A recent survey by Bankrate found that only 39% of Americans could easily cover an unexpected expense of $1,000. In other words, the emergency-funding pool is shallow or dry for nearly 4 in 10 Americans.
Fintech startup Even, which operates an on-demand-pay platform, hopes to change that math. The Oakland, California-based company announced May 26 that it has launched an employer-sponsored emergency savings program to incentivize workers to build emergency funds containing at least $500. Members of Even already have shifted more than $200 million into emergency savings accounts.
“It is very empowering to know that you have the emergency savings necessary to handle life’s curve balls — as is knowing that you can tap into some of the wages you’ve already worked hard to earn, even if payday is still days away,” Even CEO David Baga said in a company news release. “The COVID-19 pandemic was a wake-up call. Employers realized they need to help workers build the financial resilience and savings to deal with life’s blows.”
Through the Even savings initiative, employers can encourage their workers to stash money for emergencies by offering an APY up to 10% (the average savings APY is around 0.04%) for the first $500 automatically saved through direct deposit and a competitive interest rate after that. The program is similar to an employer-sponsored retirement plan.
Even’s savings partner is Cross River Bank, based in Fort Lee, New Jersey.
“Workers need help building emergency savings, so it’s encouraging that more employers are adding emergency savings options in addition to the more standard 401(k) plans,” Matt Bahl, vice president of workplace at the nonprofit Financial Health Network, said in the Even news release. “Savings [accounts] — for both short-term and longer-term goals — are important builders of overall financial health.”
Greg McBride, chief financial analyst at Bankrate, said direct deposit is key to helping people build their emergency savings.
“Establishing the habit via direct deposit from your paycheck or automatic transfer from checking into savings is critically important, especially if you’re starting from a position of little or no savings,” McBride said. “If you wait until the end of the month and try to save what is left over, too often there is nothing left over. Becoming a good saver isn’t just a switch that you flip one day.”
Even, which has more than 650,000 active members, has raised $52 million since being founded in 2014. Investors include Valar Ventures, Silicon Valley Bank, Founders Fund, PayPal Ventures, Socii Capital and Khosla Ventures.