CFRP Policy Brief | B.022.0316
Almost half of U.S. households do not save. Fewer still have the resources to weather a job loss or unexpected emergency, raising the prospect of housing instability, food insecurity, and an inability to access medical care. This brief presents evaluation findings from a pilot program designed to help low- and middle-wage workers achieve greater financial stability through an employer-based automatic savings program. Similar to other automatic payroll deductions, the program offers employees the opportunity to automatically deposit a portion of each paycheck into their savings account at the bank. For unbanked employees, the program helps facilitate account opening. The savings program was introduced to 66 employees at an Austin-based childcare provider through an on-site orientation meeting.
Over a two month evaluation period, one-third of the 66 employees enrolled in the savings program. Enrollees saved an average of $38 every two weeks, the equivalent of nearly $1000 per year. Evaluation results make clear that the pilot would not have achieved this level of success without the orientation meetings, which provided a forum for employees to learn about the program, ask questions, open bank accounts, and enroll on the spot. Nearly all of those who enrolled did so during the orientation, and the vast majority opened a new bank account with the banking partner while there. Despite these successes, the program also produced a degree of confusion among employees—many of whom struggled to understand who was offering the program and whether they could enroll using an existing bank account.
In addition to monitoring overall program outcomes, the evaluation also employed a randomized control trial (RCT) design to test the impact of different messaging tactics on enrollment and savings amounts. Though results did not achieve statistical significance, they suggest that treatment messaging embedded in program emails may have encouraged greater orientation attendance, enrollment, and savings amounts. Overall, the workplace savings initiative tested in this pilot shows significant promise as a simple and inexpensive strategy for promoting financial stability among low- to middle-wage employees. Further testing with additional employers, however, is needed to better understand the requisites and barriers to program success.
For many Americans, the act of saving remains a persistent challenge. Nearly half of U.S. households do not save any of their current income, a statistic that has remained relatively unchanged over the last two decades.1 The percentage of U.S. adults with emergency savings is equally dismal, with more than one-third reporting no emergency savings, and almost half saying their savings would last less than three months if they lost their job.2 Perhaps unsurprisingly, emergency savings rates are even lower among the poor, less educated, and young.3 Low-income households are especially at risk; the average household in the bottom quintile has only nine days’ worth of income in liquid savings.4 This thin cushion of reserves means that a job loss or unexpected emergency can seriously threaten household well-being.5 A lack of savings can also prevent low- income families from taking advantage of opportunities to move up the economic ladder, such as going to college or buying a vehicle. Still, meager savings are only part of the financial picture; for many, the constraints wrought by a lack of savings are compounded by hefty consumer debt, low wages, and substantial volatility in household income.6
In light of these trends, researchers and policymakers are increasingly looking to the field of behavioral economics for innovative strategies to facilitate savings among low-income households. One such strategy is an employer-based automatic savings initiative that automatically deducts a small portion of employees’ post-tax wages and deposits them into a savings account. Encouraging saving through the workplace might make sense for a host of reasons. For most people, the workplace serves as their primary link to money. Employers are also able to capitalize on existing payment infrastructure, like direct deposit or retirement deferrals, to provide savings opportunities at little or no additional cost to themselves.7
The average low-income household has only 9 days worth of income in cash, checking, and savings.
More importantly, employer-based savings programs feature the ability for savings to accrue automatically with little effort on the part of the employee. After enrolling, a steady stream of savings begins to automatically accumulate until an employee takes active measures to stop it, capitalizing on the inertia that may have prevented them from saving in the first place.8 Workplace savings initiatives also have the advantage of being able to disburse funds to a specially designated account (e.g. a savings account) without passing through employee hands, making them less likely to be spent or withdrawn impulsively.9 Finally, workplace savings initiatives can be designed to exploit specific mechanisms shown to increase participation in employer-based savings plans; these include a streamlined enrollment process with suggested savings levels and standard savings accounts as the default savings vehicle.10 Unlike retirement savings plans, the most common savings benefit offered by employers, automatic savings initiatives are meant to provide a pool of liquid assets that can be easily withdrawn, should they be needed.11 Despite the clear benefits of non-restricted savings, especially for low-income individuals, there is currently no standardized program or policy to encourage short-term liquid savings.12
This brief presents findings from the evaluation of an employer-based Automatic Savings Program implemented at a local childcare provider in Austin, Texas during the spring of 2015. The program allows childcare employees to automatically deposit a portion of each paycheck into a savings account at a bank of their choice. For employees who do not have a bank account, the program helps facilitate account opening.
The primary purpose of the evaluation was to learn how an employer-based savings program should be introduced to employees in order to best encourage enrollment. To help answer this question, the evaluation employed a randomized control trial (RCT) design to test the impact of different messaging tactics on program outcomes, including employee enrollment, new bank account openings, and savings amounts.
The Automatic Savings Program was collaboratively developed by a variety of partners as part of the Savings and Innovation Learning Cluster (SILC), a nationwide project launched by the Corporation for Enterprise Development (CFED) to cultivate and test innovative strategies for facilitating savings by low- and moderate-income (LMI) individuals and families. The Child and Family Research Partnership (CFRP) at The University of Texas at Austin was contracted to evaluate the Texas portion of the SILC project by the Center for Public Policy Priorities (CPPP). Citi Foundation was the major funder of the evaluation of this project. RAISE Texas and CPPP provided local technical assistance for the study, and a local United Way in Austin served as the program implementer.
Prior to implementing the Automatic Savings Program at an Austin-based childcare provider, program partners conducted a feasibility study at a local United Way in the greater Austin area, during the fall of 2014. The pilot study included 34 United Way employees, who were introduced to the Automatic Savings Program by mail. Each employee received a packet of materials at their home address, including a program flyer, enrollment form, and prepaid return envelope (copies of these materials are included at the end). The program was not formally introduced at work, and employees did not receive a reminder or follow-up information. During the one-month pilot period, there were no enrollments or inquiries into the program. The lack of enrollment appeared to stem primarily from the use of atypical communication channels (i.e. mail), suggesting that future program efforts might benefit from introducing the savings opportunity in-person, especially if presented by a familiar and trusted source within the organization. Additionally, the United Way employees were paid at the higher end of our target income range, and through the pilot, we discovered that many of them were already saving.
Drawing on lessons from the feasibility study, program partners moved to redesign the rollout of the Automatic Savings Program for a local childcare provider in Austin, TX. A total of 66 employees from three preschool locations participated in the study. At the time of study implementation, the childcare provider did not offer direct deposit to employees, due to a number of constraints. In contrast to the indirect communication channels employed in the feasibility study, the primary study leveraged both email and in-person communication strategies. Employees were originally introduced to the savings program by email. In the introductory email, employees were given basic information about the program and asked to attend an orientation meeting the following week where they would receive free lunch, additional information about the program, and the opportunity to enroll on the spot. The email also informed employees that a local banking representative would be available at the orientation to help them open a bank account, if necessary, and provided a list of documents to bring. Several days before the orientation, employees were sent a reminder email urging them to attend. All emails about the Automatic Savings Program were sent by the organization’s Executive Director, who handles all communications with employees about their benefits.
Orientation meetings were held over the course of three days, one per day at each of the three preschool locations. At the orientation, employees received a packet of materials including a program flyer and enrollment form (copies of these materials are provided at the end). After a joint presentation by the organization’s Executive Director and a local banking representative, employees were given time to ask questions, open bank accounts (if needed), and enroll in the Automatic Savings Program. To enroll, employees were asked to complete the enrollment form, which required them to enter their savings account information and select a savings amount to be deducted each pay period. The form included a recommended savings amount determined by program partners ($10 every 2 weeks), along with a notice that the amount could be changed at any time by contacting the Executive Director.
One week after the orientation, all employees received a follow-up email reminding them that the opportunity to enroll in automatic savings was still available. Program partners continued to monitor enrollment through this period. Approximately six weeks after the orientation, the employer conferred with program partners and decided to introduce a match to encourage enrollment among employees who had not yet signed up. The match was announced by email and offered a $50 match to all employees who had saved at least $50 through the Automatic Savings Program by six months. A final email was sent the following week, reminding employees about the match opportunity. After the final email, program partners continued to monitor enrollment data for an additional five weeks, at which time the evaluation period officially ended. Though employees retained the ability to sign up for the program after the end of the evaluation, this brief focuses on outcomes tracked during the official evaluation period, a span lasting approximately two months.
Testing Program Messaging
In addition to monitoring enrollment and savings data, program partners were also interested in whether employees responded to different messaging techniques by enrolling at higher or lower rates. Specifically, program partners were interested in whether employees who received a message including a projected savings amount (aimed to make the benefits of enrollment tangible by specifying an exact dollar amount that employees would accumulate from a year’s worth of saving) and a “regret prime” (aimed at tapping employees’ fears of “missing out” on a unique opportunity) were more likely to enroll. To test the salience of these messages, employees were stratified by wage group and work location, then randomly assigned to treatment and control groups within each of the three sites.
Throughout most of the evaluation period, employees in the treatment and control groups received identical emails; at two time points, however, emails received by individuals in the treatment group included additional language intended to further incentivize enrollment. The treatment language, which included a projected savings amount and a regret prime, was as follows:
Saving $10 per paycheck through this program would add up to $240 by the end of one year—enough to help cover an unexpected expense, or take the first step towards a larger financial goal. Don’t miss out on this great opportunity to save towards your personal financial goals.
This message was sent to treatment group employees in the introductory email, as well as in the reminder email following the orientation. Together, these two email messages served as a treatment package, and are marked in red in Figure 1 below.
Figure 1: Timeline of Program Messaging with Intervention Points in Red
To evaluate the effect of the treatment language, as well as the efficacy of the overall messaging strategy, this evaluation relies on several sources of data. These include two employee surveys, conducted before and after the evaluation period, as well as two administrative datasets provided by the childcare provider’s Executive Director. The two surveys provide details about employee saving behaviors, financial experiences, and program perspectives, whereas the administrative datasets supply the primary enrollment and savings outcomes. To gain a deeper understanding of employees’ perspectives on the program, this evaluation also draws on information provided during hour-long focus groups conducted at each of the three locations. Each focus group included treatment and control employees who had and had not attended the orientation, as well as employees who had and had not enrolled in the Automatic Savings Program.
The vast majority of childcare employees in this study work full-time (86%), and most earn relatively low wages. Half of the employees in the sample make between $8.50 and $11.50 per hour, whereas another 41 percent make between $11.51 and $15.00 per hour. Employees in the sample are also proportionately distributed across preschool locations, with 23 employees from Location #1, 23 from Location #2, and 20 from Location #3. There were no significant differences in hourly wage or the proportion of employees working full- or part-time across the three preschool locations.
Employee Enrollment Heavily Influenced by On-site Orientation and Location
Over the two month evaluation period, 22 employees (33%) enrolled in the Automatic Savings Program. Nearly all of those who enrolled in the program did so during the orientation meeting [Figure 2]. The orientation proved critical to employee enrollment. Though just 64 percent of employees attended the orientation, half of those who attended enrolled during the orientation itself.
Interestingly, however, enrollment rates among attendees varied widely by location, suggesting enrollment may be swayed by differences in organizational culture between locations. The employees at Location #1 were the most likely to attend the orientation (74%) but least likely to enroll while there (24%). By contrast, employees at Location #3 were least likely to attend the orientation (55%) but most likely to enroll if they attended (82%) [Figure 3].
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