to get through the pandemic, and with 3% reported they were already out of money, this paints a concerning picture. To add to these worries, more than one-third of full-time employees have less than $1,000 saved in a rainy-day or emergency fund. So, with little or no time to prepare for the financial challenges accompanied by COVID-19, many were anxious for relief. And, for many, some relief came in the form of the CARES Act, which provided stimulus checks, expanded access to retirement accounts, and made additional loan repayment provisions.

Now, as we recover from the down markets and depleted savings, it is time to financially rebuild. This is an opportunity to discuss savings strategies with your employees. These savings concepts may not be new to you as a plan sponsor, but they may be brand-new for your employees.

To begin the conversation, here are two helpful savings strategies that your employees might really appreciate:

This is a way to simplify the art of saving. The three-bucket principal goes like this: fill the first bucket, then after the first bucket is filled, start pouring into the next bucket and then save into the final bucket. Each bucket holds savings for a specific goal:

Bucket #1

Bucket #1 is reserved for emergency funds (e.g., $1,000)

Bucket #2

Bucket #2 is for short-terms needs (e.g., 103 months of expenses)

Bucket #3

Bucket #3 is for retirement savings

This percentage-based principle is a different type of savings strategy, and it helps to guide how money is spent and where it goes:

50%

Needs

50% goes to needs, including:

housing, groceries, utilities, transportation, health care, insurance, child care, etc.

30%

Wants

30% is dedicated to wants, including:

clothing, dining out, gym membership, entertainment, children’s activities, vacations, etc.

20%

Goals

20% in either dedicated savings buckets or toward specific goals, such as:

emergency savings, debt payments, retirement, college savings plans, etc.

Needs

50% goes to needs, including:

housing, groceries, utilities, transportation, healthcare, insurance, childcare, etc.

Wants

30% is dedicated to wants, including:

clothing, dining out, gym membership, entertainment, children’s activities, vacations, etc.

Goals

20% in either dedicated savings buckets or towards specific goals, like:

emergency savings, debt payments, retirement, college savings plans, etc.

As we have recently experienced, it is wise to build an emergency savings account with enough money to cover living expenses for three months. But what does that really look like?

An annual Financial Wellness survey revealed some interesting findings. In 2019, prior to the pandemic, 31% of employees said they would be able to meet their basic expenses if they were out of work for an extended period of time. But surprisingly, in May of 2020, right at the initial peak of the COVID-19 crisis, 11% more employees expressed confidence in their ability to make ends meet.

While that increase may seem odd, it could be a matter of expectation versus reality. Prior to the pandemic, people may have thought they would need much more saved if they were out of work,but maybe in reality, they were able to be more resourceful. The beauty is that people are resilient, and when put in difficult situations, we rise to the occasion.

Offering a comprehensive and dynamic Financial Wellness program is more important than ever. With the lessons we learned in the first half of 2020, employers can use this momentum to help employees to examine their financial situation to better prepare for the future.

Morgan Stanley at Work is committed to helping you provide education and resources to your employees to help them navigate their financial situations and build resilience. To learn more about how we can help your organization, visit Financial Wellness at Work Solutions.