Guest Articles

September 18

Mariel Beasley / Timothy Flacke

Building Financial Stability: Can Liquid Savings Help Recession-Proof the Economy?

Despite the U.S. economy experiencing its longest expansion in history, the stock market stumbled over the summer, including a six-day drop in the S&P 500 in early August. Might this be a tremor ahead of the next recession? JPMorgan Chase economists see a roughly 40% risk of a recession starting within a year. With about 70% of the economy driven by consumer spending, and much of that spending being funded by growing household debt, it’s safe to assume that the current economic expansion won’t last. Are we just biding our time until the economy falls out from under us?

While these cracks in our otherwise robust economy are just beginning to show themselves on the surface, we’ve been watching fractures grow and deepen at the household level for some time. Even though the Bureau of Labor Statistics has reported unprecedentedly low unemployment rates of 3.6 – 3.7% over the last several months, the U.S. Financial Health Pulse finds almost half of all households spend equal to or greater than their income. And while macroeconomists have praised the steady growth in consumer spending, almost 1 in 3 households report having more debt than they can manage – a staggering number.

In the same way that it can take years for an otherwise healthy body to show symptoms of a spreading cancer, our macroeconomic data points seem to lag behind a more distressing reality. The last few years of concerning outcomes in household data has likely been an early indicator of trouble spots on the horizon.

As we think about how to protect our communities and our economy, it is clear that we first need to protect our households — we need to build financially stable and resilient families that are able to confidently handle their needs today, while preparing for an unpredictable future. Per the U.S Financial Health Pulse, 72% of households are struggling with some or all of their financial lives, and a future that promises darker times ahead. Creating financially secure families is a massive challenge that requires a collective, multi-sectoral approach. Just as one approaches physical health from many directions and in many ways, so too must we build financial health by bringing together employers, financial institutions, and the social and public sectors.


For a Strong, Inclusive Economy, Begin With Liquid Savings

Almost 70% of households feel stressed about their personal finances. That stress is spilling out into every facet of our lives – our relationships, our health, our job performance and our outlook on life. Researchers from the University of Pittsburgh have even found a relationship between financial precarity and preventable workplace accidents.

Short-term, liquid savings is the very first building block to addressing these challenges and building financial resiliency. Yes, we need to think about long-term savings; yes, we need to think about access to credit and debt management; yes, we need to figure out how to get people trained and placed in living-wage jobs. But pursuing any of these in the absence of a financial cushion is a Sisyphean task. We need to create easy, attractive and rewarding ways to build liquid savings, so the gains households make in other parts of their financial lives translate into practical and psychological security. Savings insulates households from risk, creates alternatives to borrowing, and provides a way to smooth out uneven or unpredictable wages to manage financial volatility.

Julia, a single, working mother with big dreams and a tight budget who was part of a year-long Commonwealth study, knows this from first-hand experience. With unsteady work hours, fluctuating childcare expenses and occasional financial emergencies, she lived with constant financial volatility and struggled to act on her good intention to build savings. She got by with credit cards and personal lines of credit, but the result was new debt – on top of her existing student loans. Martha, a police officer in her mid-30s who also participated in the study, had a similar experience. Despite a solid middle-class salary, she had accumulated over $100,000 in debt from medical bills, her husband’s education loans and unexpected expenses. Although she saved for retirement at work, she had no emergency savings to weather financial volatility.

Julia and Martha’s stories aren’t unusual. Approximately six in 10 households will experience a significant financial shock this year. Many will experience several shocks. The average cost of that shock will be around $2,000. Only 41% of households have enough liquid savings to cover that. Even worse, 39% of households would even need to borrow or sell something to cover an unexpected expense of just $400.

The good news is that even $250 to $750 in liquid savings will reduce the likelihood of missing a rent payment, being late on a bill or needing public benefits. And while liquid savings is crucial for protecting against shocks, it also serves as a psychological analgesic, allowing people some relief from the daily stress of financial precarity. According to findings from a 2019 national survey of 1,300 lower-income workers conducted by Commonwealth, lower-wage employees with more than $400 in savings have fewer financial concerns than those with less than $400 in savings, regardless of wage or debt.

But building savings and stability in our communities isn’t really about an individual’s sheer willpower and financial acumen. In our experience, people generally want to make smart choices, but are too often limited by the tools and choices available to them. If we’re serious about creating broad financial security, we need to take a bold, systemic approach that engages all types of players across all delivery channels to create and expand the supply of high-quality, effective savings solutions.


Rebooting an Age-Old Model for Healthy Communities

Calling for a multi-sectoral approach to solving financial precarity is by no means a new or revolutionary idea. It’s worth reminding ourselves that the U.S. has a long history of viewing savings and thrift as a matter of public concern, worthy of support and action by banks, schools, civic organizations, government and others. Teachers regularly collected savings deposits in their classrooms in the 19th and much of the 20th centuries, for reasons both practical and educational. For over 80 years, the federal government has enabled and promoted “small savings” through the U.S. Savings Bond program.

However, we are not simply proposing a return to an old system that worked for some and excluded others. It is time to reboot a sense of collective action and responsibility – but with better models, better distribution channels and better tools. We sit in the midst of a unique opportunity, where corporations, nonprofits, academics, philanthropists and technology can partner to develop, pilot and scale the most effective and meaningful savings solutions ever seen.

It was precisely such a multi-sector collaboration that led Walmart to offer a novel liquid savings feature to its prepaid card customers – a feature that has generated over $2 billion in savings by Walmart customers to date. The Walmart program was based on a “prize savings” approach that built on research from one of our organizations and was facilitated by policy change, both in Washington and 30 statehouses around the country. These actions by social sector leadership, policymakers and private sector groups enabled half a million working Americans to start using a rewarding, engaging, convenient savings tool.

Other employers are beginning to see their role in addressing this problem, too. As reported by the Wall Street Journal, firms as varied as Kroger, Levi Strauss, SunTrust Bank and trucking company Pitt Ohio are all taking steps to help their workers build emergency savings. These firms recognize that they are ideally positioned to offer savings tools – and in some cases, modest incentives – to workers who often lack good savings options. They also stand to benefit from the resulting peace of mind, increased focus and higher worker productivity that those savings balances foster. Some of these savings offerings involve partnerships between nonprofits and private employers, while others leverage relationships between banks and private employers.


A Shared Responsibility for Creating Financial Stability

Today, these stories seem exotic or novel, but we believe they should be the norm. It’s with this thinking in mind that BlackRock has announced a $50 million philanthropic commitment, the Emergency Savings Initiative. The initiative aims to help people living on low- to moderate incomes gain access to, and increase usage of, proven savings strategies and tools to help them establish an important safety net. Our organizations – Common Cents Lab and Commonwealth – along with our colleagues at the Financial Health Network – are partnering with BlackRock on the first phase of the initiative. We’re bringing our design experience, consumer insights, behavioral science expertise and evaluation skills to employers, retailers, fintechs and other corporate partners interested in collaborating to tackle this challenge.

But to realize a sustainable change, we need more of these types of efforts. Whether you are a banker, an employer, a shopkeeper, a product developer or a researcher, we all have a stake in the financial health of our economy – and that means we all have a stake in the financial health of our neighbors, employees, customers, users and residents. We should all be asking: Are we doing enough? Are we leveraging our own networks and influence to connect people to easy, rewarding and attractive savings products? Are we taking bold, risky steps and trying new things? And are we measuring our impact to learn and share what is working?

By creating a collective, multi-sectoral approach that produces sustainable household-level savings cushions, we can establish a foundation upon which other financial health initiatives can be built. In this way, it might be possible to head off financial shocks, sending positive reverberations upwards through our communities and economy, and mitigating the effects of future recession tremors before they begin.


Mariel Beasley is a co-founder of Duke University’s Common Cents Lab, which is supported by MetLife Foundation and the Blackrock Emergency Savings Initiative, and she is a principal at the Center for Advanced Hindsight.

Timothy Flacke is Executive Director of Commonwealth, a mission-driven organization that builds solutions to make people financially secure.


Photo courtesy of adrian.




financial health, research, savings