Financial security means savings

My mother's story is a familiar one. She has worked with the same employer for three decades and yet she has not secured her ticket in the middle class. This isn’t due to a lack of effort. 

Victoria works two—sometimes three—jobs to make ends meet (and has been regularly recognized as an employee of the month), keeps a tight checkbook and, for good measure, prays nightly that an unexpected emergency doesn’t come and that a brighter future would. 

She isn’t alone. 

Fewer and fewer families experience the upward mobility that used to come from a good day's work.

Ownership is the key out of poverty for frontline workers and their families. 

This is why so many interventions focus on helping workers acquire assets. Property ownership was a long-time favorite. But with many now living paycheck to paycheck, saving enough for a downpayment or a bank loan is nearly impossible for most. My mom was able to buy a home but it was due to help from a government assistance program and a friend who had the means to do the unthinkable: co-sign on her mortgage. 

For many employers, supporting stock ownership through a 401k or an equity share program is a more reasonable option. But these benefits come with warning labels, too often ignored. 

First, stock and retirement benefits are typically reserved for senior management and when offered to the rank and file, are rarely utilized. Second, participation requires disposable income, a long-term time horizon, and an ability to stomach the whims of corporate leaders with your hard-earned wages. Third, you are penalized when you need these funds in the case of an emergency. If you've got a flat tire, a sick child at home, or lose your job, tapping into your retirement savings comes with a sardonic "hardship withdrawal" fee of 10%. Your employer might offer early wage access, but even the Consumer Financial Protection Bureau agrees that this instrument is at best a loan and in most cases, predatory in nature.  

As a result, the half of America that earns an hourly wage are locked out of ownership. U.S. Federal Reserve data shows that the bottom 50 percent of earners own only 5 percent of assets and 1 percent of stocks. So when stock and housing markets rise, only a few benefit and the divide widens.

This class divide has led to disengagement. Gallup data shows that 70 percent of U.S. workers dislike their jobs. Granted this is partly due to the jobs themselves. Frontline work is not easy. But what's worrisome is that negative sentiment among workers has increased relative to four years ago while the work itself hasn’t changed that much. 

As a result, employees are throwing the proverbial wrench into business operations by showing up to work late – or not at all, slacking on the job, and generally not showing ownership over their work. 

It doesn’t help that research continues to show elevated levels of concern among workers about their ability to weather unexpected emergencies, let alone retire comfortably. 

Workers spend the equivalent of a part-time job worrying about their finances during the workweek. The  lost productivity costs employers over $1 trillion a year. When employees quit, additional costs are incurred to recruit, hire, and train new staff. 

I heard this first-hand from my mother. She tried to explain to me and my sister the tension between her work colleagues and "the Sup," the slang for supervisor. The fight was always about hours. Employees want more hours because you get paid every hour you work. Employers want fewer hours because they want to control labor costs.

It drove my mom crazy. It meant she worked with ill-motivated colleagues that made her shifts long and hard. Instead of workers thinking to themselves, "I'm doing a great job, I might make more money," It was the opposite. If you worked too fast, you (essentially) got paid less. If you worked too slow, you (effectively) forced your peers to pick up the slack. Most workers choose to split the difference and hence clock-in for work, already checked-out.

It begs the question: is there a way to help low-wage employees own their work? Yes. But it took me a decade of experimentation as a former consultant and investor working with a variety of firms and management teams to figure out the winning playbook.

Ownership is about what you save, not about what you have access to spend. 

Most frontline workers will never buy a house. Many won’t invest in the stock market. Few will participate in a 401k or an equity scheme. But most people want to save, and most can – given a head start. 

Fortunately your savings rate is not only within your control but accumulates the only thing that matters in achieving the American dream: wealth. “And since you can build wealth without a high income but have no chance of building wealth without a high savings rate,” says Morgan Housel. “It’s clear which one matters more.” 

If the American dream is a ladder, each rung is a marker of economic security. And every bit of savings gives workers the confidence to continue reaching upward–one step at a time.

A small amount of savings means your employees can afford to fix a flat tire and show up to work. A bit more means that they can take care of a medical bill without turning to predatory lenders. Even more means paying off debt, gaining access to credit, and even preparing for retirement. 

A better tomorrow—which requires a stable base of savings today—means that workers are free to work with a sense of ownership over their lives. This means more productivity from your workforce, better products for your customers, and more prosperity for everyone.

Ownership drives productivity and efficiency gains for the business.

Employees who save are better workers. They turnover less (18-24%). They are more productive (14%). They generate higher sales (18%). They boost corporate profitability (23%). Bottom-line: what many employers suspect is true, when employees don’t feel like they have ownership over their future, it translates into them not giving a damn about the firms they work for. 

Note that employees are already interested in saving more. Nearly 3/4 of workers say they would participate in an employer-sponsored savings account. Participation jumps to 87% if the firm provides matching contributions similar to 401k programs. 

So, for companies that want to build motivated teams, the winning playbook is simple. 

First, make it easy for employees to automatically start saving a portion of their paycheck. Second, track the employee behavior that you want to incentivize. The more aligned to business outcomes, the better. Third, reward these behaviors with matching contributions earmarked for the employee’s savings account. This says to workers: “We help you ‘own your tomorrow’ when you show up like an owner at work today.” 

But administering a workplace savings program can be a significant undertaking. The process can be cumbersome and; in many cases, involves notifying eligible employees, processing enrollment, managing recurring payroll deductions, rewarding employee performance, partnering with a FDIC-insured bank so idle cash yields interest, and so on. Without a thoughtfully-designed and well-integrated plan, it can cost more than it saves the company and your workforce. 

Despite the obstacles, employers have started to adopt workplace savings with beyond promising results. Levi has seen 3,000 associates save $1.2M since 2015. Workers are 4 times more likely to be financially healthy within the first 6 months with tenure 2.7 years longer than the average employee. Similar results have been seen at Delta. Financial security improved, employee engagement increased, and participation rates exceeded 70%. Starbucks, UPS, and Humana have implemented their own programs.

Employers interested in implementing their own program should consider Ezra, a financial wellness platform that can help stabilize your frontline workforce and drive productivity with zero administrative costs. 

Whether you are a corporate leader, an investor or a board member, workplace savings is something to consider. No silver bullet solution exists to our workforce challenges but empowering employees with a real sense of ownership—from the factory floor all the way up to the C-suite—has impacts that go far beyond the day-to-day. ◼️