00;00;04;17 [Kara Watkins]: Thank you everyone for joining us online today and welcome to our digital event. Co-hosted by the Aspen Institutes Financial Security Program, the Bipartisan Policy Center and the funding, our future campaign to discuss the 2021 policy agenda for emergency savings. My name is Kara Watkins and I'm the campaign manager of funding, our future, a coalition of over 40 organizations across the nonprofit academic trade association and corporate sectors, all working to make retirement security, a reality for all Americans. All of today's participants, our partner
00;00;38;15 organizations in this campaign effort, we are especially grateful to our executive partners, the Charles Schwab Foundation, and Edelman Financial Engines, as well as all of our corporate partners provide us with the financial resources to make this work possible. As we know, access to liquid savings in an emergency can make all the difference between households staying afloat and falling into debt in order to make a longer
00;01;03;11 term financial security possible for our communities. Especially in this moment, we need to acknowledge the shorter-term savings and how they play a critical role. Today's conversation will outline this challenge and focus on specific policy solutions to address it. I want to note that at any point during this program, you can submit a question for the panelists, which we will address at the end of the event, to submit a question, you can type it into the video comments or tweet using the #BPC live. Now, let me turn this over to Evelyn Stark, the assistant
00;01;37;16 vice president for financial health at the MetLife foundation. At MetLife Evelyn developed, and now more financial inclusion through to low income individuals and provide them with access to high quality financial services. Her career has focused extensively on financial inclusion efforts worldwide, including at the bill and Melinda Gates foundation and US aid among others. Evelyn will provide some critical context and set the stage
00;02;05;08 for today's policy agenda around liquid savings.
00;02;08;15 [Kara Watkins]: Evelyn, please take it away.
00;02;11;19 [Evelyn Stark]: Thank you, Kara, funding our future, the VIP center and ask them financial security for hosting this program on emergency savings at MetLife foundation, we work with all of the partners in this webinar and like the BPC, many other partners who are likewise committed to expanding opportunities for low and moderate income people in the U S. We've been focused on financial inclusion and financial health since 2013. And our work has enabled 13.4 million low and moderate income people in four different countries to make progress on their journey to financial health, like all of
00;02;44;11 us in this virtual room, we care about the topic of savings, writ large. It's a fundamental piece in the financial health puzzle. We see emergency savings as especially important because we know that if you can't deal with today, if you can't deal with the hiccups bumps or big emergencies that today may throw at you, then managing to spare the bandwidth, the mental energy and the real hard cash for the future, for your, uh, for your kids' college funds for the house in the better school
00;03;12;22 district for a comfortable retirement is all the more difficult. In other words, being able to deal with emergencies today enables us to think about and plan for how we might or how we will fund our future. Obviously, the times we're in right now, a global pandemic, a reckoning on racial equity and social justice are more than just hiccups. They shine a brighter spotlight on our issues with savings, emergency savings and retirement savings. Again, I'd like to point to the work of BPC panelists, all the
00;03;42;07 organizations that work in this space, there is so much great data and research on the barriers and opportunities to increase the savings landscape and the act of savings behavior of Americans.
00;03;52;20 [Evelyn Stark]: I'll highlight a couple of these findings just to set the stage for Kathleen and the rest of the team. If we look just prior to the pandemic, Americans were already not financially healthy. The fed shows that 39% of Americans couldn't come up with $400 in cash in the event of emergency. The financial health network survey shows that 71% of Americans aren't financially healthy Pew found that 50% of Americans didn't feel financially secure. And that in low income neighborhoods, 75% of
00;04;23;20 Americans didn't feel financially secure. Commonwealth found that more than 80% of Americans defined financial insecurity as a big problem, and something that could happen to anyone. They knew this perhaps because 75% of them said that financial insecurity was something that had happened to them. And how did they define financial insecurity? They basically said it means not having any savings. It means living paycheck to paycheck and not having enough money to retire. The biggest regret people have expressed since COVID was not having enough
00;04;56;00 savings to deal with this emergency. Interestingly, there's not so much an amount of savings as the right amount, as much as there is an action of savings. How much of the research shows us the financial health is most strongly associated, not with income nor education, but with planning, regular savings and having a financial cushion. In other words, savings is an action verb. If you look at the savings balance in the bank accounts of moderate and low income people, you're actually gonna see a lot of action. It doesn't go steadily up. It goes up, it gets used on car repair. Then saving
00;05;26;14 balances might be flat for a while because there's no slack in the budget. Then it might go up again. When the tax refund comes in or you or your partner gets some extra hours, we often hear that the right amount of savings to have is at least three months of expenses or three months of income.
00;05;42;09 [Evelyn Stark]: Um, Urban Institute finds that having a savings cushion of just under a thousand dollars means that people don't miss a housing payment or utility payment don't require public benefits. When a shock occurs, the federal reserve board finds that people of any income level are less likely to tap retirement funds. If they have more than $400 in savings, these figures, however, we're focused on pre pandemic times when most shocks didn't actually last for 12 weeks though, their lingering effects may last for much longer. One of the lingering effects that we do
00;06;13;23 see is using credit to pay for rent or utilities, and most folks living paycheck to paycheck don't have access to fair price credit. There are $9 billion in interest payments being made by low income people who are using payday loans because they don't have the savings cushion, Latino and black households. And those in the lowest income brackets are the most likely to re to turn to credit products that increase their vulnerability. Most likely they'll roll over that two week loan multiple times and end up paying more in interest than the original principle. The cost of payday
00;06;44;16 loans is about 400%, 391% if we don't want to round up. The debt, isn't just expensive. It's mentally taxing. Saver Life, found the debt loads and the sense that debt loads are overwhelming was a key differential between successful savers and struggling savers. It's hard to think about putting money into a savings account, let alone a retirement account if you're struggling with debt, but there are ways to improve savings for folks. And we see that in many ways, even by using debt. One innovative
00;07;15;06 idea that some credit unions are implementing with one of our partners. Common sense lab is overpaying or rounding up the car loan by five to 10%. And having that overpayment rolled right into a savings account.
00;07;27;23 [Evelyn Stark]: By the time the car is paid off, the borrower has more than a thousand dollars in savings. There are a lot of other designs to help people do what they want to do, which is save more prize, link, savings, match savings, and automating savings from your paycheck. All of these and more have been used successfully in recent years, even since the pandemic struck, our nonprofit partners are finding that low income people are saving more than usual. Saver Life, saw a significant increase in savings in April with people pushing their balances up prosperity. Now Saver Life and many others saw people using the economic impact payment
00;08;01;11 under the Cares Act to pay for rent utilities, to pay down debt and to increase savings, to provide a cushion against further job instability. Of course, these cushions don't last forever. And in fact, our partners are seeing since June, the people are using those savings to meet expenses where the savings story goes from here. I'm going to let my esteemed colleagues get into much greater detail and discuss more in depth issues. I'm pleased to introduce Kathleen Coulombe has served as vice president and
00;08;29;04 deputy federal relations, retirement security for the American council of life insurers in this capacity. She's involved in retirement security, public policy issues on Capitol Hill that impact the life insurance industry. Prior to this work, Kathleen served as a senior advisor of government relations for the society for human resource management, where she managed their tax retirement and benefits portfolio on the federal level. Thank you.
00;08;58;19 [Kathleen Coulombe]: Thank you, Evelyn. And thank you to everyone for joining us today. I think you set the stage perfectly. I just want to remind everyone before we begin to submit your questions and engage via YouTube or Facebook with the #BPC live. So with that, with that, let's jump right in David, I'll turn to you first. I'm curious, based on Prosperity Now's research on liquid poverty. How are families doing?
00;09;24;08 [David Newville]: Thank you, Kathleen. Uh, and thank you also to BPC, Aspen FSP and the funding our future campaign for, uh, having me here today. Uh, it's a great question, Kathleen. Um, I think as Evelyn pointed out, you know, uh, the economy was not working for many families as well as it was kind of the high level metrics before the crisis started. You know, when you look at factors like GDP and the stock market, um, obviously things were looking pretty well, but when you dig down into household financial metrics, you know, families that are lower income and well in the
00;09;55;17 middle income metrics were not doing very well and many factors. And, you know, you can start with liquid asset poverty, uh, which is from the prosperity now scorecard, which just measures how much liquid savings a family would need to subsist for three months, just at the poverty level. And before the pandemic kid, we realized that it was about 37% of households would, did were liquid assets for, did not have that amount of savings to be able to exist at that level. And if you looked at the number
00;10;24;07 of households that could survive at that level without tapping retirement savings, even it was well over 50%. So a large level of instability for households when it came to emergency savings at that time. And when you dig a little bit deeper, as Evelyn mentioned as well, you know, you look at black and Latino households and communities of color, those numbers are even higher. And unfortunately we've seen that play out now that the pandemic hit. It was well over 58% of black and Latino households were liquid asset poor. And we see much dire outcomes,
00;10;56;24 obviously for black and Latino households right now during the pandemic, both in terms of the health consequences of COVID-19 and also, um, obviously the economic fallout as well, uh, in late June, early July prosperity now fielded a nationwide survey of lower income households about 2200 households to kind of examine, uh, how they were doing with their finances in the pandemic.
00;11;20;01 [David Newville]: And what we found was about 40% of these lower income households reported being financially worse off. Um, and we expected that even though that number is obviously quite bad, it was better than we expected in some ways I think considering the impact of the pandemic and the radical swiftness of how quickly it came down economically across households. And these households reported four main means of kind of managing through the crisis, at least so far through this point. And one of them was savings and two others were closely related. The other one was the
00;11;50;08 economic impact payments, the stimulus payments that were able to access those relied on those to financial aid get by and tax refunds. I think the fact that the pandemic happened, um, one saving grace happened in March, just around tax season when folks lower income folks, especially those who received that earned income tax credit or the child tax credit. We're able to get these larger tax refunds, which they were able to use to supplement a savings during this pandemic. And then the fourth, most common strategy was basically deferring bills, which obviously we've heard a lot
00;12;21;12 about anecdotally and through other means about how folks are surviving this. So savings played a really incredible role, even for households who may have been liquid assets or having some savings or some of these other, uh, government resources to supplement that, to help them get by, to prevent worse outcomes. But again, I think, uh, when it comes to communities of color and we saw the worst outcomes we saw, you know, those especially Latino households may not have been eligible for all these, uh, all these types of assistance because they themselves remember their
00;12;50;02 households were immigrants, uh, and were denied economic impacts or other supports we're struggling much more, um, during this crisis. And we saw that, um, in the sense that those respondents were much more likely to report turning the credit products, which Evelyn also mentioned, what did she know? Sometimes credit products can be a good lifeline, but sometimes they can also be high cost or even predatory when you're talking about traditional payday loans. So I think that was some concerning data that we also saw there as well.
00;13;22;19 [Kathleen Coulombe]: Thanks, David. Clearly emergency savings plays such a key role in ensuring that families are able to survive in times of crisis. I want to turn to Karen now, can you talk a little about the role of emergency savings and how this type of savings can really be a lifeline to families?
00;13;38;08 [Karen Biddle Andres]: Yeah, sure. Um, and thanks to our partners at BPC and funding our future, um, for co-hosting with us, this is, um, obviously such a critical time to be talking about emergency savings. Um, you know, I think Evelyn and David did such a good job teeing up kind of where families are right now, which, you know, the, uh, to cut to the point of they're cut to the chase. It's not good. Uh, I want to back up and talk about sort of the role, even in normal times that emergency savings plays in that
00;14;08;23 household's financial life. Um, I think that the, the good news is that emergency savings, according to the Consumer Financial Protection Bureau is actually this, the single factor most highly correlated with financial wellbeing. Um, and it may have to do with the role that, that these savings play in people's life. And that they're kind of two key roles. So one, uh, goes with the name as the name suggests emergency savings helps people pay for unexpected expenses, like, you know, new tires, fix the furnace, the replacement pair of shoes
00;14;39;17 for the pair that your kid just lost. For example, last week, uh, an emergency savings, uh, can help people manage the sort of unexpected expenses, small and large. There's another key use though. That's to help bridge the cashflow gaps that happen for families who have unpredictable and volatile incomes. Um, and, and that dynamic of, of incomes that kind of spike and dip spike and dip in unpredictable ways has really increased with the rise of contingent and gig work, as well as the use of on demand
00;15;08;00 scheduling, um, by employers.
00;15;09;25 [Karen Biddle Andres]: And so to have, um, an immediately accessible pot of liquid savings, um, that's helps people bridge those gaps and fix the car, um, which as, as both David and Evelyn have noted, can help, help avoid deferring bills, um, and can also help avoid the use of, of high cost credit. No, I think we have to note that in this time of, of coronavirus people's finances have been severely impacted. Those impacts have been worse across the board for households of color. And I think, um, you know,
00;15;41;01 as we step back and look at the big picture after months of income loss for millions of Americans, we have 30 million renters who are facing the risk of eviction through the end of 20, 20, um, 14% of households with children report sometimes, or often not having enough to eat. And that number increases to 24% for black households in 22% for Latin X households. And I think, you know, that's, um, that's pretty dire. Uh, we should be clear that not all of these problems can be solved with emergency savings. And we
00;16;11;12 think we need other ambitious policies to increase cash flow for families to help make ends meet and that in a crisis of this length and depth, but emergency savings could have helped here. Um, and so I think as demand for these tools increases, um, as it often does in the aftermath of a crisis, like a pandemic, we really need to take advantage of it.
00;16;34;20 [Kathleen Coulombe]: Thanks, Karen. I think that's so important to note and with the critical role that emergency savings plays, it's no surprise really that we've seen some movement on Capitol Hill when it comes to this issue shy. Can you give us some example of a proposal that seems to have momentum?
00;16;51;14 [Shai Akabas]: Sure. Thanks, Kathleen. And echoing my, uh, partners, thanks to funding our future and aspirin for co-hosting this with the Bipartisan Policy Center, um, the, the logical next question, after all the stats and context that Karen and David and Evelyn just gave is what can we do about it? What can we do to help people accumulate these savings that they really need for emergencies? When we look at the retirement savings landscape, we can actually take some lessons from there. We know from experience that when you leave it to people themselves to proactively go
00;17;24;13 out and open up accounts, like an IRA, for example, very few of them ended up doing it. There's a lot of inertia. You have to be knowledgeable about the process. You have to figure things out by yourself. So if we want to make progress on this front, I think learning from the automatic enrollment experience that we've seen in retirement savings accounts, which are facilitated by employers and when they use automatic enrollment, meaning that people are defaulted into these 401k type accounts, unless they opt
00;17;51;13 out of them. You see participation rates of 70, 80, 90%. And those are the types of rates that we need. If we want to try to help people accumulate retirement, accumulate, emergency savings, just like many people have had success in accumulating retirement savings. Of course, there are people who are still going to opt out, but this is how we can get a sizable chunk of the population that doesn't have access to that today to shore up their personal finances and financial security. There's a couple additional reasons. In addition to just helping people have liquid assets that
00;18;23;00 emergency savings and something like this type of proposal could be really useful. One is that there's a lot of financial wellness that goes along with having liquid savings when it comes to something as simple as stress and success at the workplace. And in surveys, we see that something like a quarter of people have said that they've lost sleep recently about their personal finances, about an eighth, say that they've missed work recently.
00;18;49;09 [Shai Akabas]: Um, George Washington has done a study that says 55% of workers said they feel anxious when thinking about their personal finances. These are statistics that show that it's likely seeping into people's work lives and their ability to be successful in not only their personal finances, but just their other activities. So what we need to think about is not only how we can help those employees, but then how we can tell employers that this is actually going to be helpful for their business. It's not only them caring about their employees or showing that they care about their employees. It could actually be helpful to their
00;19;21;23 bottom line by making their business more successful. And their employees able to focus more on the work at hand. So there's really a win, win, win situation here. If we can figure out ways that we can provide these types of accounts to people, there's also the leakage element. And we'll get into this a little bit more. I know in the discussion, but the connection between short term savings and long term savings or retirement savings research shows that 40 cents out of every dollar that goes into retirement accounts comes out before retirement. And that's a
00;19;49;11 problem because obviously it's detracting from people's ultimate retirement security. Why the reason is generally simple because life happens and people don't have any other assets as David and Karen were laying out. If you're in a pinch and the only assets you have are your retirement savings, that's where you're going to go. So if we can help people accumulate these short term savings and have them use it as a mental accounting tool, so that when there is an emergency, like needing new tires, you go to your short term savings as opposed to dipping into your retirement account and
00;20;19;13 then have the money continue to flow out of your retirement account.
00;20;21;24 [Shai Akabas]: That's really meant for another purpose. We can increase success in terms of people's financial outcomes. So the question sort of is then what evidence do we have for this policy proposal? And actually AARP has done recent research that's really helpful in this regard. They've gone out and surveyed workers asking them about what they would like to have in terms of a short term savings account facilitated through their employer. And three quarters of workers said that it would be a benefit to them. They talked about things like having an employer match and having flexibility with the funding, which is, I think really
00;20;53;16 important, letting employees figure out what is an emergency for them. When it comes to retirement, there are understandably restrictions in terms of when you can access those funds, because we don't want people getting tax preferences and then rating the accounts for any reason that they deem important, uh, which, which in some cases could be something that's relatively unimportant. But I think when it comes to emergency or short term savings, there's a much greater rationale for people to have easy access to that because ultimately they're not going to want to put it into these types of accounts if they don't have that access, there's bipartisan interest in enabling
00;21;25;18 these types of employers facilitated savings accounts that could use automatic enrollment. The Bipartisan Policy Center had a commission on retirement security and personal savings that came out and endorsed this approach a couple of years ago. Um, the Brookings Institute has put out a paper exploring these different approaches that could be used with folks like David, John, and Mark Avery in bridge of major, in really notable names and the retirement and financial security space. And then practitioners have already started using these tools even without automatic
00;21;54;18 Romans. So Prudential is a really good example. They've gone out and offered a tool of sorts in terms of short-term savings, to all the people who are many of the people who are enrolled in their retirement savings plans.
00;22;06;20 [Shai Akabas]: And it doesn't use automatic enrollment, but it shows that there is an interest from employers and from financial service providers to get into this space. So I'll let others in a moment, Brian and others talk a little bit more about this, but there is legislation that is already out there on this front. Uh, it's cosponsored by senators, uh, Jones, Booker young and cotton. So to Democrats, to Republicans, to help remove some of the barriers today, and they're really regulatory barriers to allowing employers to automatically enroll their employees. This is a
00;22;38;17 proposal that I think could really have some momentum because it really targets moderate and middle income families and helping them accumulate savings, and also is really about removing regulations to allow employers to help their employees and do what's best for them. So let me shut up there and turn it over to back to Kathleen. And I think Brian's going to talk a little bit more about some of the details of this proposal.
00;23;01;22 [Kathleen Coulombe]: Thanks, Shai. Really appreciate that. Um, and that was a perfect segue, uh, to Brian. I was curious, Brian, can you talk a little bit more about what you've been hearing from employers and record keepers related to auto enrollment and, and really when the rubber meets the road, what are some current hurdles that need to be overcome in order to operationalize a short term savings vehicle in the workplace?
00;23;25;21 [Brian Gilmore]: Thanks, Kathleen. And we'll just echo appreciation for being a part of this important conversation, uh, around emergency savings. Also want to applaud the work of the Bipartisan Policy Center in terms of, uh, moving that legislative effort forward to really in our mind, put in the ideal regulatory environment for employers
00;23;46;06 [Brian Gilmore]: And retirement service providers to offer a short-term emergency savings. But I think as the other panelists and speakers emphasized, this is an immediate need. And so we know that employer sponsored emergency savings accounts are something that can help right now for employees to build emergency savings. And there are things that employers can and are doing, uh, to encourage savings. Uh, one obvious sort of low hanging fruit is split deposit so that employees can save with each part of their paycheck. And that's something that is available now and
00;24;17;27 allow some level of automation where an employee is choosing an amount of their pay to be saved every pay period. So employers can review that current process they have for setting up split deposit to ensure that it is as clear and easy as possible. And has the fewest barriers to set up, we also know is shy just mentioned that record keepers have started to offer solutions for emergency savings. You mentioned Prudential, a mass mutual and John Hancock as well are
00;24;46;10 working to develop innovative ways to offer emergency savings options, whether that's directly through their retirement plan, through an after tax account or through, out of plan options in partnership with other financial service providers. So there are options today for employers to partner with their existing providers to offer emergency savings. We also know that some employers are offering incentives right now for employees to contribute to emergency savings. So all of this is possible today. I think the key
00;25;17;00 operational challenges for employers and recordkeepers are really around choosing a high quality savings account that serves that purpose of allowing people to build use and rebuild their savings when they have unexpected expenses, ensuring that the experience of contributing to that savings account is as easy as possible. And to consider what set of outreach communications and incentives will drive engagement.
00;25;40;07 [Brian Gilmore]: And as Shai talked about, automation is such a critical component of that, and we know how powerful that is in the retirement space. And that's really the most complicated component of emergency savings through the employer channel today. And why legislation would be really helpful in this space. At the same time, Commonwealth's been working to provide regulatory clarity to employers today under current regulations. So as a quick example, we recently received approval through a consumer financial protection Bureau compliance assistance sandbox
00;26;12;12 application that clarifies one key regulation, reg II, as it relates to automatic emergency savings. So in short, this approval provides a template and a set of guidelines and criteria for employers who want to Institute an automatic emergency savings program that will comply with Reggie. So this is trying to clarify what employers can do now, knowing that there's another set of options and regulatory clarity, that would be helpful through legislation. So we want to emphasize that there are these two
00;26;42;22 parallel tracks, the ideal regulatory environment through legislation, and then regulatory clarity today that Commonwealth has been pushing to allow some employers to pilot emergency savings with this automatic enrollment and contribution component.
00;27;04;02 [Kathleen Coulombe]: Thanks, Brian. And you kind of alluded to this in the beginning, um, regarding thinking outside the box, you talked about, um, bifurcating your, your deposit into, um, some type of vehicle. Um, have you done any thinking along the lines of other types of savings opportunities like 529's or other vehicles that, that, um, might be appropriate for, for short term savings?
00;27;29;18 [Brian Gilmore]: Yeah, it's a great question. And I think it just emphasizes the point that while employers are a critical player in the emergency savings space, we know that at least for Commonwealth, this is an all hands-on deck approach. So looking at any other opportunities where a more flexible or liquid savings solution could compliment those offers. So you mentioned a five 20 nines or child savings accounts. Uh, so these are accounts that are really designed for longer term saving and to support
00;28;00;17 families with the cost of postsecondary education and like retirement accounts. These accounts often have specific restrictions on use of those funds and are not designed for that type of build use and rebuild behavior that is expected in an emergency savings account. We also know that 529 is disproportionately benefit, higher income households. There are many reasons for this, but one hypothesis that we have is that those restrictions on use might turn some low and moderate income households away because they know that they also need that savings for an unexpected
00;28;33;03 expense. So similar to what we're describing in the retirement space, policy makers, and even a child savings account providers could consider how a more flexible and liquid emergency savings option offered as part as a five of a 529 or another child savings account, how that might help address this dual need of saving both for the short term and long term, and potentially increase utilization of these accounts by low and moderate
00;28;59;28 income households, which I think we can all agree is a valuable outcome to achieve for both 529, then emergency savings.
00;29;10;10 [Kathleen Coulombe]: Thank you, Brian. Um, and before we continue, I just want to remind everyone that we'd love for you to engage with your questions on YouTube or Facebook using the #BPC live. So I'm going to go back to David. We've talked about obviously the need and the benefit of short-term savings. Um, I think we're all in agreement there. Um, what are some other innovative ideas to address this issue?
00;29;37;08 [David Newville]: Yeah, I think, um, you know, the proposal that Shai highlighted I think is a great start. I think the employer space is a great, uh, obviously a very well-proven, uh, space for kind of helping families build savings. And it makes sense to transition to emergency savings there as well. Uh, as I mentioned previously to, you know, the tax time moment, I think for, especially for lower income families who receive bigger refunds through refundable tax credits make the earned income tax credit and the child tax credit is another great space and a moment to kind of encourage emergency
00;30;11;13 savings. Um, there is a proposal, a build it's out by the same group of forest senators. The show I mentioned earlier, uh, called the refund rainy day savings act that would basically leverage that tax time moment for EITC recipients. Um, and for all households actually to allow them to kind of in a behaviorally informed way, uh, similar to the design of, you know, thinking through where to see savings in the workplace side, to basically just check a box, the tax time to set aside 20% of their tax refund for six
00;30;41;27 months.
00;30;42;22 [David Newville]: So what would happen is folks who would want to take advantage of this would have 20% set aside, and then, you know, six months after they felt that their return they'd have that 20% deposited into their account at a time, uh, that many low income households, many households have already spent the refund or use it to pay down bills. The refund is a very important piece of kind of financial management for, uh, particularly for lower income families as they try to catch up on bills and kind of deal with expenses that they've put off for many months when they receive it in the spring typically. So giving them even a small amount that they can
00;31;15;20 receive six months later when they're, you know, still a good six months away from getting that next refund can pay for that extra set of tires or for those shoes or whatever they're needed in university expense, uh, and prevent these families from kind of turning to alternatives, you know, such as kind of payday loans or other predatory sources, or just going without, um, the bill would also do a pilot, which would match, um, for EITC
00;31;40;05 recipients would match the 20% set aside by 50%. So it'd be a match savings program, um, which would be interesting to see how you can further supplement the savings and encourage that, uh, that behavior for emergency savings from lower income families who need it the most. So that's a really exciting piece of legislation that is being championed by that same, as I mentioned, that same bipartisan group of senators that we think we think would be a great addition to encouraging route to savings from low income households and households across the country. And then to go back to the, you know, the workplace savings, you
00;32;13;14 know, the workplace savings mechanisms, the automatic savings mechanisms that Shai and Brian both discussed, I think are foundational. It's one of the main ways most Americans save, but at the same time, as was mentioned, you know, uh, you know, roughly half of Americans don't have access to workplace retirement savings or emergency savings of any type right now there's a bill that would kind of build on the foundations of what has been discussed before, uh, to kind of leapfrog us into a much more ambitious,
00;32;40;20 bigger system that was introduced by Senator Coons.
00;32;43;11 [David Newville]: It's called the Saving for the Future Act. This bill would implement something very similar in United States to the United kingdom's pension system, which was reformed in the late 2000. And what did we do is it would basically have a minimum mandatory contribution for all workers. So even the lowest wage workers would roughly have the equivalent around thousand dollars in savings each year. And it would be for emergencies and for retirement at the same time, they'd have options for both similar in a way as was described by both shy and Brian earlier. Um,
00;33;16;06 it would also, you know, uh, put this onto larger employers, but it would have tax credits and other options for smaller employers where this might be harder for them to do that for their employers to make it sustainable. So, and there would be an account system set up for those who choose not to go with a private 401k or a traditional market option. There would be a government issued option called up account, which would be very simple, straightforward, low fees, and allow people to kind of say for both emergencies and for their long term retirement there. And like I said,
00;33;44;24 have the, have the extra support of the tax credit to help make them more financially sustainable and to provide the same financial incentives to lower income employees who are working for smaller businesses where they can't get that immediate match directly from them or employer. But the bill, you know, uh, initial analysis of the bill is shown that it would have a substantial contribution to improving, but with emergency and retirement savings and particularly for black and Latino workers, you know, we have a massive racial wealth divide in this country and a build like this has been implemented. We projected to take a pretty big chunk out of
00;34;16;07 that, uh, that massive rich Walt divided, as Karen mentioned earlier, you know, emergency savings. There's no, uh, there's no silver bullet to solve any kind of financial lows and the anxieties that we described earlier here, but, you know, piece of legends legislation like that, if implemented would go a long way, I think to providing some, some, uh, strong financial stability for many of Americans workers.
00;34;39;16 [Kathleen Coulombe]: Thanks, David. I, I think it's important to note too, that, um, consumer behavior is so important to think about, and once you start saving or start that habit, uh, whether it is saving some of your, um, refund, uh, 20% in an account for later, um, and just starting to understand the value in having that money there, I think it's an incredible way to build that habit. And some of the proposals you discussed really do just that. Um, Karen, I wanted to turn to you, uh, given the need for both
00;35;10;12 short and long term savings. I just wanted to talk a little bit about the interplay in terms of policy design. There's obviously a lot of importance given to retirement accounts and really locking that money away. Um, so you can't touch it, but as we've seen with COVID the need for many families to utilize that savings and set in such a circumstance. So if you could talk just a little bit about how the intersection of short and long term savings together and how that's Important for product design.
00;35;40;24 [Karen Biddle Andres]: Sure. Yeah, no, thanks, Kathleen. And I was glad you mentioned that, you know, meaning the we're very, very well, maybe seeing a real time example, um, with the, the cares act provisions that, you know, importantly open up access to retirement savings in the U S um, you know, we may very well may be seeing the cost of not having emergency savings options in the workplace. Um, so, you know, to step back a little bit, you know, I think there's often sort of a, uh, it's presented as a tradeoff, right between short term stability and long term security, um, or
00;36;14;26 the two are necessarily always sequential. And I think, you know, we think that the short term stability and long term security are, are deeply interrelated and that, you know, that don't have to be sort of mutually exclusive or necessarily sequential choices that we can build products and services and programs that help people address both needs at once.
00;36;35;06 [Karen Biddle Andres]: Um, and that's why we've been bullish at the Aspen financial security program for a long time on ideas that help these hybrid models that help people kind of do two things at once. Um, so for, for a long time, for several years, we've, um, been part of a dialogue and, and focused on, uh, the sidecar accounts idea, right? The idea that you can, uh, save for emergencies while you save for retirement on the same platform as a 401k, um, and that not only are there two buckets, but that the two buckets are connected and that after you reach some cap on the emergency
00;37;09;13 savings that, um, you know, let's say it's a thousand dollars. For example, once you reach a thousand dollars, your paycheck withdrawal continues, it's just that it's spilling over into the long term, right? So that you're successfully kind of doing two things at once. And for all the reasons we've mentioned, mostly lack of clarity around the ability to automatically enroll people into an account that does both things. You know, we haven't really seen this tribe, um, in the United States, uh, David mentioned the, uh, the national employment
00;37;36;13 savings, savings trust in the UK. They've built a model. And so we're closely watching to see, to see what that does and how it performs in people's lives. I believe common sense lab here in the U S also is running a similar trial to understand how that short term, long term connection really works for people. But I'll say that, you know, to Shai’s point about leakage. Not only do we think this would help prevent money from draining out of the retirement system before it should. Um, there's also a suspicion
00;38;06;07 that many of us share, uh, myself included that this might help pull into the retirement savings system.
00;38;12;18 [Karen Biddle Andres]: Um, uh, a good chunk of the 28% of workers who currently have access to access to a retirement savings account, but choose not to use it or choose to opt out. Um, and there's not great data on this not great quantitative data, but I, I will share anecdotally for what it's worth in my, uh, my former life has a 401k educator. The most common reason that I heard for opting out of a 401k was that people were afraid to lock up their money in case of an emergency. That's how they perceive the 401k is that it's locked up and they're not wrong about that. So I think, you know, we're, we're excited about, um, the legislation that Shai described.
00;38;45;12 We're excited about the possibility that we might be able to see some experimentation. And if I could, I want to sort of back up and say, no matter what model we're talking about, and Brian is absolutely right, that whether it's in a 401k plan alongside of a 401k plan, whether it's with the depository, like a bank, you know, whether it's somewhere else, FinTech app, there are lots of, of models that we should be pursuing simultaneously for workplace retirement. I'm sorry, workplace emergency savings. I think there are kind of three key
00;39;13;04 design principles that would govern all of these, if we want them to be successful. One is that they need to be designed for a cycle of savings, right? I think we're really accustomed to thinking about savings as successful only when we build and grow and preserve a balance, right. That's how we measure success. And I think the fact is that's not how that's not the role that emergency savings plays in people's lives. Um, success is when the balance goes up and down, right? When you build it up and draw it down, build it up and draw it down. Um, so what matters there
00;39;43;07 is that we have a mechanism for continued refunding, right? A one time contribution or a onetime infusion of cash does not, does not fix the problem, right?
00;39;52;08 [Karen Biddle Andres]: Because you need to be able to put it in, draw down, put more in and drop it down to the first thing is designed for a cycle of savings. The second thing is liquidity people need to be accessed, need to be able to access the funds at a moment's notice and not face barriers to withdraw, um, whether through some kind of restriction like a limit on the number of withdrawals or some kind of withdrawal penalty. And then that final design principle is around automaticity. As we've all noted. Many of us have noted automatic enrollment has been such a benefit to participation in retirement savings plans, and that same tool needs to be made available
00;40;25;02 to emergency savings as well.
00;40;29;25 [Kathleen Coulombe]: So Karen, that really gets me thinking, um, earlier in your comments, um, as we were talking about policy design, um, one thing that I think is so important is how financial literacy plays into this discussion. And, you know, I know, I think all of us love to talk about, um, what could work, what we'd like to see work. We love, um, working with legislators to try to really move that needle. Um, but I'm curious from, from all of our panelists, how can financial literacy really changed the
00;41;01;16 behaviors? So that folks are thinking both about short term and long term and how those, like you just mentioned really playing into together.
00;41;12;25 [Karen Biddle Andres]: Um, I'm happy to take the first stab at that. You know, I, you know, I think, um, there's a lot of data out there that, um, financial literacy doesn't necessarily lead to the outcomes that we might want. Um, and in fact, I saw that in my role as a 401k educator, what worked was automatic enrollment and target date funds right in the retirement space, I think, um, make the, make the right decision, the automatic decision make the best decision, the easiest decision and the easiest decision is their decision at all. And so I think, um, you know, w
00;41;46;26 I, would it be delightful to have a nation of people who were sort of deeply invested and understood and, you know, as a hobby, uh, loved digging into personal finance? I think, I think what we need to do though, is think about a system that is going to work for everybody or for the largest number of people, um, without sort of counting on, um, a deep knowledge of personal finance. So, uh, the automatic enrollment, I think becomes really
00;42;11;23 key. Um, if you take that view.
00;42;15;21 [Shai Akabas]: Yeah. I would just say, I agree with Karen. I think that what has proven somewhat more successful than just general financial literacy is things that are more just in time interventions, quote unquote. So when a decision is being made, trying to give people the information that's necessary to make that decision or forcing a action point. So for example, there's a model called active choice, which is not quite automatic enrollments, where people aren't put in unless they opt out, but they're forced to make a decision. So, you know, you get presented when you start
00;42;46;08 your employment. Do you want to join the retirement account? Yes or no. And if you give people the information there about what the benefits are and what they could achieve by entering, then you get much better participation than just forcing people to find the right website and do it on their own. So I think there are points in between that financial literacy can be really helpful for in facilitating those best practices. But I also agree with Karen that financial literacy in and of itself, just telling people, you know, this is why 401ks are great, and this is why you should go and figure out how you can join yours or an IRA or whatever it is. That's not
00;43;17;05 alone going to be enough.
00;43;21;06 [Kathleen Coulombe]: So Shai, that kind of, um, leads me to my next question. Obviously we all know the value of auto enrollment and auto escalation. It's really been tools that employers have used that have been very successful. Um, there are some proposals in the Congress that really, um, take that to the next level. Can you talk just a little bit about some of the proposals, especially in the Senate that that might do that?
00;43;44;23 [Shai Akabas]: Yeah. So I wanted to get back a little bit to what Karen was talking about with the connection between short and long term savings, because I think it really is critical and there is so much focus on retirement savings in Congress. A lot of people are familiar with the fact that they pass the secure act at the end of last year, after many years of development. And that was a bipartisan bill to, um, help improve 401k plans and help people with other aspects of retirement security. There's now additional legislation that's out there to try to take the next step on that. So senators, Portman, and Cardin in the Senate, um, uh, Rob
00;44;18;28 Portman and Ben Cardin bi-partisan duo have legislation that they put together. That's building on the secure act that was passed last year. And one of the, one of the really important things, I think that's in their bill that speaks to the today is improvements to the saver's credit. Most many Americans don't get, uh, benefits from the tax preferences for retirement savings today because they have very little or no income tax liability. They pay many other taxes like payroll taxes, state taxes, et
00;44;48;06 cetera, but because retirement contributions are offset against your income tax liability, those Americans don't really get the benefit of those tax preferences. The saver's credit is in place today to try to give a benefit to many of those people. But again, it's not refundable. So if you don't have any income tax liability, then you don't benefit from the saver's credit today. The carton Portman proposal would change that so that the saver's credit does become refundable, and it would actually increase it in
00;45;16;02 some cases from its levels today that I think is a really important way that we can not only help people for retirement security, but many of these moderate, middle income people that this would be targeting, don't even have the emergency savings that we're talking about here.
00;45;30;04 [Shai Akabas]: So if we can get them to put money into a Roth account, which is a post after tax account, where you have more freedom to withdraw when necessary, if there are emergencies that can really help them with their overall financial security, ideally we would have people saving for retirement and retirement account and for emergencies and an emergency account. But short of that, this can be a really helpful tool to get people, to put money into those accounts and then have access to it when they need. In fact, we've seen that model with some of the state plans that
00;46;01;16 are up and running, uh, state secure choice, auto IRA plans, California, Illinois, a couple other States have put this into effect already where people have employers are now required in those States to automatic to enroll their employees into, uh, the secure choice, automatic IRA plans. And a lot of people end up using those plans for short term savings emergency needs, because they don't have a separate account for those, I think on a federal level, having a standard where all employers nationally
00;46;32;19 need to offer some account to their employees makes a lot of sense. And it would also preempt the problem where there are now 50 States. Not all of them, of course have these requirements, but if you get cross state employers and you've got a 50 different state model approach, they're all trying to comply with various models. And if you can have one account, excuse me, one requirement where all employers need to offer some type of minimum threshold to their employees, which can be used primarily as a retirement savings tool, but for people who don't have emergency savings
00;47;02;07 also as an emergency savings tool, that can really be helpful in closing the short-term savings gap. One other element that I wanted to mention is the question of asset tests. I know some of the panelists here have done some work on this as well. I think right now, um, those are really scary as an impediment to many low and moderate income Americans from building up some type of shorter term savings. A lot of the programs like supplemental security income,
00;47;30;07 [Shai Akabas]: Which goes to very low income seniors and people with disabilities, uh, food stamps, other programs have these asset tests in addition to income tests where you are not allowed to have more than $2,000, I think is the level in many cases of assets beyond I think a primary residence and maybe a vehicle to, if you want to remain eligible for these programs. Those, it really shouldn't be the case where people have to focus harder on not saving because they don't want to cross those thresholds than on saving, which is obviously the whole purpose of the
00;48;02;05 conversation we're having today. So if there are reforms that can be made to those asset tests, like either providing an exception for retirement savings, or even raising them overall to allow and encourage people to build up more savings of their own. I think that's really the only way that people who do have the goal of getting people off of those programs and into a more sustainable situation have of accomplishing that goal. Because when people are relying on those programs for their daily needs, they're not going to risk going across that $2,000 threshold and trying to build up
00;48;32;26 some savings for their future when it could cost their livelihood today. So I think that falls in the bucket of things that we can do to help more Americans think positively about their ability to accumulate savings and to ultimately improve their financial security.
00;48;50;28 [Kathleen Coulombe]: Thanks, Shai. I think that's great. Great insight there. Um, and this next question is really for the group. Um, how do you think a child savings accounts interplay with short term savings? Do you hear, um, folks talk about those types of accounts? Are they really
00;49;06;20 [Kathleen Coulombe]: The viable approach to creating a Savings net?
00;49;14;11 [Brian Gilmore]: I mean, I can jump in and start. I, I hinted at this a bit with my discussion around 529's. For us, it's a bit of an empirical question, um, which I think a lot of this is where we know that we need more innovative approaches to short term savings. And there are programs out there like retirement secure choice, 529 that are all focused on savings behavior, but not that short term savings behavior. So I think what we need is, uh, innovative thinkers, whether policy makers, regulators, or frankly, the product providers to look for ways that they can offer
00;49;48;26 emergency savings or short-term savings and track what the impact is. So I think the child savings accounts or 529 are a great example where we could start with research to talk to consumers who may have access to these products, but are not using them and ask what, uh, might change their mind. And if an emergency savings offering, uh, would help with that connection, or we can put these products out there in a pilot approach and again,
00;50;17;01 monitor and test and see does a short-term savings account that is side by side with the more longer term product change behavior. Does it bring people into the system? Do they understand How it works? Um, and I also, you know, frankly think that's where a financial education or financial literacy can fit in. If we're talking about dual purpose products or hybrid products, uh, where the support is going to be needed is understanding how these come together, because this is frankly a novel way of thinking about finances, where it's no longer a
00;50;47;08 single products for single solutions, but more complex, uh, products that reflect, I think, the complex financial lives. And so, uh, for Commonwealth it's about let's, let's try it, let's tie a saving short term savings account to a child savings account or a 529, um, design it in a way that helps people understand these sort of dual purposes and then track and monitor. Does it have the impact that we want, which I think is helping people build short term saving while also preparing for those longer term
00;51;18;03 goals, whether that's their child's education, their retirement, uh, in the world of, uh, health savings accounts, their health needs. So I think there's, you know, a lot of models that are worth exploring and, and certainly, uh, child savings counselor one.
00;51;34;19 [David Newville]: Yeah, I would, uh, I would agree with that as well. I think, you know, as was mentioned earlier with retirement savings, we're still learning about the connection between the emergency and the longer term. And I think, you know, children's savings is the same, uh, the same approach. It's really been very interesting to see in the pandemics. Um, you know, there's a variety of different types of children's savings accounts out there. We've seen some that have, you know, have opened up the matches and liquidated the accounts for especially low income families that are struggling right now to be able to access that. And it's been a, a strong life support for those families to be able to manage during the
00;52;06;25 pandemic. And, you know, even, you know, you look at federal proposals around, you know, national children's savings accounts programs, or baby bonds, you know, that would provide longer term wealth, but then you, you know, you have some folks say, well, what about folks in the shorter term for Lorca families that are struggling? How can they have all this money locked up for this long period of time? There needs to be some kind of complimentary system. And I think there's a lot of space there for innovation, uh, and testing out there from, from folks like Commonwealth and also for all of the government as well to
00;52;34;27 really kind of see what the right matches, you know, across our discussion about emergency and retirement savings. You know, we're seeing a lot of themes, which I think still apply in a children's saving space too, which is, you know, about removing barriers about, you know, obviously about access, about a financial incentives, you know, behaviorally informed mechanisms to make it easier for people to use it. And, you know, really looking at the behavior and kind of the needs of specific communities to make sure we're designing products that work for them. Instead of trying to like fit people's lives into a regulatory environment. I think it has to be
00;53;05;25 the other way around. And I think there's a lot of learning to be done there that should be explored. Um, again, like I said, by the private sector, uh, and the nonprofit sector and by the government to really explore that, to design the best products to meet those needs
00;53;21;24 [Kathleen Coulombe]: Such a great point, David, um, we have about five minutes left of our discussion. I just want to remind our audience to please submit your questions through YouTube and Facebook with the #BPC live. And we'll be happy to answer or ask the panel your question. Um, I'm curious on the, your thoughts on government run savings accounts, the concept of equitable access to banking has been proposed by the Biden standard Sanders unity task force. Could this approach help to serve as a conduit for short
00;53;51;01 term savings?
00;54;00;01 [Karen Biddle Andres]: Well, I'll take a stab at that. Um, I was, you know, especially if we, if we, if we look at the broader set of financial needs of households have that we've really seen on display and this unprecedented economic crisis, you know, I think the idea of having, you know, universal accounts that everybody has access to, you know, there are multiple ways money could flow, right? And the sort of the challenges that, um, that became apparent in the cares active, the cares act stimulus payments
00;54;31;11 actually distributed into the hands of people certainly would have been made a lot easier had, um, had there been a more universal system of accounts and, you know, some money can flow from a government to people and people can, you know, put money in and go that way. So, um, I think that's attractive. I think anytime you're talking about getting people more access to high quality tools, that's a good thing. I think, you know, sort of the spirit of innovation is going to be required here to think about, again, the re what's the replenishment mechanism, if you know, the, the account, just giving people access doesn't necessarily
00;55;02;26 guarantee that you'll get the outcome that you want. And so in the case of emergency savings, the hurdle to get over is how do you, what are the ways we could get people to continually replenish or to sort of refill the emergency savings bucket and that account. So it continues to serve that purpose, but I think stuff that would be, um, a really terrific option, a great step one is getting that kind of high quality account into people's hands.
00;55;27;27 [Shai Akabas]: I heard an interesting comment when it comes to the vaccine for COVID, there was a question asked about whether, um, that should go through a government channel or whether it should be provided through the private sector. And somebody was making the argument is actually, I think it was the Democrat was making the argument that basically since we have the infrastructure set up already in the private sector, and it works effectively for many other drugs and vaccines that we distribute, it's more effective to do that than to rebuild that in a, in a government structure. I think it has a parallel to what we're talking about
00;55;58;14 here today when it comes to emergency or retirement savings, where if we can get the private sector system to a point where a lot of these moderate and lower income families who don't have access do have access, then I think it's fair to say that we should use that as the primary and perhaps only way or main way. I should say that to get resources to these individuals with families. But if we have the system like we do today, where so many people don't have that access, especially at the lower, moderate, even middle income segments of our society, then you really have to question, can that serve as the
00;56;29;24 really primary or only tool that we use to give these people opportunities to save for their, uh, shorter term or longer-term needs. So I think it's it behooves everybody. It who wants to see a successful outcome to improve the channels that we already have and the return in the private sector, as much as possible, whether or not you agree with the government approach. Um, and then we can make a determination as to whether that's possible to achieve in the private sector model uniformly, or whether it needs to be paired with something that comes from the government for those families,
00;57;00;20 those communities who still don't have access to the needs of short term and retirement savings to the private sector.
00;57;09;06 [Kathleen Coulombe]: Thank you both. We have just a couple of minutes left. I'm going to turn it back over to the car and just a second, but, um, I, I'm curious, this is a, I like to call this lightning round. If you could accomplish one thing that would move the needle on short term savings, what would it be? So Shai, I'll go to you first and then we can feel free to jump in.
00;57;32;03 [Shai Akabas]: Sure. Well, I'll harken back to where we started the conversation on this automatic enrollment. I think that could be really critical what we've seen in the retirement space. Being able to replicate that in the short-term saving space. And I think it can, what the legislation is really meant to do is let a thousand flowers bloom. I mean, it's not trying to prescript any one model on employers or forcing them to do anything. It's really trying to let them experiment and figure out what is working both for them and for their employees. And to Brian's point, this is how we can learn from the models that are out there, figure out what does work best and then hope that other employers replicate those
00;58;04;22 models to provide these benefits to their employees, that it can help both the employees, financial security. And I was taught as I was talking about earlier, hopefully the business and its success as well.
00;58;20;14 [Brian Gilmore]: I might just double down on that and say specifically, would love to see one employer implement an automatic savings program and then tell the world how they did it and what they learned so that others can learn from that experience as well as, you know, improve upon it. So I want to see, you know, a, an actual implementation in market be fantastic.
00;58;48;11 [David Newville]: Yeah, it's hard to go past automatic enrollment. I think that definitely kind of wished the prize, but it had to pick another one, uh, you know, single change, I think the next two that would be as if we could remove those regulatory barriers for the sidecar savings. You know, if we could make that seamless in a way that employers could it off without, you know, having to compare concerns about regulatory barriers or even just a really sophisticated setup, if it could be rolled out pretty easily, both on the employer and the employee side, I think that would be a huge change. And then I would also, the other thing I would plug
00;59;19;18 not to achieve, but the second I would plug Would be, you know, shine mentioned earlier reforming of something like the saver's credit, some kind of, you know, using the tax code, which we, you know, which are used to basically, uh, to spend in many ways, hundreds of billions, of dollars each year through the tax code for a variety of, you know, positive purposes around wealth building. If we can repurpose some of that money to make sure the people who have the most trouble saving kind of financial incentive through the tax code to actually encourage them, not only to start saving, but to help them build that savings up. I think that
00;59;47;29 would be a huge game changer.
00;59;52;20 [Karen Biddle Andres]: Um, I'm just going to triple, quadruple down on the ability to make, um, workplace emergency savings, automatic to automatic enroll people. But, um, I will also cheat and say that, you know, I, you know, in our work in the retirement space, you know, I think, I think recordkeepers are ready. I think there are plan sponsors who are ready to do this. I think they're just, they kind of want the green light. Um, and I would just say to them that if you, if we get it, I would also love to see some real innovation around how you message and incentivize so that
01;00;23;28 people actually go and use those savings, right? That they, that they feel permission to use them, that they, that they build it up, they draw it down and then they keep contributing. I think there's a lot of learning innovation to be done there too. So I'd like to go like to see employers kind of take the next step in differentiating those emergency savings from those retirement savings and people's lives.
01;00;44;00 [Kathleen Coulombe]: Thank you all. I really appreciate your comments. I'm going to turn it back over to Kara, to close out the session with a few remarks.
01;00;54;03 [Kara Watkins]: Thank you, Kathleen. And thank you to our panelists for such a terrific discussion. We hit on a lot of key issues for policy makers to consider as they look to shore up household financial security during these difficult times, and really importantly, as we move forward. Thank you also to our co-hosts at the Aspen Institute, Financial Security Program and the Bipartisan Policy Center, as well as all of our partners at Funding Our Future, and every one of you who tuned in today, you're interested in learning more about these issues or our work head over to www
01;01;25;16 www.fundingourfuture.US. Take care and stay well.